UNITED PARCEL SERVICE INC, S-4, 1999-07-21

UNITED PARCEL SERVICE INC
S-4, 1999-07-21

Previous: UNITED PARCEL SERVICE INC, S-1, 1999-07-21

Next: AB FUNDS TRUST, N-1A, 1999-07-21

Exchange Commission on July 21, 1999 Registration No. 333-_______
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

UNITED PARCEL SERVICE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>

Delaware 4210 58-2480149
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

55 Glenlake Parkway, N.E.
Atlanta, GA 30328
(404) 828-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Joseph R. Moderow, Esq.
Senior Vice President and Secretary
United Parcel Service, Inc.
55 Glenlake Parkway, N.E.
Atlanta, GA 30328
(404) 828-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

John F. Olson, Esq. Jeffrey L. Schulte, Esq.
Gibson, Dunn & Crutcher LLP Morris Manning & Martin LLP
1050 Connecticut Avenue, N.W. 3343 Peachtree Road, N.E., Suite 1600
Washington, DC 20036 Atlanta, GA 30326
(202) 955-8500 (404) 233-7000

Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the filing of the certificate of merger
referred to herein.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________

Calculation of Registration Fee
<TABLE>

================================================================================================================
Title of each class of Amount to be Proposed maximum aggregate Amount of
securities to be registered (1) registered(1) offering price(2) registration
fee
================================================================================================================
<S> <C> <C> <C>
Class A-1, Class A-2 and Class A-3
common stock, each par value $.10 per
share 546,452,441 $7,619,602,189 $2,118,250
================================================================================================================
</TABLE>

(1) The amount to be registered is the expected sum of Class A-1, Class A-2
and Class A-3 shares of common stock of United Parcel Service, Inc. that
will be exchanged for shares of common stock of United Parcel Service of
America, Inc. in the merger described in this registration statement.
Each of Class A-1, Class A-2 and Class A-3 will consist of an
approximately equal number of shares.

(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(f)(2) based upon the book value per share of United
Parcel Service of America, Inc.'s outstanding common stock, which was
$13.94 as of June 30, 1999.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.

<PAGE>

UPS Logo

_______________, 1999

To our Shareowners:

You are cordially invited to a Special Meeting of Shareowners of
United Parcel Service of America, Inc., which will be held at ______________,
on __________ __, 1999, at 9:00 A.M. At the special meeting, shareowners will
vote on a merger of UPS and our wholly owned subsidiary, ____________________.

The purpose of the proposed merger is to enable us to become a
publicly traded company. In the merger, UPS will become a wholly owned
subsidiary of New UPS. Your existing UPS shares will convert automatically
into class A shares of this new company, United Parcel Service, Inc., and you
will continue to own the same percentage of New UPS stock that you now own of
UPS stock. Class A shares will be entitled to ten votes each.

After the merger, we intend to offer New UPS class B shares to the
public. Class B shares will have the same economic rights as class A shares,
but will be entitled to one vote each. We have designed New UPS's certificate
of incorporation and bylaws to be appropriate for a public company while
helping us preserve our unique UPS culture. As a publicly traded company, New
UPS will have no right of first refusal on transfers of its common stock and
no right to call any of its shares.

We plan to use the net proceeds of the public offering to purchase
some of the class A shares. We will do this in a cash tender offer to all
shareowners, which we intend to launch within several months after the public
offering. Upon completion of these transactions, we anticipate that current
UPS shareowners will own about 90% of New UPS's total outstanding shares and
control about 99% of the votes.

Our board of directors has carefully considered the merger, the
public offering and the related transactions that are described in the
enclosed proxy statement/prospectus. We believe that implementing this program
will position us for continued success in an increasingly competitive world
while preserving the essence of our employee-owned and owner-managed culture.

In order to proceed with these transactions, our shareowners must
approve the merger. Our board of directors has unanimously determined that the
merger is in the best interests of our shareowners, and unanimously recommends
that you vote FOR the proposal described in the enclosed proxy
statement/prospectus.

You should carefully consider the risk factors relating to the
merger, the related transactions and our business, which are described
beginning on page __ of the enclosed proxy statement/prospectus.

<PAGE>

Your vote is important. We urge you to vote FOR the merger agreement.

/s/ James P. Kelly

James P. Kelly
Chairman and Chief Executive Officer

<PAGE>

Notice of Special Meeting of Shareowners
___________ __, 1999

To our Shareowners:

A Special Meeting of Shareowners of United Parcel Service of America,
Inc. will be held at ______________, on ___________ __, 1999, at 9:00 A.M.,
for the purpose of approving an Agreement and Plan of Merger, dated as of
_________, 1999, among United Parcel Service of America, Inc., United Parcel
Service, Inc. and ____________________, pursuant to which ____________________
will merge with and into Old UPS and all of our currently outstanding stock
will be converted into shares of New UPS's class A common stock.

The board of directors has fixed the close of business on ________,
1999 as the record date for determining holders of our common stock entitled
to notice of and to vote at the special meeting.

/s/ Joseph R. Moderow

Joseph R. Moderow
Secretary

Atlanta, GA
_______, 1999

Your vote is important. Even if you expect to attend the special meeting,
please complete, sign and date the enclosed proxy card and return it promptly
in the enclosed postage-paid envelope. You have the right to revoke your proxy
at any time before it is voted by giving us written notice of revocation, by
submitting a subsequent proxy or by voting in person at the special meeting.
If you indicate no instructions on your proxy card with respect to any
proposal, we will vote your shares "for" the merger. It is important that you
vote. To complete these transactions, it is necessary that a majority of our
outstanding shares be voted in favor of the merger.

Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved the class A shares to be
distributed as a result of the merger, or determined if this proxy
statement/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense. This proxy statement/prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction where such an offer or solicitation would be
illegal.

<PAGE>

The date of this proxy statement/prospectus is __________, 1999. It
is first being mailed to UPS shareowners on _______, 1999.

<PAGE>

TABLE OF CONTENTS

Page

Questions and Answers About the Proposal............................... 1

Where You Can Find More Information About UPS.......................... 6

Special Note About Forward-Looking Statements.......................... 7

Summary................................................................ 8

Risk Factors........................................................... 14

Dividend Policy........................................................ 19

Selected Consolidated Financial and Operating Data..................... 20

Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 22

Industry Overview...................................................... 36

Business............................................................... 39

The Merger, the Public Offering and the Tender Offer................... 59

Purposes of the Merger................................................. 63

The Special Meeting; Voting Rights and Proxies......................... 64

Description of Capital Stock, Certificate of Incorporation and Bylaws.. 66

Market for Old UPS's Common Equity and Related Shareowner
Matters.............................................................. 74

Management and Stock Ownership Information............................. 77

Relationships with Overseas Partners Ltd............................... 92

Federal Income Tax Consequences to Shareowners......................... 95

Legal Matters.......................................................... 97

Submission of Shareowner Proposals..................................... 97

Experts................................................................ 97

Index to Financial Statements.......................................... F-1

<PAGE>

QUESTIONS AND ANSWERS ABOUT THE PROPOSAL

Why are we doing this?

Our goal is to continue to be the pre-eminent global company in our industry in
the 21st century. In order to achieve this goal, we want to have greater
financial flexibility to respond to changes in global market conditions,
including the ability to make strategic acquisitions in important markets
around the world. The proposal will allow us to achieve this goal in a manner
that keeps voting control in the hands of our current shareowners. Our board of
directors has given this question careful study and unanimously believes that
creating a publicly traded security is the right thing for us to do at this
time.

What does this mean for UPS?

UPS is a very special company. For 92 years, spanning almost the entire 20th
century, UPS has been primarily owned by its employees and managed by its
owners. Over that period of time, UPS has become the largest package
distribution company in the world. We owe our success, to a significant
degree, to our ownership structure and to the commitment it inspires in our
current and former employees owners. We believe that this proposal will help
preserve the best aspects of our employee-owned and owner-managed culture.
Current shareowners will retain voting control, and we will be positioned for
success in the 21st century.

Will New UPS basically be the same company after we have outside investors?

Yes. The proposal will preserve our corporate culture and structure. Our
commitment to our shareowners, employees and customers is unchanged. New UPS
will have the same directors, officers and employees and the same goals and
visions.

What does this mean for me?

If you are a current employee owner:

o Your shares will no longer be subject to our right of first
refusal, or to recall when you leave UPS or retire

o Eligibility to participate in stock purchase plans will be
unchanged, although you will be able to purchase New UPS
common stock

If you are a retired or former employee owner, an heir of a retired or
former employee owner, or a foundation:

o Your shares will no longer be subject to recall or
repurchase

o After the expiration of the transfer restrictions
discussed below, you will be able to sell your shares in
the public markets

<PAGE>

How and when will we complete the public offering?

As soon as our board of directors deems advisable after the merger is
approved, we plan to sell shares of New UPS class B common stock to the public
in an underwritten public offering. If the merger is approved, we will complete
it simultaneously with the completion of our public offering. If the public
offering does not occur, we will not effect the merger.

How much stock are we selling to the public?

Our financial advisers tell us that it is advisable to sell about 10% of our
outstanding shares to the public in order to create a satisfactory trading
market in our class B common stock.
After the public offering:

o class A common stock will constitute about 90% of our total
outstanding common stock and about 99% of our total voting power

o class B common stock will constitute about 10% of our total
outstanding common stock and about 1% of our total voting power

What do we plan to do with the proceeds of the public offering?

We plan to use the net proceeds of the public offering to offer to purchase
class A common stock from all of our existing shareowners in a cash tender
offer.

Why are we making a tender offer for class A common stock?

We decided to offer our current shareowners a one-time opportunity to sell
some stock on a voluntary basis. We could have gone public by allowing our
shareowners to sell some of their shares to the public, instead of offering
new shares to the public. An offering that permitted all of our existing
125,000 shareowners to participate would have been extremely difficult to
accomplish. The public offering followed by the tender offer will produce a
result similar to a direct offering by our shareowners.

What effect will there be on voting control?

Voting control of New UPS will remain in the hands of current shareowners after
we complete the public offering.

What will I receive in the merger?

In the merger, all of your outstanding common stock will convert automatically
into New UPS's class A common stock. Of the UPS shares you currently own:

o one-third will be converted into class A-1 common stock

o one-third will be converted into class A-2 common stock

o one-third will be converted into class A-3 common stock

<PAGE>

Except for the transfer restrictions that we describe below, each share of
class A common stock will be identical. Since the class A-1 common stock,
class A-2 common stock and class A-3 common stock are exactly the same except
for the length of these restrictions, we refer to them collectively as the
class A common stock.

Will I be able to sell or transfer my class A common stock immediately?

No. To facilitate our public offering, New UPS's certificate of incorporation
will restrict you from selling or transferring class A common stock, or
converting class A common stock into class B common stock, for a period after
the public offering. These restrictions will expire:

o six months after our public offering for class A-1 common stock

o 12 months after our publicoffering for class A-2 common stock

o 18 months after our public offering for class A-3 common stock

You will be able to sell a portion of your shares in the tender offer that we
plan to make. After the expiration of the restricted periods referred to
above, you also will be able to sell your shares in the public market. If you
transfer your class A common stock to anyone but a "permitted transferee" or
sell your class A common stock in the public markets, it will convert
automatically into class B common stock, so that the buyers will acquire only
class B common stock.

Does management still think it is important for our people to own shares?

Yes. Management believes that it is important for managers and employees to
have a significant investment in our company so that they will be motivated to
strive for our continued success. Other than sales in the tender offer,
management expects that, in the future, our people will maintain their
investment in our company until retirement.

Who is a "permitted transferee"?

A "permitted transferee" of an employee is that employee's spouse or child or
a trust established by that employee for the sole benefit of one or more of
his or her permitted transferees.

What must I do to get my new class A common stock?

In the merger, your shares will be converted automatically, without any action
on your part, into New UPS class A common stock. Shortly after the completion
of our public offering, we will send you a letter telling you how you will
receive your class A common stock. You should not send us any share
certificates at this time.

What will happen to UPS's right of first refusal to repurchase my stock?

When we are a publicly traded company, you will not be required to offer your
shares to us before you can sell them to third parties.

<PAGE>

What will happen to the right of recall and the UPS Employees Stock Trust and
UPS Managers Stock Trust?

We intend to terminate the UPS Managers Stock Trust, Employees Stock Trust and
similar trusts that give us recall rights. Separately, we are seeking the
approval of these terminations by a majority of participants in each of these
Trusts. On termination of these Trusts, our right to recall shares from
members of the Trusts will also terminate.

Will the Managers Incentive Plan be continued?

Yes. We believe that our Managers Incentive Plan is an appropriate incentive
for our managers, and we intend to continue the plan in the future.

Will I be able to buy more shares?

Yes, after the public offering.

When will the initial public offering price be determined and what will my
stock be worth after the public offering?

The class B common stock will be listed on a stock exchange and will trade at
prices that depend on a number of factors including market conditions, our net
income and operating performance, and our performance relative to that of
comparable companies with publicly traded stock. Our stock price may fluctuate
based on these factors. We do, however, expect that our initial public stock
price will be higher than the current price. We expect that the market price
of our class B common stock will significantly influence the value of our
class A common stock.

What will our dividend policy be after the public offering?

We expect to continue to declare dividends on our common stock after the
public offering. The declaration of future dividends is subject to the
discretion of our board of directors in light of all relevant facts, including
earnings, general business conditions and working capital requirements.

If I sell class A common stock, how does it convert into class B common stock?

You will sell your class A common stock through a stockbroker and our transfer
agent will issue new class B common stock to the buyer. You will not have to
do anything more to cause the conversion from class A to class B.

What will my tax consequences be?

The merger, the conversion of your shares into New UPS's class A common stock
and the public offering will not be taxable transactions for you for U.S.
federal income tax purposes. Any sale of your class A common stock, in the
tender offer or otherwise, will be a taxable transaction for you for U.S.
federal income tax purposes. You should consult your individual tax adviser
about your tax consequences from any transaction involving our shares.

<PAGE>

Why are we merging with one of our subsidiaries?

We need the flexibility of New UPS's certificate of incorporation to go
public. To obtain this type of certificate of incorporation, we could amend
our existing certificate of incorporation, which would require the approval of
80% of our outstanding shares, or merge with New UPS, which requires the
approval of only a majority of our outstanding shares. Our board concluded
that pursuing the merger alternative would be a more efficient method of
achieving this goal.

How will New UPS's certificate of incorporation be different from our current
certificate of incorporation?

New UPS's certificate of incorporation will:

o authorize a class of common stock, called class A common
stock, that will be entitled to ten votes per share and will
be issued to you in exchange for your current shares of our
common stock

o authorize a class of common stock, called class B common
stock, that will have the same economic rights as the class
A common stock, but will be entitled to one vote per share

o eliminate the existing requirement that you must offer your
shares to us for purchase before you can sell them to third
parties

o modify our "scaled voting" provision so that it does not
reduce the voting power of shareowners unless they own more
than 25% of our total voting power

o add provisions that restrict the transferability of the class
A common stock for a period of time to allow us to complete a
successful public offering

Separately, we are seeking approval to terminate the UPS Managers Stock Trust,
the UPS Employees Stock Trust and other similar Trusts, so that we will not
have the right to recall any New UPS common stock.

What do I need to do now?

It is important that you vote. In order to make sure that your vote is
counted, you must return a completed, signed and dated proxy card. To complete
these transactions, it is necessary that a majority of our outstanding shares
be voted in favor of the merger. Please complete, sign and date the enclosed
proxy and return it promptly in the enclosed postage-paid envelope. If you
return a blank proxy card, we will vote your shares "for" the merger proposal
at the special meeting.

Who can help answer any questions I have?

If you have any questions, you should contact UPS Shareowner Relations at
(404) 828-6000.

5
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION ABOUT UPS

Old UPS files, and after the public offering we will file, annual,
quarterly and special reports, proxy statements and other information with the
SEC. Old UPS's SEC filings are available to the public over the Internet at
the SEC's web site at http://www.sec.gov. You may read and copy any document
we file at the SEC's public reference rooms in Washington, D.C. at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the SEC's
regional offices in New York at 7 World Trade Center, 13th Floor, New York, NY
10048, and in Chicago at Suite 1400, Northwestern Atrium Center, 14th Floor,
500 W. Madison Street, Chicago, IL 60661. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms.

We have filed a registration statement on Form S-4 with the SEC. This
proxy statement/prospectus is part of that registration statement and, as
allowed by SEC rules, does not include all of the information you can find in
the registration statement or the exhibits to the registration statement. We
also have filed a registration statement on Form S-1 relating to our proposed
public offering of shares of class B common stock.

6
<PAGE>

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this document, including
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," that are based on our management's
beliefs and assumptions and on information currently available to our
management. Forward-looking statements include the information concerning our
possible or assumed future results of operations, business strategies,
financing plans, competitive position, potential growth opportunities,
benefits resulting from the merger, the public offering and the tender offer,
the effects of future regulation and the effects of competition.
Forward-looking statements include all statements that are not historical
facts and can be identified by the use of forward-looking terminology such as
the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions.

Forward-looking statements involve risks, uncertainties and
assumptions. Actual results may differ materially from those expressed in
these forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to
update forward-looking statements after we distribute this proxy
statement/prospectus.

You should understand that many important factors, in addition to
those discussed elsewhere in this proxy statement/prospectus, could cause our
results to differ materially from those expressed in forward-looking
statements. These factors include our competitive environment, economic and
other conditions in the markets in which we operate, strikes, work stoppages
and slowdowns, governmental regulations, our year 2000 issues, year 2000
issues of third parties we work with, increases in aviation and motor fuel
prices and cyclical and seasonal fluctuations in our operating results.

<PAGE>

SUMMARY

This summary highlights selected information in this proxy
statement/prospectus, but it may not contain all of the information that is
important to you. To better understand the merger, and for a more complete
description of the merger and related transactions, you should read this
entire document and the other documents that we refer you to. See "Where You
Can Find More Information" on page __.

UPS

Our Company

We are the world's largest express carrier, the largest package
delivery company and a leading global provider of specialized transportation
and logistics services. We deliver over 12 million packages each business day
for more than 1.6 million shipping customers to six million consignees. In
1998, our 330,000 employees delivered more than three billion packages and
documents worldwide, generating revenues of $24.8 billion and net income of
$1.7 billion.

Our primary business is the delivery of time-definite packages and
documents throughout the United States and in over 200 other countries and
territories. In addition, we provide logistics services, including integrated
supply chain management, for major companies worldwide. We are the industry
leader in the delivery of goods purchased over the Internet, and we seek to
position ourselves as an indispensable branded component of e-commerce.

We have the following competitive strengths:

o Global Reach and Scale. We believe that our integrated worldwide
ground and air network is the most extensive in the industry.
We operate about 149,000 delivery vehicles and over 500
airplanes, and our end-to-end delivery system carries an
estimated 6% of U.S. gross domestic product.

o Distinctive People and Culture. Our loyal and capable people are
our most valuable asset. We believe that the dedication of our
employees results in large part from our distinctive
"employee-owner" concept. Currently, employees and retirees own
about two-thirds of our outstanding shares.

o Broad, Flexible Range of Distribution Services. We differentiate
ourselves by offering to our customers as broad and flexible a
range of delivery services as any provider in the industry. All
of our air, international and business-to-business ground
delivery service offerings are time-definite and guaranteed.

o Brand Equity. We have built strong brand equity by being a
leader in quality service and product innovation in our
industry. We have been rated the second strongest
business-to-business brand in the U.S. in a recent Image
Power(R) survey and have been Fortune magazine's Most Admired
Transportation Company in the mail, package and freight
category for 16 consecutive years.

<PAGE>

o Customer Relationships. We focus on building and maintaining
long-term customer relationships. We serve all of the Fortune
1000 companies.

o Technology Systems. Over the past decade, we invested
extensively in technology to capture and move electronic
information to serve our customers and support our operations.
As a result, we are more efficient and price competitive, and
we provide better customer solutions.

o E-Commerce Capabilities. According to Zona Research, we command
55% of the market for distribution of goods purchased over the
Internet. We have teamed with other e-commerce leaders to offer
fully integrated Web-enabled solutions for our customers.

o Financial Strength. Our balance sheet gives us financial
strength that few companies can match. We are one of the few
companies -- and the only transportation company -- with a
triple-A credit rating from both Standard & Poor's and Moody's.

Our Industry

The package delivery business has evolved rapidly over the last two
decades, driven by the integration of world markets, the rationalization of
corporate supply chains and the implementation of enterprise software and
Internet-based information technology solutions. Customers increasingly focus
on the timing and predictability of deliveries rather than the mode of
transportation. Time-definite transportation, which is no longer limited to
air express, has become a critical part of just-in-time inventory management
and improving overall distribution efficiency, and has grown from 4% of the
U.S. parcel delivery market in 1977 to over 60% today.

The four key industry trends are:

o globalization

o increased need for time-definite services

o significant advances in technology

o industry consolidation

Individual shipments are generally smaller but more frequent, and a
greater proportion of products is being delivered directly to end-users.
Customers expect high performance levels and broad product offerings as they
seek to optimize supply chain solutions. Third-party logistics providers, such
as UPS, have become extensively involved in the full range of customer supply
chain functions. We believe that these trends will benefit companies like UPS,
with global reach, diverse product portfolios, extensive residential delivery
capabilities and sophisticated tracking and information technology.

<PAGE>

Our Growth Strategy

The principal components of our growth strategy are as follows:

o Expand Our Leadership Position in Our Core Domestic Business.
Our strategy is to increase core domestic revenues through
cross-selling of our existing and new services to our large and
diverse customer base, to reduce expense and employ
technology-driven efficiencies to increase operating profit.
Our core business is also a springboard for our growth in all
other areas, including international, logistics, supply chain
management and e-commerce.

o Continue International Expansion. We plan to solidify and expand
our market position in Europe, where we have already completed
a pan-European network. We intend to continue to seek
additional air operating authority to enhance our Asian
operations. We are expanding our market presence in Latin
America to enable us to enhance our cargo business and pursue
additional express package volume.

o Provide Comprehensive Logistics and Supply Chain Solutions. We
believe that we are well positioned to capitalize on the
expected 15% to 20% annual growth in the domestic third-party
logistics market. We now redesign and operate supply chains for
major companies in 48 countries where we have improved
customers' inventory flows while reducing capital assets,
lowering costs and enhancing customer service.

o Leverage Our Leading-Edge Technology and E-Commerce Advantage. A
key component of this strategy is to establish relationships
with technology providers in the areas of enterprise resource
planning (ERP), e-procurement, systems integration, market
integration and others, to integrate UPS technologies into
their solutions and into the websites and systems of their
customers.

o Pursue Strategic Acquisitions and Global Alliances. Our public
offering will better position us to aggressively pursue
strategic acquisitions and enter into global alliances that can
complement our core business, build our global brand, enhance
our technological capabilities or service offerings, lower our
costs and expand our geographic presence and managerial
expertise.

<PAGE>

The Special Meeting

Date and Time.................. _____________ __, 1999, at 9:00 A.M.

Location....................... __________________________.

Record Date.................... _______________, 1999. Only
shareowners of record as of the close
of business on _______, 1999 will be
entitled to vote at the special
meeting.

Voting Shares Held in the Trusts If you own shares of our common stock
that are held by First Union National
Bank as Trustee under the UPS Managers
Stock Trust, the UPS Employees Stock
Trust or the UPS Qualified Stock
Ownership Plan and Trust, you may
direct voting of these shares by
executing and returning to First Union
voting instructions that are included
with this proxy statement/prospectus.

Shares Entitled
to Vote........................ We had ______ shares of common stock
outstanding and entitled to vote as of
the close of business on the record
date. These shares are the only
securities that may be voted at the
special meeting. Each share is
entitled to one vote, except that the
voting rights of any shareowner or
shareowners as a group who
beneficially own more than 10% of the
common stock (except for the UPS
Managers Stock Trust, the UPS
Employees Stock Trust, the UPS
Qualified Stock Ownership Plan and
Trust or any of our employee benefit
plans) may cast only 1/100th of a vote
with respect to each share in excess
of 10% of the outstanding shares of
common stock. First Union, as trustee,
owns _______ shares, which constitute
_____% of our outstanding common stock
entitled to vote as of the record
date.

Quorum......................... Holders of a majority of the issued and
outstanding shares of our common
stock, present in person or by proxy,
will constitute a quorum for the
transaction of business at the special
meeting.

Vote Required.................. A majority of all issued and
outstanding shares of our common stock
entitled to vote is required to
approve the proposal at the special
meeting.

No Appraisal Rights............ You will not be entitled to appraisal
rights under Section 262 of the
Delaware General Corporation Law in
connection with the merger or the
conversion of our outstanding common
stock into New UPS class A common
stock.

Financial Advisers

Morgan Stanley & Co. Incorporated and Tanner & Co., Inc. are acting as
our financial advisers in connection with the proposed merger and the related
transactions.

<PAGE>

Summary Consolidated Financial and Operating Data

The following table sets forth summary consolidated financial and
operating data. The financial data as of and for the periods ended December
31, 1997 and 1998 and March 31, 1999, and for the periods ended December 31,
1996 and March 31, 1998, presented in this table are derived from the
consolidated financial statements and notes thereto which are included
elsewhere in this proxy statement/prospectus. You should read the financial
data below in conjunction with those consolidated financial statements and
notes, as well as "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial data appearing elsewhere in this
proxy statement/prospectus. The remaining financial data are derived from
consolidated financial statements that are not contained in this proxy
statement/prospectus.

The financial and operating data as of and for the year ended
December 31, 1997 reflect the impact of the Teamsters strike. The strike
resulted in a net loss of $211 million and an operating loss of $349 million
for the month of August 1997, compared to net income of $113 million and
operating profit of $187 million for August 1996.

<TABLE>

Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(financial data in millions, except per share amounts)

Statement of Income Data
Revenue:

U.S. domestic package.... $ 17,011 $ 17,857 $ 18,881 $ 18,868 $ 20,650 $ 4,892 $ 5,231
International package.... 2,278 2,802 2,989 2,934 3,237 761 839
Non-package.............. 287 386 498 656 901 206 261
---------- ---------- ---------- ---------- ---------- --------- ---------
Total revenue.............. 19,576 21,045 22,368 22,458 24,788 5,859 6,331
Operating expenses:
Compensation and
benefits.............. 11,727 12,401 13,326 13,289 14,346 3,471 3,652
Other.................... 6,293 6,478 7,013 7,471 7,352 1,748 1,813
Restructuring charge..... - 372 - - - - -
---------- ---------- ---------- ---------- ---------- --------- ---------
Total operating expenses... 18,020 19,251 20,339 20,760 21,698 5,219 5,465

Operating profit (loss):

U.S. domestic package.... 1,835 1,960 2,181 1,654 2,899 594 765
International package.... (404) (273) (281) (67) 56 11 44
Non-package.............. 125 107 129 111 135 35 25
Corporate................ - - - - - - 32
---------- ---------- ---------- ---------- ---------- --------- ---------
Total operating profit..... 1,556 1,794 2,029 1,698 3,090 640 866
Other income (expense):
Investment income......... 13 26 39 70 84 14 31
Interest expense.......... (29) (77) (95) (187) (227) (58) (49)
Miscellaneous, net........ 35 (35) (63) (28) (45) 5 (16)
---------- ---------- ---------- ---------- ---------- --------- ---------
Income before income taxes. 1,575 1,708 1,910 1,553 2,902 601 832
Income taxes............... 632 665 764 644 1,161 249 333
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income................. $ 943 $ 1,043 $ 1,146 $ 909 $ 1,741 $ 352 $ 499
========== ========== ========== ========== ========== ========= =========

Net income as a percentage
of revenue............... 4.8% 5.0% 5.1% 4.0% 7.0% 6.0% 7.9%

Per share amounts:

Basic earnings per share... $ 1.68 $ 1.87 $ 2.06 $ 1.65 $ 3.18 $ .64 $ .90
Diluted earnings per share. 1.66 1.84 2.03 1.63 3.14 .64 .88
Dividends declared per share .55 .64 .68 .70 .85 n/a n/a

</TABLE>

12
<PAGE>

<TABLE>

Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (financial data in millions)
(at end of period)

Working capital............ $ 120 $ 261 $ 1,097 $ 1,079 $ 1,708 $ 2,402
Long-term debt............. 1,127 1,729 2,573 2,583 2,191 2,142
Total assets............... 11,182 12,645 14,954 15,912 17,067 18,498
Shareowners' equity........ 4,647 5,151 5,901 6,087 7,173 7,846

Operating Data

Delivery volume (in
millions of packages.... 3,028 3,099 3,153 3,038 3,137 763 782
Average daily package
volume (in millions)..... 11.9 12.2 12.4 12.0 12.4 12.1 12.4
Average revenue per piece.. $ 6.46 $ 6.79 $ 7.09 $ 7.39 $ 7.90 $ 7.68 $ 8.10
Operating weekdays......... 254 253 254 253 254 63 63
Employees (at
September 30)............ 320,000 337,000 338,000 331,000 333,000
Shipping customers
(in millions)............ 1.50 1.61 1.64 1.61 1.69
Aircraft fleet (at end
of period)............... 462 467 529 555 536
Delivery vehicles (at end
of period).............. 134,000 153,000 156,000 149,000 149,000
Capital expenditures
(in millions)............ $ 1,789 $ 2,096 $ 2,333 $ 1,984 $ 1,645 $ 290 $ 214
</TABLE>

<PAGE>

RISK FACTORS

Risks Relating to New UPS's Certificate of Incorporation and Bylaw Provisions
and the Public Offering

The class A common stock that you receive will not be publicly traded
and initially will be subject to significant transfer restrictions

The class A common stock that you receive as a result of the merger
will not be listed on a national securities exchange or traded in an organized
over-the-counter market. In addition, New UPS's certificate of incorporation
will further restrict transferability of your class A shares. Under these
provisions:

o class A-1 common stock may not be transferred or converted into
class B common stock until six months after our public offering

o class A-2 common stock may not be transferred or converted
into class B common stock until 12 months after our public
offering

o class A-3 common stock may not be transferred or converted
into class B common stock until 18 months after our public
offering

After the merger and the public offering are completed, we intend to
discontinue purchasing shares of our common stock as a general practice when
those shares are offered to us by shareowners.

The market price of our class B common stock may be volatile, which
could cause the value of your investment in UPS to decline

Because class A common stock will convert automatically into class B
common stock upon transfer to anyone who is not a "permitted transferee," the
market price of our class B common stock will significantly influence the
value of our class A common stock. Any of the following factors could affect
the market price of our class B common stock:

o changes in earnings estimates by financial analysts

o our failure to meet financial analysts' performance expectations

o changes in market valuations of other transportation and
logistics companies

o the expiration of any of the three restricted periods on class A
common stock

o general market and economic conditions

In addition, many of the risks described elsewhere in this "Risk
Factors" section could materially and adversely affect our stock price. The
stock markets have experienced price and volume volatility that has affected
many companies' stock prices. Stock prices for many companies have experienced
wide fluctuations that have often been unrelated to

<PAGE>

the operating performance of those companies. Fluctuations such as these may
affect the market price of our class B common stock.

Our certificate of incorporation and bylaw provisions, and several
other factors, could limit another party's ability to acquire us and
deprive you of the opportunity to obtain a takeover premium for your
shares

A number of provisions that are in our certificate of incorporation
and bylaws, and will be in New UPS's certificate of incorporation and bylaws
after we effect the merger, will make it difficult for another company to
acquire us and for you to receive any related takeover premium for your
shares. For example, our certificate of incorporation severely reduces the
voting power of any person or group that beneficially owns more than 10% of
our shares, allows our board of directors to issue up to 200,000,000 preferred
shares without a shareowner vote and provides that shareowners may not act by
written consent and may not call a special meeting. New UPS's certificate of
incorporation has similar provisions, except the 10% threshold has been raised
to 25%.

In addition, New UPS's capital structure may deter a potential change
in our control, because our voting power will be concentrated in our class A
common stock. These shares will be held by our current shareowners and, upon
any transfer to someone who is not a "permitted transferee," will
automatically convert into class B common stock. This automatic dilution of
voting power in the hands of a potential acquiror may be a deterrent to any
potential acquisition transaction. We anticipate that in the future we will
issue class A common stock to our managers and employees, which may include
managers and employees of companies we acquire. Our managers and employees may
be less inclined to accept a takeover offer for their shares than other
shareowners.

Sales by current shareowners of a large number of our shares could
cause the value of your shares to decline

As the restricted periods on class A common stock expire, those
shares will be eligible to be sold, including in the public market, upon
automatic conversion into class B common stock. Substantial numbers of our
shares are held by foundations and trusts established by the founders of UPS
and by the heirs and descendants of those founders. These holders have owned
their shares for many years and have not had access to a public market in
which to sell their shares. We cannot assure you that these significant
shareowners will not take advantage of a public market to sell significant
amounts of their stock. Substantial sales could adversely affect the market
value of the class B common stock and the value of your shares.

Risks Relating to Our Business

We face aggressive competition

We compete with many companies and services on a local, regional,
national and international basis. Our competitors include the postal services
of the U.S. and other nations, various motor carriers, express companies,
freight forwarders, air couriers and others. Postal services may be able to
obtain government subsidies or to subsidize

<PAGE>

operating costs through profits from their monopoly operations. Our industry
is undergoing rapid consolidation, and the combining entities are competing
aggressively for business at low rates. If we are unable to compete on price
with these competitors as they attempt to increase their market share, our
business will be materially adversely affected.

Historically, we competed primarily in the U.S., where our size and
geographic reach have given us a competitive advantage. As our domestic
competitors have grown and consolidated, and as the market for our services has
grown increasingly international, we face more significant competitive
challenges both here and abroad.

Strikes, work stoppages and slowdowns by our employees can negatively
affect our results of operations

Our business depends to a significant degree on our ability to avoid
strikes and other work stoppages by our employees. As our competitors have
grown in size and strength, we face permanent loss of customers if we are
unable to provide uninterrupted service. In 1997, a labor strike by the
International Brotherhood of Teamsters, and the refusal of the Independent
Pilots Association to cross the picket lines, had a material adverse effect on
our results of operations.

The International Brotherhood of Teamsters represents about 202,000
(62%) of our employees and the Independent Pilots Association represents
most of our 2,100 pilots. Our new collective bargaining agreement with the
Teamsters, which was negotiated in August 1997, terminates on July 31, 2002.
We have an eight-year agreement with the Independent Pilots Association that
becomes amendable on January 1, 2004.

A number of our competitors are less unionized than we are, which may
enable them to implement more flexible work rules than we are able to employ.
These more flexible rules could provide our competitors with the ability to
offer services that we are unable to match without concessions from our
unions.

We cannot assure you as to the results of negotiations of future
collective bargaining agreements, whether future collective bargaining
agreements will be negotiated without service interruptions or the possible
impact of future collective bargaining agreements on our financial condition
and results of operations. And we cannot assure you that strikes will not
occur in the future in connection with labor negotiations or otherwise. Any
prolonged strike or work stoppage could have a material adverse effect on our
results of operations and financial condition.

Pending litigation could result in significant costs to us

During the second quarter of 1995, we received a Notice of Deficiency
from the Internal Revenue Service asserting that we are liable for additional
tax for the 1983 and 1984 tax years. The Notice of Deficiency is based in
large part on the theory that we are liable for tax on income of Overseas
Partners Ltd., a Bermuda company, which has reinsured excess value package
insurance purchased by our customers from unrelated insurers. The tax
deficiency sought by the IRS relating to package insurance is based on a
number of theories, which we believe are inconsistent, and ranges from $8
million to $35 million, plus penalties and interest for 1984. In August 1995,
we filed a petition in the

<PAGE>

United States Tax Court in opposition to the Notice of Deficiency related to
the 1983 and 1984 tax years. The matter was tried before the Tax Court in late
1997.

During the first quarter of 1999, the IRS issued two additional
Notices of Deficiency asserting that we are liable for additional tax for the
1985 through 1987 tax years and the 1988 through 1990 tax years. In all cases,
the IRS's primary assertions relate to the reinsurance of excess value package
insurance. The tax deficiency sought by the IRS relating to package insurance
for these periods ranges, based on alternative theories, from $115 million to
$121 million for the 1985 through 1987 tax years, and from $131 million to
$138 million for the 1988 through 1990 tax years, plus penalties and interest
in each case. The IRS has based its assertions on the same theories included
in the 1983-1984 Notice of Deficiency.

In addition to package insurance, the IRS has raised a number of
other issues relating to the timing of deductions, the characterization of
expenses as capital rather than ordinary and our entitlement to the Investment
Tax Credit and the Research Tax Credit in the 1983 through 1990 tax years. We
estimate the amounts at issue with respect to these additional items at
approximately $12 million in tax for the 1983 and 1984 tax years, $88 million
in tax for the 1985 through 1987 tax years and $245 million in tax for the
1988 through 1990 tax years, plus penalties and interest in each case. The
majority of these adjustments are timing adjustments that would reverse in
future years. We have filed petitions with the Tax Court in opposition to the
IRS Notices of Deficiency. The IRS may take positions similar to those
described above for periods subsequent to 1990. We believe the eventual
resolution of the matters raised by the IRS will not result in a material
adverse effect upon our financial condition.

We are subject to significant government regulation

Our operations are subject to a number of complex and stringent
aviation, transportation, environmental, labor, employment and other laws and
regulations. These laws and regulations generally require us to maintain and
comply with a wide variety of certificates, permits, licenses and other
approvals. See "Business--Government Regulation." Our failure to maintain
required certificates, permits or licenses, or to comply with applicable laws,
ordinances or regulations, could result in substantial fines or possible
revocation of our authority to conduct our operations.

We cannot assure you that existing laws or regulations will not be
revised or that new laws or regulations, which could have an adverse impact on
our operations, will not be adopted or become applicable to us. We also cannot
assure you that we will be able to recover any or all increased costs of
compliance from our customers or that our business and financial condition
will not be materially and adversely affected by future changes in applicable
laws and regulations.

Some of our systems, and the systems of third parties we work with,
may not be year 2000 compliant

<PAGE>

financial condition, liquidity or results of operations. Our business is
increasingly reliant on sophisticated computer systems, and we would suffer
material adverse consequences if our systems malfunctioned due to year 2000
issues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Issue."

Economic and other conditions in the international markets in which we
operate can affect demand for our services and our results of
operations

A key component of our business, and a major target for our future
growth, is our operations outside of the United States. If we are unable to
compete successfully in these markets, our results of operations will be
adversely affected.

In many countries, we face vigorous competition from government-owned
or sponsored postal services that are able to price their services extremely
competitively due to their ability to obtain government subsidies or to
subsidize operating costs through profits from their monopoly operations.

Operations in international markets also present currency exchange
and inflation risks. In some countries where we operate, economic and monetary
conditions could affect our ability to convert our earnings to United States
dollars or to remove funds from those countries. We may experience adverse tax
consequences as we attempt to repatriate funds to the United States from other
countries.

Increases in aviation and motor fuel prices can negatively affect our
results of operations

Our aircraft and delivery vehicles consume significant quantities of
gasoline, diesel fuel and jet fuel in the ordinary course of our business. We
therefore are exposed to commodity price risk associated with variations in
the market price for petroleum products. Competitive and other pressures may
prevent us from passing these costs on to our customers. We cannot assure you
that our supply of these products will continue uninterrupted, that rationing
will not be imposed or that the prices of, or taxes on, these products will
not increase significantly in the future. Increases in prices that we are
unable to pass on to our customers will adversely affect our results of
operations.

Our operating results are subject to cyclical and seasonal
fluctuations

We serve numerous industries and customers that experience
significant fluctuations in demand based on economic conditions and other
factors beyond our control. Demand for our services could be materially
adversely affected by downturns in the businesses of our customers.

Historically, we have experienced our best operating results in the
second and fourth quarters of each year. Shipping activity is generally lowest
during the first quarter and weather conditions also can adversely affect
first quarter operating results. Shipping activity is generally highest in the
fourth quarter as a result of the holiday season. Our European operations
experience lower volumes in the third quarter due to the general slowdown in
business activity in August. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<PAGE>

DIVIDEND POLICY

The following table sets forth the dividends declared on our common
stock for the periods indicated:

Year Ended December 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------

Dividends per share $ .55 $ .64 $ .68 $ .70 $ .85

In addition, in May 1999, we declared a cash dividend of $0.55 per
share for the first half of the year, which was paid in June 1999. Our board of
directors' policy is to declare dividends each year out of current earnings.
Historically, dividends have been declared and paid semi-annually, with one
dividend declared in May, payable in May or June, and one dividend declared in
November, payable in January of the following year. Our board of directors
expects to continue to declare dividends on our common stock after the public
offering. The declaration of future dividends is subject to the discretion of
our board of directors in light of all relevant facts, including earnings,
general business conditions and working capital requirements.

<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth consolidated financial and operating
data. The financial data as of and for the periods ended December 31, 1997 and
1998 and March 31, 1999, and for the periods ended December 31, 1996 and March
31, 1998, presented in this table are derived from the consolidated financial
statements and notes thereto which are included elsewhere in this proxy
statement/prospectus. You should read the financial data below in conjunction
with those consolidated financial statements and notes, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial data appearing elsewhere in this proxy
statement/prospectus. The remaining financial data are derived from
consolidated financial statements that are not contained in this proxy
statement/prospectus. The consolidated financial data as of and for the three
months ended March 31, 1998 and 1999 have been derived form our unaudited
conoslidated financial statements, which are included in this proxy statement/
prospectus and which, in our opinion, reflect all adjustments, consisting only
of adjustments of a normal and recurring nature, necessary for a fair
presentation. Results for the three months ended March 31, 1999 are not
necessarily indicative of results for the full year.

<TABLE>

Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(financial data in millions, except per share amounts)

Statement of Income Data
Revenue:
U.S. domestic package.... $ 17,011 $ 17,857 $ 18,881 $ 18,868 $ 20,650 $ 4,892 $ 5,231
International package.... 2,278 2,802 2,989 2,934 3,237 761 839
Non-package.............. 287 386 498 656 901 206 261
---------- ---------- ---------- ---------- ---------- --------- ---------
Total revenue.............. 19,576 21,045 22,368 22,458 24,788 5,859 6,331
Operating expenses:
Compensation and
benefits.............. 11,727 12,401 13,326 13,289 14,346 3,471 3,652
Other.................... 6,293 6,478 7,013 7,471 7,352 1,748 1,813
Restructuring charge..... - 372 - - - - -
---------- ---------- ---------- ---------- ---------- --------- ---------
Total operating expenses... 18,020 19,251 20,339 20,760 21,698 5,219 5,465

Operating profit (loss):
U.S. domestic package.... 1,835 1,960 2,181 1,654 2,899 594 765
International package.... (404) (273) (281) (67) 56 11 44
Non-package.............. 125 107 129 111 135 35 25
Corporate................ - - - - - - 32
---------- ---------- ---------- ---------- ---------- --------- ---------
Total operating profit..... 1,556 1,794 2,029 1,698 3,090 640 866
Other income (expense):
Investment income......... 13 26 39 70 84 14 31
Interest expense.......... (29) (77) (95) (187) (227) (58) (49)
Miscellaneous, net........ 35 (35) (63) (28) (45) 5 (16)
---------- ---------- ---------- ---------- ---------- --------- ---------
Income before income taxes. 1,575 1,708 1,910 1,553 2,902 601 832
Income taxes............... 632 665 764 644 1,161 249 333
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income................. $ 943 $ 1,043 $ 1,146 $ 909 $ 1,741 $ 352 $ 499
========== ========== ========== ========== ========== ========= =========

Net income as a percentage
of revenue............... 4.8% 5.0% 5.1% 4.0% 7.0% 6.0% 7.9%

Per share amounts:
Basic earnings per share... $ 1.68 $ 1.87 $ 2.06 $ 1.65 $ 3.18 $ .64 $ .90
Diluted earnings per share. 1.66 1.84 2.03 1.63 3.14 .64 .88
Dividends declared per share .55 .64 .68 .70 .85 n/a n/a
</TABLE>

20
<PAGE>

<TABLE>

Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(financial data in millions, except per share amounts)

Balance Sheet Data (financial data in millions)
(at end of period)

Operating Data

Delivery volume (in
millions of packaes..... 3,028 3,099 3,153 3,038 3,137 763 782
Average daily package
volume (in millions)..... 11.9 12.2 12.4 12.0 12.4 12.1 12.4
Average revenue per piece.. $ 6.46 $ 6.79 $ 7.09 $ 7.39 $ 7.90 $ 7.68 $ 8.10
Operating weekdays......... 254 253 254 253 254 63 63
Employees
(at September 30)........ 320,000 337,000 338,000 331,000 333,000
Shipping customers
(in millions)............ 1.50 1.61 1.64 1.61 1.69
Aircraft fleet (at end
of period)............... 462 467 529 555 536
Delivery vehicles (at end
of period).............. 134,000 153,000 156,000 149,000 149,000
Capital expenditures
(in millions)............ $ 1,789 $ 2,096 $ 2,333 $ 1,984 $ 1,645 $ 290 $ 214
</TABLE>

21
<PAGE>

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

Overview

We are one of the leading global providers of specialized
transportation and logistics services. Our primary business is the delivery of
time-definite packages and documents for more than 1.6 million shipping
customers throughout the United States and in over 200 other countries and
territories. We also provide logistics services, including integrated supply
chain management, for major companies worldwide. Since the founding of our
company in 1907, we have successfully established a vast and reliable global
transportation infrastructure, developed a comprehensive, competitive and
guaranteed portfolio of services, and consistently supported them with
advanced technology.

We report our operations in three segments: U.S. domestic package
operations, international package operations and non-package operations.
Package operations represent our core business and are divided into regional
operations around the world. Regional operations managers are responsible for
both domestic and export operations within their geographic region.
International package operations include shipments wholly outside the U.S. as
well as shipments with either origin or distribution outside the U.S.
Non-package operations, including logistics, are distinct from package
operations. Third-party logistics is one of our fastest growing businesses.

E-commerce affects all of our operating segments. We have teamed with
other leading providers of e-commerce solutions to offer fully integrated
Internet-based solutions for our customers, and believe that we are well
positioned for growth in this area.

Sources of Revenue

We derive our revenue primarily from the delivery of packages and
also from non-package services. Package delivery rates vary depending on
weight, size, distance and level of service. We review rates periodically, and
have increased our rates across most product lines in each of 1997, 1998 and
1999. We derive our non-package revenue primarily from logistics, warehousing
operations, truck leasing, refrigerated transport services and courier
services.

Over the past ten years, we have developed our international business
and have become a global company. As our international business has evolved,
we have improved our product mix by focusing on our core express package
business. We are now shipping more time-definite cross-border packages and
fewer lower-yielding intra-country packages. As a result, our international
business achieved profitability in 1998.

<PAGE>

The following table sets forth the percentage of our revenue
attributable to each operating segment:

Three
Months
Ended
Year Ended December 31, March 31,
---------------------------- ---------------
Operating Segment 1996 1997 1998 1998 1999
------ ------ ------ ------ ------
U.S. domestic package... 84.4% 84.0% 83.3% 83.5% 82.6%
International package... 13.4 13.1 13.1 13.0 13.3
Non-package............. 2.2 2.9 3.6 3.5 4.1
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======

Components of Expenses

The largest components of our costs are compensation and benefits,
fuel, purchased transportation, depreciation and amortization, repairs and
maintenance and other occupancy expenses. Purchased transportation expenses
include rail, contractor compensation and airlift costs. Other occupancy
expenses consist primarily of facility rental and utilities.

Our operating ratio, which measures operating expenses as a
percentage of revenue, improved in 1998 and again in the first quarter of
1999. This improvement reflects our continuing initiative to increase our
operating efficiency and to reduce the rate by which our costs grow across our
company. We will continue to focus on ways to limit the growth of our costs to
improve our competitiveness.

Results of Operations

The following table sets forth statement of income data as a
percentage of revenue. Results for 1997 reflect the impact of the Teamsters
strike:

Three
Year Months
Ended Ended
December March
31, 31,
-------- ------
1996 1997 1998 1998 1999
-------- ------- ------- ------- -------

Revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0%

Operating expenses:

Compensation and
benefits............... 59.6 59.2 57.9 59.2 57.7
Other.................... 31.4 33.3 29.7 29.8 28.6
----- ----- ----- ----- -----

Operating ratio............ 90.9 92.4 87.5 89.1 86.3

Operating profit........... 9.1 7.6 12.5 10.9 13.7

Net income............... 5.1% 4.0% 7.0% 6.0% 7.9%
===== ===== ===== ===== =====

<PAGE>

Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998

The following table sets forth information showing the change in
revenue, both in dollars and in percentage terms:

Three Months Ended
March 31, Change
--------------------- -----------------
Operating Segment 1998 1999 $ %
----------------- ------ -------- -------- ------
(dollars in millions, unaudited)

U.S. domestic package...... $ 4,892 $ 5,231 $ 339 6.9%
International package...... 761 839 78 10.2
Non-package................ 206 261 55 26.7
------- -------- --------
Consolidated revenue $ 5,859 $ 6,331 $ 472 8.1
======= ======== ========

U.S. domestic package revenue increased primarily due to a 2.7%
volume increase and a shift by our customers to more time-definite services,
as well as an increase in rates. Package volume for our higher yielding
express packages was up 6.4% for the quarter.

During the first quarter of 1999, we increased rates for standard
ground shipments an average of 2.5% for commercial deliveries. The ground
residential charge continues to be $1.00 over the commercial ground rate, with
an additional delivery area surcharge added to some less accessible areas. In
addition, we increased rates for UPS Next Day Air, UPS Next Day Air Saver and
UPS 2nd Day Air an average of 2.5%, while we decreased the rate for UPS 2nd
Day Air A.M. by 2.2%. The rate for UPS Next Day Air Early A.M. did not change.
Rates for international shipments originating in the U.S. did not change for
UPS Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS
International Standard service. Rate changes for shipments originating outside
the U.S. were made throughout the past year and varied by geographic market.

The 10.2% increase in international package revenue was primarily
attributable to volume growth for express and pan-European products and
overall improvement in product mix. Although overall package volume was
relatively flat for international operations, all international operations
posted volume increases for express products, with an 18.9% increase in
express volume in the Asia Pacific operation and a 19.4% increase in express
and pan-European volume in the European operation.

Operating expenses increased by $246 million, or 4.7%, while the
operating ratio improved from 89.1 during the first quarter of 1998 to 86.3
during the first quarter of 1999. This improvement resulted primarily from
containment of operating expense growth through better utilization of existing
capacity and from continued company-wide cost containment efforts. Fuel costs
were slightly lower during the first quarter of 1999 than in the first quarter
of 1998.

<PAGE>

The following table sets forth information showing the change in
operating profit, both in dollars and in percentage terms:

Three
Months
Ended
March 31, Change
---------------- --------------
Operating Segment 1998 1999 $ %
----------------- ------ ------ ------ -----

(dollars in millions, unaudited)

U.S. domestic package................ $ 594 $ 765 $ 171 28.8%
International package................ 11 44 33 300.0
Non-package.......................... 35 25 (10) (28.6)
Corporate............................ - 32 32 n/a
------ ------ ------ -----
Consolidated operating profit..... $ 640 $ 866 $ 226 35.3
====== ====== ====== =====

The decrease in non-package operating income reflects, in part,
third-party underwriting losses by UPINSCO, our captive insurance company, and
start-up costs at UPS Capital Corp. during the first quarter of 1999.
Beginning in 1999, we have added a "Corporate" line-item to our segment
reporting, which reflects the impact of capitalized software under SOP 98-1,
not allocated to segments.

1998 Compared to 1997

The following table sets forth information showing the change in
revenue, both in dollars and in percentage terms:

Year
Ended
December 31, Change
------------------- ------------------
Operating Segment 1997 1998 $ %
----------------- -------- --------- -------- -------
(dollars in millions)

U.S. domestic package...... $ 18,868 $ 20,650 $ 1,782 9.4%
International package...... 2,934 3,237 303 10.3
Non-package................ 656 901 245 37.3
-------- -------- -------
Consolidated revenue.... $ 22,458 $ 24,788 $ 2,330 10.4
======== ======== =======

The increase in U.S. domestic package revenue in 1998 resulted from
continued improvement in product mix, combined with generally higher revenue
per piece. The 1997 revenues were adversely affected by the 15-day Teamsters
strike. The Teamsters union, which represents about 202,000 of our employees,
was on strike from August 4 through August 19, 1997. In addition, the
Independent Pilots Association, which represents most of our pilots, observed
picket lines in support of the Teamsters strike. Excluding the period of the
strike, average daily domestic volume in 1998 was 2.2% below 1997, reflecting
residual lost volume following the strike. Domestic express volume, however,
increased by 4.0%.

During the first quarter of 1998, we increased rates for standard
ground shipments an average of 3.6% for commercial deliveries, and increased
the ground residential premium from $.80 to $1.00 over the commercial ground
rate. In addition, we increased rates for each of UPS Next Day Air, UPS 2nd
Day Air and UPS 3 Day Select about 3.3%. Rates for international shipments
originating in the U.S. did not change for UPS Worldwide Express, UPS
Worldwide Expedited and UPS Standard Service to Canada. Rate changes for
shipments originating outside the U.S. were made throughout 1998 and varied by
geographic market.

The increase in international package revenue in 1998 was
attributable primarily to a 10.5% increase in volume and an improvement in
product mix. The revenue increase was partially offset by the stronger U.S.
dollar. Europe was a significant contributor to international revenue growth
in 1998 as a result of a 12.2% volume increase and improved

<PAGE>

product mix. The increase in non-package revenue in 1998 was driven mainly by
continued growth of the UPS Logistics Group.

Consolidated operating expenses increased $938 million, or 4.5%, in
1998 over 1997, while the operating ratio improved from 92.4 during 1997 to
87.5 during 1998. Compensation and benefits expenses increased $1.057 billion
in 1998, in part due to labor costs not incurred during the Teamsters strike
in August 1997. Other operating expenses decreased $119 million from 1997 to
1998, mainly driven by lower fuel costs and the reduction of overhead costs in
1998.

The following table sets forth information showing the change in
operating profit, both in dollars and in percentage terms:

Year
Ended
December 31, Change
------------------- ----------------
Operating Segment 1997 1998 $ %
----------------- -------- -------- -------- ------
(dollars in millions)

U.S. domestic package...... $ 1,654 $ 2,899 $ 1,245 75.3%
International package...... (67) 56 123 n/a
Non-package................ 111 135 24 21.6
-------- -------- --------
Consolidated operating profit..... $ 1,698 $ 3,090 $ 1,392 82.0
======== ======== ========

Approximately $703 million of the U.S. domestic package operating
profit increase resulted from improvements in U.S. domestic revenue per piece,
improved product mix and containment of operating expense growth. The
remaining $542 million of the increase reflects the change between August 1998
and August 1997, the period in which the Teamsters strike occurred.

The favorable trend in international operations resulted primarily
from higher volume, improved product mix and better utilization of existing
capacity. Most of this improvement was due to the Europe region. Despite the
economic problems in Asia, operating results associated with the Asia Pacific
region continued to improve in 1998.

Net income increased by $832 million in 1998 over 1997. Approximately
$496 million of this improvement was due primarily to higher revenue per piece
on U.S. domestic products, improved product mix, improved international
operating results and the containment of operating expense growth. The
remaining increase of $336 million resulted from the change in net income for
August 1998 as compared to August 1997, the period in which the Teamsters
strike occurred.

1997 Compared to 1996

The Teamsters strike severely limited U.S. domestic package
operations during August 1997 and also curtailed international operations. The
strike resulted in a net loss of $211 million and an operating loss of $349
million for the month of August 1997, compared to net income of $113 million
and operating profit of $187 million for August 1996, causing a significant
adverse effect on net income for 1997.

26
<PAGE>

The following table sets forth information showing the change in
revenue, both in dollars and in percentage terms:

Year
Ended
December 31, Change
------------------- -----------------
Operating Segment 1996 1997 $ %
----------------- -------- --------- -------- ------
(dollars in millions)

U.S. domestic package...... $ 18,881 $ 18,868 $ (13) (0.1)%
International package...... 2,989 2,934 (55) (1.8)
Non-package................ 498 656 158 31.7
-------- -------- --------
Consolidated revenue.... $ 22,368 $ 22,458 $ 90 0.4
======== ======== ========

U.S. domestic package revenue decreased in 1997 primarily due to
lower volume, which was down 4.1% for the year compared to 1996, due to the
downtime from the strike, along with residual lost volume following the
strike. The decline in volume was offset by higher revenue per piece in 1997.
Despite the strike, volume in higher yielding express packages increased 4.2%.
Although ground volume subsequent to the strike had not returned to pre-strike
levels by year-end, overall U.S. domestic package revenue improved by $137
million, or 2.7%, for the fourth quarter of 1997 in comparison to the fourth
quarter of 1996. This improvement is attributable mainly to higher revenue per
piece and a 6.2% volume growth in express services.

During the first quarter of 1997, we increased rates for standard
ground shipments an average of 3.4% for commercial deliveries and 4.3% for
residential deliveries. We increased rates for each of UPS Next Day Air, UPS
2nd Day Air and UPS 3 Day Select approximately 3.9% during the same time
period. We increased rates for international shipments originating in the U.S.
by 2.6% for UPS Worldwide Express and 4.9% for UPS Worldwide Expedited during
the first quarter of 1997. Rate changes for shipments originating outside the
U.S. were made throughout 1997 and varied by geographic market. Rates for
Standard Service to Canada did not change during 1997.

The decrease in international package revenues was primarily a
result of the strengthening of the U.S. dollar, particularly in the Europe
region.

For 1997, operating expenses increased by $421 million, or 2.1%, over
1996. A combination of increased operating expenses along with decreased
revenues due to the strike resulted in a deterioration of the operating ratio
from 90.9 during 1996 to 92.4 during 1997.

The following table sets forth information showing the change in
operating profit, both in dollars and in percentage terms:

Year
Ended
December 31, Change
------------------- -----------------
Operating Segment 1998 1999 $ %
----------------- -------- --------- -------- ------
(dollars in millions)

U.S. domestic package...... $ 2,181 $ 1,654 $ (527) (24.2)%
International package...... (281) (67) 214 n/a
Non-package................ 129 111 (18) (14.0)
-------- -------- --------
Consolidated operating profit.... $ 2,029 $ 1,698 $ (331) (16.3)
======== ======== ========

<PAGE>

The decrease in U.S. domestic package operating profit resulted from
lower revenues in 1997 due to the strike. The international package operating
loss improvement was primarily due to cost reductions associated with our
efforts to reduce unprofitable volume. While improvements in operations in
1997 occurred throughout all regions, Europe was the primary contributor.

Interest expense amounted to $187 million in 1997, an increase of $92
million over 1996. The increase is primarily attributable to interest costs
incurred on higher debt levels outstanding during 1997. In addition,
investment income increased by $31 million in 1997 over 1996 as a result of
correspondingly higher cash and cash equivalent balances.

Quarterly Results of Operations

We typically experience our best operating results in the second and
fourth quarters of each year. Shipping activity is generally lowest during the
first quarter and weather conditions also can adversely affect first quarter
operating results. Shipping activity is generally highest in the fourth
quarter as a result of the holiday season. Our European operations experience
lower volumes in the third quarter due to the general slowdown in business
activity in August.

The following table sets forth revenues, operating profit and net
income by fiscal quarter. Results for the third quarter of 1997 reflect the
impact of the Teamsters strike. Following the strike, the fourth quarter of
1997 was our most profitable quarter to that date.

<TABLE>

Three Months Ended
--------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March
1997 1997 1997 1997 1998 1998 1998 1998 31, 1999
-------- -------- -------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue: (in millions, unaudited)

Domestic package....... $ 4,804 $ 4,933 $ 3,977 $ 5,154 $ 4,892 $ 5,090 $ 5,147 $ 5,521 $ 5,231
International package.. 709 747 672 806 761 799 782 895 839
Non-package............ 151 166 161 178 206 218 229 248 261
-------- -------- -------- -------- --------- -------- --------- -------- --------
Total revenue....... 5,664 5,846 4,810 6,138 5,859 6,107 6,158 6,664 6,331

Operating profit:
Domestic package....... 464 588 26 576 594 747 757 801 765
International package.. (51) (10) (46) 40 11 23 (15) 37 44
Non-package............ 13 34 24 35 35 35 30 25
Corporate.............. - - - - - - - - 32
-------- -------- -------- -------- --------- -------- --------- -------- --------
Total operating
profit.......... 426 618 14 640 640 805 777 868 866

Net income (loss)......... $ 228 $ 340 $ (10) $ 351 $ 352 $ 458 $ 449 $ 482 $ 499
</TABLE>

Liquidity and Capital Resources

Our primary source of liquidity is our cash flow from operations. We
maintain significant cash, cash equivalents and marketable securities,
amounting to $3.3 billion at March 31, 1999. We maintain a commercial paper
program under which we are authorized to borrow up to $2.0 billion.
Approximately $881 million was outstanding under that program as of March 31,
1999.

<PAGE>

We maintain two credit agreements with a consortium of banks. These
agreements provide revolving credit facilities of $1.25 billion each, with one
expiring in April 2000 and the other expiring in April 2003. There were no
borrowings under either of these agreements as of March 31, 1999.

We also maintain a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, we may issue notes from time to
time denominated in a variety of currencies. At March 31, 1999, $500 million
was available under this program.

In January 1999, we filed a shelf registration statement with the
SEC, under which we may issue debt of up to $2.0 billion, which may be
denominated in a variety of currencies. There is currently no debt issued
under this shelf registration statement.

We believe that funds from operations and borrowing programs will
provide adequate sources of liquidity and capital resources to meet our
expected long-term needs for the operation of our business, including
anticipated capital expenditures such as commitments for aircraft purchases
through 2005.

Following is a summary of capital expenditures:

Year Ended December 31,
--------------------------------
1996 1997 1998
--------- --------- ---------
(in millions)

Building and facilities...... $ 694 $ 523 $ 408
Aircraft and parts........... 1,045 907 942
Vehicles..................... 376 333 141
Information technology....... 218 221 154
-------- -------- --------
$ 2,333 $ 1,984 $ 1,645
======== ======== ========

Our capital expenditures have declined over the past three years
primarily as a result of better utilization of our existing transportation
system and other assets and our focus on return on invested capital.

We anticipate capital expenditures of approximately $1.5 billion in
1999 and $1.7 billion in 2000. These expenditures will provide for replacement
of existing capacity and anticipated future growth.

For information regarding a dispute with the IRS, see "Business --
Litigation."

Market Risk

We are exposed to a number of market risks in the ordinary course of
business. These risks, which include interest rate risk, foreign currency
exchange risk and commodity price risk, arise in the normal course of business
rather than from trading. We have examined our exposures to these risks and
concluded that none of our exposures in these areas is material to fair
values, cash flows or earnings. We have engaged in several strategies to
manage these market risks.

29
<PAGE>

Our indebtedness under our various financing arrangements creates
interest rate risk. In connection with each debt issuance and as a result of
continual monitoring of interest rates, we may enter into interest rate swap
agreements for purposes of managing our borrowing costs.

For all foreign currency-denominated borrowing and certain lease
transactions, we simultaneously entered into currency exchange agreements to
lock in the price of the currency needed to pay the obligations and to hedge
the foreign currency exchange risk associated with such transactions. We are
exposed to other foreign currency exchange risks in the ordinary course of our
business operations due to the fact that we provide our services in more than
200 countries and collection of revenues and payment of certain expenses may
give rise to currency exposure.

Future Accounting Changes

In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which requires that some costs to
develop or obtain computer software for internal-use be capitalized. We
adopted the new standard on January 1, 1999. Since we had previously expensed
all such costs, the change will result in lower expenses in the initial year
of adoption and is estimated to increase 1999 net income by approximately $70
million to $90 million.

In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. The new statement is effective for fiscal years beginning
after June 15, 2000, with earlier adoption encouraged but not required. We
have not yet completed our analysis of the effects of adopting this standard.

Impact of the Year 2000 Issue

Introduction

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

30
<PAGE>

State of Readiness

In 1995, we created a Year 2000 Committee tasked with evaluating the
year 2000 issue and taking appropriate action to address the implications of
the year 2000 issue for us. The Year 2000 Committee has developed and
currently is implementing a comprehensive initiative to make business critical
information technology assets, including embedded microprocessor systems
incorporated into computer hardware and related software, and business
critical non-IT assets, such as vehicles, facilities, equipment and their
embedded microprocessor systems, year 2000 ready. The year 2000 initiative
covers the following eight phases:

1. inventory of IT and non-IT assets

2. assessment of repair requirements

3. repair of IT and non-IT assets

4. unit and system integration testing of individual
IT and non-IT assets to determine correct
manipulation of dates and date-related data

5. certification by users that IT and non-IT assets
correctly handle dates and date-related data

6. selected verification by UPS internal auditors that
phases 1 through 5 were properly completed for IT
and non-IT assets

7. "end-to-end" testing of selected IT and non-IT
assets, both internally developed and
vendor-provided, to determine correct manipulation
of dates and date-related data

8. creation of contingency plans in the event of year
2000 failures

Since we believe that the majority of our business-critical IT assets
are controlled by our Information Services Group, implementation of the year
2000 initiative for these IT assets occurred first. Generally, we consider an
IT asset to be business critical if its failure would have a material
adverse effect on package movement, customer relations or our financial
condition, liquidity or results of operations, or if other factors, including
regulatory requirements, require the characterization of the IT asset as
business critical. This group includes, for example, package tracking,
billing, our customer telephone service center and UPS OnLine(R) automation
systems.

As of April 30, 1999:

o The first six phases of the year 2000 initiative had been
completed for substantially all of the IT assets which are
controlled by our IS Group.

o The first five phases of the year 2000 initiative had been
completed for approximately 89% of the other assets covered by
the year 2000 initiative (non-IT assets and IT assets controlled
by all business functions other than the IS Group).

31
<PAGE>

o The sixth phase of the year 2000 initiative is scheduled to be
completed for substantially all of these other assets by July
31, 1999.

We have contacted suppliers who provide both critical IT assets and
other goods and services such as vehicles, fuel, packaging materials and forms
to evaluate their year 2000 compliance plans and state of readiness, and to
determine whether a year 2000-related event will impede the ability of such
suppliers to continue to provide such goods and services as the year 2000 is
approached and reached. We have received assurances from substantially all of
our suppliers of business critical IT assets controlled by the IS Group that
these assets will correctly manipulate dates and date-related data as the year
2000 is approached and reached. We have reviewed the responses received from
these vendors to evaluate the accuracy and adequacy of the disclosures made by
the vendors as to their year 2000 compliance status. Moreover, the majority of
these assets are subject to evaluation under applicable phases of our year
2000 initiative.

In addition, we have sent letters to the majority of suppliers of
non-IT assets and IT assets controlled by business functions other than the IS
Group. We are reviewing these responses to evaluate the assertions from the
vendors as to their year 2000 compliance status and have elected to seek
additional information from some vendors. We are also conducting interface
testing between us and vendors who transfer data directly to us.

We intend to develop contingency plans for any material supplier that
does not provide an appropriate response. As a general matter, we are
vulnerable to significant suppliers' inability to remedy their own year 2000
issues.

We also rely, both domestically and internationally, upon government
agencies, particularly the Federal Aviation Administration, utility companies,
telecommunication service companies and other service providers outside of our
control. As part of the year 2000 initiative, we are involved with several
national and international associations to pursue common year 2000 objectives.
For example, we have been and remain involved, through our participation in
the International Air Transport Association and the Air Transport Association
of America, in a global and industry-wide effort to understand the year 2000
compliance status of airports, air traffic systems, customs clearance and
other U.S. and international government agencies, and common vendors and
suppliers. In addition, we continue to monitor publicly available information
describing the year 2000 compliance plans and status of our vendors. But we
cannot assure you that suppliers, governmental agencies or other third parties
will not suffer a year 2000 business disruption. Such failures could have a
material adverse affect on our financial condition, liquidity or results of
operations.

We are aware that the media and other third parties have reported
that year 2000 compliance activity is generally considered to be further ahead
in the United States than in other countries. We continue to monitor these
reports and to evaluate the possible impact of year 2000 events outside of the
United States on our operations. We have included contingency planning for
international operations in our overall contingency planning process.

In addition, we have retained independent consultants to assess
whether the year 2000 initiative, if appropriately implemented, can result in
our year 2000 readiness, and our

32
<PAGE>

progress on the year 2000 initiative. If our consultants determine that the
year 2000 initiative will not adequately lead to year 2000 readiness, they will
provide recommendations for appropriately adjusting the year 2000 initiative.
Our consultants continue their periodic review of our progress.

Testing

As part of the year 2000 initiative, we maintain a testing program to
determine whether our business-critical IT and non-IT assets are year 2000
ready. Our testing program is conducted in three stages:

o The initial stage -- "unit testing" -- consists of testing
individual systems (units) for year 2000 readiness. Unit
testing includes, for example, testing a particular application
to ensure that it correctly manipulates dates and date-related
data and properly operates in a year 2000 ready environment.
Following successful completion of unit testing, a system will
move into stage two.

o Stage two -- "integration testing" -- includes testing
interfaces between systems units to ensure that these
interfaces will correctly send and receive date-related data.
Stages one and two are included in phase four of the overall
year 2000 initiative. All business critical IT and non-IT
assets are subjected to the first two testing stages. After
successful completion of phases four and five of the year 2000
initiative, our testing program is subjected to independent
review and verification by our internal auditors in conjunction
with phase six of the year 2000 initiative.

o Some business critical IT and non-IT assets also are subjected
to the third stage of our testing program -- "end-to-end
testing." We are well into our end-to-end testing program and
plan to complete substantially all of this testing for business
critical IT assets by July 31, 1999. In addition, we maintain a
change management process to ensure that remediation efforts
have not adversely affected functionality and to retest units
or systems after changes where appropriate.

We currently are deploying IT and non-IT assets that have completed
at least the fifth phase of our year 2000 initiative and will continue that
process throughout 1999. We have not deferred any major information technology
projects as a result of the implementation of our year 2000 initiative,
although we may have incurred an opportunity cost in dedicating resources to
year 2000 compliance activities rather than other endeavors. We have elected
to halt the deployment of new releases, upgrades or implementation of
information technology assets from October 1, 1999 to January 31, 2000, to
facilitate our ability to manage year 2000-related concerns.

Costs to Address the Year 2000 Issue

We estimate that we have spent approximately $66 million through
March 31, 1999 on implementation of the year 2000 initiative, with the
majority of the work being performed by our employees. We have incurred the
majority of these costs in repairing

33
<PAGE>

software components. We expect to spend an estimated additional $40 million to
complete the year 2000 initiative.

These costs do not yet include all of the costs of preparing or
implementing year 2000 contingency plans currently under development.
Currently, we estimate that we will incur approximately $3 million to $5
million in out-of-pocket costs in connection with our contingency planning
efforts. In addition, a portion of the salary and benefits payable to our
employees assigned to contingency planning activities will be allocated to
year 2000 costs. We currently expect that our year 2000 contingency plans will
call for our employees to be involved in such contingency planning activities
as command center staffing, plan implementation at operating locations and the
additional testing of IT and non-IT assets before and during the millennium
weekend.

We also are incurring costs in connection with the assessment and
remediation of IT assets and non-IT assets that are not business critical. Our
management believes that the costs associated with these activities are
significantly less than the costs of our year 2000 initiative.

These are our management's best estimates and may be revised as
additional information becomes available. We intend to fund all costs
associated with our year 2000 efforts from operations.

Risks Presented by the Year 2000 Issue

Our failure to appropriately address a material year 2000 issue, or
the failure by any third parties who provide goods or services that are
critical to our business activities to appropriately address their year 2000
issues, could have a material adverse effect on our financial condition,
liquidity or results of operations. To date, we have not identified any
material IT or non-IT assets critical to our operations that present a
material risk of not being year 2000 ready or that cannot be replaced with a
suitable alternative. As the year 2000 initiative proceeds, however, it is
possible that we may identify assets or third-party providers that do present
a risk of a year 2000-related disruption. Although there is inherent
uncertainty in the year 2000 problem, we expect that the year 2000 initiative
will significantly reduce our level of uncertainty about our year 2000 issues.
At this point, we believe that our most reasonably likely worst case scenario
will result from challenges presented by year 2000 disruptions experienced by
third parties, such as suppliers, customers or government agencies. We are
particularly focused on possible concerns with the year 2000 compliance status
of third parties located outside the United States, such as air traffic
control systems, customs brokerages, international airports, utility service
providers, governmental support structure and the like. A significant
disruption in services provided by such a third-party could have a material
adverse impact on our financial condition, liquidity or results of operations.

Contingency Plans

We have established a Contingency Plan Committee to monitor and
address the development of contingency plans. The year 2000 initiative calls
for us to conduct risk assessment reviews to determine whether contingency
plans should be developed. Under this process, a contingency plan with respect
to a system may be required for reasons

34
<PAGE>

other than an expectation of failure, such as, for example, the importance of
a business process. Certain business units have completed various risk
assessment reviews and are in the process of developing year 2000 contingency
plans required by these reviews. In addition, we maintain and deploy
contingency plans designed to address various other potential business
interruptions as a normal course of business. These plans may be applicable to
address the interruption of support provided by third parties resulting from
their failure to be year 2000 ready.

We have also elected to establish Command and Control Centers at key
operational locations and at other regional centers of operations, to
facilitate management of year 2000 events.

<PAGE>

INDUSTRY OVERVIEW

The package delivery business has evolved rapidly over the last two
decades, driven by the integration of world markets, the rationalization of
corporate supply chains and the implementation of enterprise software and
Internet-based information technology solutions. The ability to provide
time-definite delivery options and process and transfer information
increasingly determines success. Customer demands for real-time information
processing and worldwide distribution and logistics capabilities favor large,
global companies with integrated services. These trends are driving increased
consolidation in the industry.

Customers increasingly focus on the timing and predictability of
deliveries rather than the mode of transportation. As customers re-engineer
the total distribution process, which includes order processing,
administration, warehousing, transportation and inventory management, they are
attempting to reduce the most expensive and fastest growing component --
inventory carrying costs. Time-definite transportation, which is no longer
limited to air express, has become a critical part of just-in-time inventory
management and improving overall distribution efficiency.

Technology advances have made it easier for companies to analyze and
compare distribution options. Rapid advances in technology have also helped
move the traditional business model where manufacturers "pushed" products into
the supply chain, often based on incomplete information, toward a model where
end-user demand "pulls" products into the supply chain. This evolution has
placed greater demands on transportation systems for visibility of information
at all stages of the order/delivery process, because time-to-market is
becoming a key component of financial and operating success.

As a result of these changes, individual shipments are generally
smaller but more frequent, and a greater proportion of products is being
delivered directly to end-users. Customers expect high performance levels and
broad product offerings as they seek to optimize supply chain solutions. We
believe that these trends will benefit companies like UPS, with global reach,
diverse product portfolios, extensive residential delivery capabilities and
sophisticated tracking and information technology.

Time-Definite Package Delivery

Delivery of packages to a specific destination at a guaranteed time
has been the growth engine for the package delivery industry over the past
decade. Time-definite service has grown from 4% of the U.S. parcel delivery
market in 1977 to over 60% today. Time-definite service has grown from just
under 10 billion revenue ton miles in 1989 to over 14 billion revenue ton
miles in 1997, for a compound annual growth rate of 4.3%, while charter,
scheduled mail and scheduled freight have remained relatively flat during that
period. Internationally, however, time-definite service represents only 6% of
the parcel delivery market, demonstrating the potential for substantial
growth.

<PAGE>

Logistics, Supply Chain Management and Integrated Services

Many businesses have decided to outsource the management of all or
part of their supply chain. As a result, third-party logistics providers, such
as UPS, have become extensively involved in the full range of customer supply
chain functions. Third-party services include order fulfillment, freight bill
auditing and payment, cross-docking, product marking, labeling and packaging,
inventory and warehouse management, parts return and repair and the actual
physical movement of goods. The domestic third-party logistics market was
estimated to be between $18 billion and $20 billion in 1998, or about 4% of an
estimated $450 billion in contractible logistics dollars. We believe the
third-party portion of this market will continue to grow significantly over
the next several years. Finally, we believe that the third-party logistics
market is highly fragmented and likely to experience consolidation.

Industry Trends

The key industry trends are:

Globalization. The growing demand for global consumer brands, the
increasing number of multinational corporations, global sourcing and the
breaking down of trade barriers have all spurred substantial growth in
cross-border delivery. As a result, international freight traffic has grown
consistently at a rate three times that of United States domestic freight
traffic.

The use of express services in Europe is estimated to be about half
as prevalent as in the U.S., but further opening of European trade markets is
likely to lead to substantial growth in European cross-border deliveries. In
addition, the European Commission is expected to consider deregulation of
European mail markets by 2003. In Asia and Latin America, growth in package
deliveries continued throughout the recent economic difficulties.

Increased Need for Time-Definite Services. The need for just-in-time
and other time-definite delivery has increased as a result of the
globalization of manufacturing, greater implementation of demand-driven supply
chains, the shortening of product cycles and the increasing value of
individual shipments. It is estimated that 46% of all goods in the U.S. will
be shipped just-in-time by the year 2000, up from 17% in 1994. Companies have
also recognized that increased spending on time-definite delivery services can
reduce total distribution costs by reducing inventory levels and inventory
loss, either through shrinkage, spoilage or obsolescence.

Significant Advances in Technology. There has been dramatic growth in
the utilization of e-commerce by both consumers and businesses for the
transfer of goods. Consumers who use the Internet for home shopping and other
services shop across borders and require global delivery capabilities.
According to Forrester Research, $80 billion in goods were purchased globally
over the Internet in 1998, and this figure is expected to reach over $3.2
trillion in 2003. Of this $80 billion, 80% to 85% represented
business-to-business sales, with the remainder representing
business-to-residential sales.

37
<PAGE>

Customers are demanding increasingly complex supply chain management
solutions that require more sophisticated information technology systems.
Major manufacturers require increased precision in delivery time, and
customers demand precise tracking and timely information about potential
service disruptions. As a result, third-party providers need increasing
amounts of capital and technological know-how.

Industry Consolidation. The industry has become increasingly
dominated by large integrated carriers that provide seamless services,
including pick-up and delivery, shipment via air and/or road transport and
customs clearance. The pace of consolidation in the package delivery industry
has increased on a global scale, particularly in Europe, due to the following
factors:

o the need for global distribution networks, large vehicle fleets,
global information technology systems and the resources
necessary for their development or acquisition

o customers' desire for integrated services

o high growth in the international and cross-border delivery
segments

o deregulation of European delivery markets

Industry participants are acquiring, merging with or forming
alliances with partners that can expand global reach, breadth of services or
technological capabilities in order to better enable those participants to
compete in a rapidly changing global environment. In particular,
government-run post offices have made several recent alliances with and
acquisitions of private-sector companies. Post offices, which still maintain
numerous advantages over private-sector companies, create significant
challenges for competitors worldwide.

<PAGE>

BUSINESS

Overview

We were founded in 1907 by James E. Casey in order to provide private
messenger and delivery services in the Seattle, Washington area. Over the past
92 years, we have expanded our small regional parcel delivery service into a
global company with a strategic focus on the movement of goods, information
and funds. Casey fostered the development of our employee ownership culture
when he initiated employee stock ownership in 1927. Today, we have established
a vast and reliable global transportation infrastructure, developed a
comprehensive, competitive and guaranteed portfolio of services, and
consistently supported these services with advanced technology.

Competitive Strengths

We have the following competitive strengths:

Global Reach and Scale. We believe that our integrated worldwide
ground and air network is the most extensive in the industry. We operate about
149,000 delivery vehicles and over 500 airplanes. Our integrated end-to-end
delivery system carries an estimated 6% of the U.S. gross domestic product and
covers about 99% of U.S. businesses and virtually all U.S. residential
addresses. We have invested billions of dollars in information technology, a
fleet of airplanes and many other improvements across our vast global delivery
network. We are now the tenth largest airline in North America, with our
primary air hub in Louisville, Kentucky.

39
<PAGE>

We established our first international operation when we entered
Canada in 1975, and we first entered Europe in 1976 when we established a
domestic operation in West Germany. In the 1980s and early 1990s, we expanded
our operations throughout Europe, as we identified the opportunities presented
by the development of the single market and responded to the need for
pan-European delivery services. Today, we offer the broadest portfolio of
time-definite services available, ranging from same-day service to logistics
solutions for total supply chain management. We currently have what we believe
is the most comprehensive integrated delivery and information services
portfolio of any carrier in Europe.

In the last decade, we entered into more than two dozen alliances
with various Asian delivery companies and currently serve more than 40 Asia
Pacific countries and territories. Our primary focus has been on the transport
of express packages to and from the region, and volumes remained strong
throughout the recent economic downturn. We have also established operations
in Latin America and the Caribbean, and are positioned to capitalize upon the
growth potential there. This was most recently exemplified by our agreement to
acquire the assets and air routes of Challenge Air Cargo. In addition, we have
formed alliances with more than 50 service partners in countries throughout
our Americas region.

In 1998, Fortune magazine recognized us as the World's Most Admired
Global Mail, Package and Freight Delivery Company. The Fortune magazine survey
also ranked us as the fourth most admired U.S. company overall.

Distinctive People and Culture. Our loyal and capable people are our
most valuable asset. We believe that the dedication of our employees results
in large part from our distinctive "employee-owner" concept. Our employee
stock ownership tradition dates from 1927, when founder Jim Casey, who
believed that employee stock ownership was a vital foundation for successful
business, first offered stock to UPS employees. To facilitate stock ownership
by employees, we have maintained several stock-based compensation plans.
Currently, employees and retirees own about two-thirds of our total
outstanding shares, and the founders' families and foundations own the
remaining shares. Following the public offering that is contemplated as part
of the proposed change in our capital structure, the current UPS shareowners
will own about 90% of our total outstanding shares and will control about 99%
of the vote.

Complementing our tradition of employee ownership, we also have a
long-standing policy of "promotion from within," and this policy has
significantly reduced our need to hire managers and executive officers from
outside UPS. A majority of our management team began their careers as
full-time or part-time hourly UPS employees, and have since spent their entire
careers with UPS. Every executive officer, including our CEO, has more than 25
years of service with UPS and has accumulated a meaningful ownership stake in
our company. Therefore, our executive officers have a strong incentive to
provide effective management of UPS, which will benefit all of our
shareowners.

We have a legacy of commitment to the communities in which our
employees live and work. Our many community service activities include:

<PAGE>

o UPS Foundation. Since 1951, our Foundation has provided
financial support to alleviate social problems - most notably
programs that support family and workplace literacy, food
distribution and nationwide volunteerism. Our Foundation also
supports high-impact educational and urgent human needs
programs.

o Community Internship Program. For the past 30 years, selected
managers have participated in four weeks of intensive community
service in underprivileged areas. We designed this initiative to
educate managers about the needs of a diverse work force and
customer base and to allow these managers to apply their
problem-solving skills through four weeks of intense community.

o Neighbor to Neighbor. Through an ongoing company-wide
initiative, we match our employees and their families volunteer
efforts with local programs. In 1998, about 30,000 volunteers
participated in this program.

o United Way. Since our first campaign in 1982, we and our
employees have contributed over $355 million to the United Way,
making us the United Way's second largest corporate giver in the
U.S.

o Welfare to Work. In 1997, we became one of the five founding
members of the White House-sponsored Welfare-to-Work program,
which places people on public assistance into private sector
jobs. We have developed, trained and mentored over 20,000
qualified candidates nationwide for positions at UPS.

o School to Work. We have introduced a school-to-work program,
which promotes education and real-world work experience for
at-risk youth.

Broad, Flexible Range of Distribution Services. We have
differentiated ourselves by offering as broad and flexible a range of delivery
services to our customers as any provider in the industry. All of our air,
international and business-to-business ground delivery service offerings are
time-definite and guaranteed. Our portfolio of service offerings enables
customers to choose the delivery option that is most appropriate for their
requirements.

Our express air services are complemented by our vast ground delivery
system. We believe our ground delivery system provides us with a significant
cost advantage over our competitors that ship predominantly by air. For
distances that can be covered by delivery vehicle in one night, our ground
delivery offers guaranteed overnight delivery service at prices that are as
little as one-fourth those of the premium overnight air services. Also, we now
include guarantees and date-definite delivery commitments on shipments moving
longer distances requiring multiple days, at a lower price than some of our
competitors' air-based deferred delivery offerings. In addition, UPS
Hundredweight Service offers discounted rates on multiple package ground
shipments weighing more than 200 pounds, or air shipments totaling more than
100 pounds. This service is price-competitive with less-than-truckload (LTL)
service on shipments up to about 1,000 pounds and includes our full array of
information services.

<PAGE>

We make guaranteed international shipments to more than 200 countries
and territories worldwide, including guaranteed overnight delivery of
documents to many of the world's most important business centers. We offer a
complete portfolio of time-definite services for customers in major markets.

We pioneered technologies that allow for secure, encrypted and
trackable digital file deliveries over the Internet, such as UPS OnLine
Courier in 1998. To make our services more easily available and to integrate
our presence on the Web wherever e-commerce is taking place, we have developed
a wide range of Internet tools accessible from our website, such as online
tracking, rating and service selection, address validation, time in transit
detail, package detail upload, shipping and handling and service mapping.

Brand Equity. We have built strong brand equity by being a leader in
quality service and product innovation in our industry. A recent survey of
senior business executives, called Image Power(R), rated UPS as the second
strongest business-to-business brand in the U.S., behind Microsoft. Among the
factors that contribute to our brand equity are our:

o friendly, professional delivery employees and familiar brown
delivery vehicles

o long history of service reliability

o comprehensive service portfolio

o state-of-the-art technology

o history of innovation and industry firsts

o competitive pricing

o consistent advertising and communications to customers and the
public about our evolving capabilities

o longstanding and significant contributions to the communities in
which we live and work

Our brand has successfully made the transition from a U.S.-based
ground delivery company to a global time-definite service provider with the
ability to launch innovative new products and services around the globe. For
example, we were the first company to offer guaranteed next business day
delivery of packages and documents by 8:00 a.m. or 8:30 a.m., the first full
service carrier to introduce same-day delivery services in the U.S. and the
first company to provide guaranteed nationwide ground service in the U.S.
Increasingly, our customers recognize that UPS is not just a reliable carrier
of packages, but an innovator of transportation and information-based business
solutions on a broadening global scale.

42
<PAGE>

One of the many ways that we have supported our brand is through
sponsorship arrangements, such as our status as the official package delivery
company of the National Football League in the U.S. and globally as a
Worldwide Olympic Partner. We have been Fortune magazine's Most Admired
Transportation Company in the mail, package and freight category for 16
consecutive years.

Customer Relationships. We serve the ongoing package distribution
requirements of our customers worldwide, and provide additional services that
both enhance customer relationships and complement our position as the
foremost provider of package distribution services. Our current volume mix is
about 80% business-to-business, and our customer base includes all of the
Fortune 1000 companies.

We focus on building and maintaining long-term customer
relationships. We provide automatic daily pick-up services at the request of
over 1.6 million shipping customers. In addition, thousands of our other
customers access us daily through on-call pick-up for air delivery services,
51,000 letter drop-boxes and 30,000 independently owned shipping locations. We
also have affinity relationships with 486 professional associations.

We place significant importance on the quality of our customer
relationships and conduct comprehensive market research to monitor customer
service. Since 1992, we have conducted telephone interviews with shipping
decision makers virtually every business day to determine their satisfaction
with delivery providers and perception of performance on key service factors.
We use the telephone interview data to develop a statistical model that
identifies those service factors that have the greatest impact on improving
customer satisfaction, leading to enhanced profitability. The Customer
Satisfaction Index allows us to continuously monitor satisfaction levels and
helps us to focus our sales and advertising efforts and new service
development. The 1998 CSI showed that our customer satisfaction level for
domestic service exceeded that of any of our competitors.

In 1996, we initiated a branded Preferred Customer loyalty program
for our top 120,000 accounts. This program provides customer recognition,
special communication programs, free trials of new products and services and a
designated Preferred Customer associate to help resolve daily issues.

Our customer focus is exemplified by the fact that we received the
1998 Platinum Pentastar, the most prestigious award that DaimlerChrysler
presents to its suppliers. This was the third time that we have been named
"best in class" for Chrysler's, and now DaimlerChrysler's, entire supplier
base.

Technology Systems. We have expanded our reputation as a leading
package distribution company by developing an equally strong capability as a
mover of electronic information. As a result, we are more efficient and price
competitive, and we provide better customer solutions.

We have made significant investments in technology over the past
decade. CIO magazine ranked us 35th in the U.S. for our corporate information
systems, and we have

43
<PAGE>

won two Computerworld Smithsonian Awards for our technology. The
state-of-the-art technology that we currently deploy over our network enables
us to serve our customers globally in the most efficient ways. This technology
provides our customers with total order visibility and improves customer
service, receiving, order management and accounting operations.

The following are examples of our technology:

o We built and maintain the world's largest private DB2 database.

o We incorporated into our central computer system the largest
cellular network in the U.S., which we use to transmit delivery
information.

o We recently introduced DIAD III, which provides the fastest and
most complete delivery information of any hand-held computer
used by any delivery company in the world.

o We are the only company to provide electronic capture and
retrieval of package recipients' signatures.

o In selected hubs, we have installed sophisticated, automated
sortation systems to improve processing speed and operational
efficiency.

o We developed an array of UPS Online Solutions, which are
proprietary software and hardware packages that we provide to
our customers. UPS Online Solutions enable our customers to
send, manage and track their shipments and provide us with
electronic package-level detail to support these functions.

E-Commerce Capabilities. We are a leading participant in and
facilitator of e-commerce. We have teamed with other e-commerce leaders to
offer fully integrated Web-enabled solutions for our customers. We have
integrated our systems with software produced by leading manufacturers of
enterprise resource planning (ERP), Internet transactions, e-procurement and
systems integration solutions. Our e-commerce alliance partners include AT&T,
Harbinger, IBM, Oracle and PeopleSoft. According to Zona Research, we command
55% of the market for the distribution of goods purchased over the Internet.

Our website strategy is to provide our customers with the convenience
of all the functions that they would otherwise perform over the phone or at
one of the shipping outlets. The site, www.ups.com, which uses technology to
strengthen ties to our customers, includes package tracking (available in 17
languages for the convenience of our international customers, whose business
accounted for 13.1% of our 1998 revenue), a quick-cost calculator and a
drop-off locator. The multi-language tracking at our website is an industry
first.

We have developed a number of Internet tools accessible from our
website. These applications provide simple interfaces for our customers to
employ at their own websites in

44
<PAGE>

conducting e-commerce with their customers. These tools include enhanced
tracking, rate calculation, service selection, address validation,
time-in-transit, service mapping and electronic manifesting. Matrix Media and
The Economist both rated our website as the top transportation website in the
world. Business Marketing's NetMarketing also named our website one of the top
25 business-to-business sites.

Financial Strength. Our balance sheet gives us financial strength
that few companies can match. We are one of the few companies -- and the only
transportation company -- with a triple-A credit rating from both Standard &
Poor's and Moody's. This credit rating reflects the strength of our
competitive position, our consistent earnings and cash flow growth and our
conservative balance sheet. As of March 31, 1999, we had a balance of cash,
cash equivalents and marketable securities of approximately $3.3 billion and
shareowners' equity of $7.8 billion. Long-term debt was $2.1 billion, slightly
lower than at the end of 1998. Our financial strength has given us the
resources to achieve global scale and to make needed investments in technology
and fleet to position us for growth.

Growth Strategy

Our growth strategy is designed to take advantage of our competitive
strengths while maintaining our focus on meeting or exceeding our customers'
requirements. The principal components of our growth strategy are as follows:

Expand Our Leadership Position in Our Core Domestic Business. Our
U.S. package operation is the foundation of our business and the primary
engine for our future growth. We believe that our tradition of reliable parcel
service, our experienced and dedicated employees and our unmatched delivery
system provide us with the advantages of reputation, service quality and
economies of scale that differentiate us from our competitors. Our strategy is
to increase core domestic revenues through cross-selling of our existing and
new services to our large and diverse customer base, to limit the rate of
expense growth and employ technology-driven efficiencies to improve operating
profit. Our core business is also a springboard for our growth in all other
areas, including international, logistics, supply chain management and
e-commerce.

We plan to focus on maintaining and improving service quality,
meeting customer demands and providing innovative service offerings in order
to continue to grow domestic package revenues. A good example of this is last
year's introduction of the first nationwide guaranteed ground package delivery
service.

Continue International Expansion. We have built a strong
international presence through significant investments over a number of years.
In 1998, our international package operations generated $3.2 billion of
revenue and became profitable. The international package delivery market has
grown, and continues to grow, at a faster rate than the U.S. market.

Europe remains our largest regional market outside of the U.S.,
accounting for more than half of our international revenue. As the European
Community evolves into a single

<PAGE>

marketplace, with well-established regional standards and regulations, we
believe that our business will benefit from additional growth within Europe as
well as continued growth in imports and exports worldwide. We plan to solidify
and expand our market position in Europe, where we have already completed a
pan-European network. We have introduced new aircraft and additional capacity
in Europe to support volume growth and add flexibility to our European air
operations. In addition, we have gained operating rights, enhanced our
European hubs and supported the Express Shuttle, a high-speed rail project
that would facilitate the use of rail transportation of packages throughout
Europe. We believe that we have the strongest portfolio of pan-European
services of any integrated carrier in Europe, combining time-definite delivery
options and related information capabilities. We plan to continue to expand
our service offerings in Eastern Europe and the Middle East.

In Asia, we primarily focus on the movement of express packages to
and from, as opposed to within, that region, and volumes remained strong
throughout the recent economic downturn. We are investing in our Asian air
network to enhance our operations. We recently developed new multi-million
dollar hubs in Hong Kong and Taiwan. We also acquired operating rights to
provide service to points in Asia and beyond from Tokyo, and we are seeking
to acquire additional air operating authority from a number of countries.

We believe that there is significant untapped potential in Latin
America for us to expand our service offerings. To this end, we are
introducing overnight delivery between key cities in the Mercosur and other
trade blocs; introducing 8:00 a.m. delivery to the U.S., Canada and Europe;
and launching domestic express service in selected markets. Most importantly,
through our recently announced agreement to acquire the assets and air routes
of Challenge Air Cargo, we will become the largest cargo carrier in Latin
America. This position will enable us to further develop our cargo business
and provide advantages in pursuit of additional express package volume, a
market which is less developed in the region.

Provide Comprehensive Logistics and Supply Chain Solutions. Many
businesses have decided to outsource the management of all or part of their
supply chain to cut costs. The domestic third-party logistics market was
estimated to be between $18 billion and $20 billion in 1998, and this market
is expected to grow at 15% to 20% annually. We believe that we are well
positioned to capitalize on this growth for the following reasons:

o We now redesign and operate supply chains for major companies in
48 countries, with about five million square feet of
distribution space and 35 centralized locations worldwide.

o By combining supply chain re-engineering, information systems
integration and comprehensive global logistics services, we
reach beyond the traditional boundaries of transportation and
warehousing, improving customers' inventory flows while reducing
capital assets, lowering costs and enhancing customer service.

o Maintaining long-term relationships with our customers allows us
to share our expertise in organizing supply chain management, to
establish an innovative way

46
<PAGE>

to speed the product to market and to recommend to our customers
more efficient services for their customers.

Leverage Our Leading-Edge Technology and E-Commerce Advantage.
Forrester Research projects that the worldwide e-commerce business will grow
from $80 billion in 1998 to over $3.2 trillion in 2003, for a compounded
annual growth rate of 109%. According to Zona Research, we are the preferred
shipper for e-commerce, commanding 55% of the total market for the
distribution of goods purchased over the Internet. E-commerce is an important
part of our future growth because we believe that it will drive smaller and
more frequent shipments and provide a strong complement to our core delivery
service offerings.

Our goal is to integrate UPS technology into the business processes
of our customers, providing information to assist them in serving their
customers and improving their cash flows. We will also use our technology and
our physical infrastructure to help provide the operational backbone to
businesses striving to create new business models in e-commerce. These new
business models will operate in just-in-time or manufacturer-direct
distribution modes, which are heavily dependent on smaller, more frequent
shipments. In the process, we will gain knowledge of new repeatable business
models and market this expertise elsewhere. A key component of this strategy
is to establish relationships with technology providers in the areas of ERP,
e-procurement, systems integration, market integration and others, to
integrate UPS technologies into their solutions and into the websites and
systems of their customers.

To date, our leading-edge technology has enabled our e-commerce
partners to integrate our shipping functionality into their e-commerce product
suites. Our partners' products are being installed throughout the Internet and
these legacy systems should provide us with a competitive advantage. In
addition, the UPS technology integrated into our partners' products creates
significant value for our customers through reduced cycle times, lower
operating costs, improved customer service, enhanced collections and the
ability to offer strong delivery commitments.

Pursue Strategic Acquisitions and Global Alliances. In order to
remain the pre-eminent global company in our industry, we will continue to
make strategic acquisitions and enter into global alliances. Our public
offering will better position us to aggressively pursue strategic acquisitions
and enter into global alliances that can:

o complement our core business

o build our global brand

o enhance our technological capabilities or service offerings

o lower our costs

o expand our geographic presence and managerial expertise

<PAGE>

Products and Services

Domestic Ground Services

For most of our history, we have been engaged primarily in the
delivery of packages traveling by ground transportation. We expanded this
service gradually, and today standard ground service is available for
interstate and intrastate destinations, serving every address in the 48
contiguous states and intrastate in Alaska and Hawaii. We restrict this
service to packages that weigh no more than 150 pounds and are no larger than
108 inches in length and 130 inches in combined length and girth. In 1998, we
introduced UPS Guaranteed Ground(SM), which gives guaranteed, time-definite
delivery of all commercial ground packages.

In addition to our standard ground delivery product, UPS
Hundredweight Service(R) offers discounted rates to customers sending multiple
package shipments having a combined weight of 200 pounds or more, or air
shipments totaling 100 pounds or more, addressed to one recipient at one
address and shipped on the same day. Customers can realize significant savings
on these shipments compared to regular ground or air service rates. UPS
Hundredweight Service is available in all 48 contiguous states.

Domestic Air Services

We provide domestic air delivery throughout the United States. UPS
Next Day Air(R) offers guaranteed next business day delivery by 10:30 a.m. to
more than 75% of the United States population, delivery by noon to areas
covering an additional 13% and end-of-day delivery to the remainder. We offer
Saturday delivery for UPS Next Day Air shipments for an additional fee.

UPS Early A.M.(R) guarantees next business day delivery of packages
and documents by 8:00 a.m. or 8:30 a.m. to more than 55% of the United States
population. UPS Early A.M. is available from virtually all overnight shipping
locations coast to coast. In addition, UPS Next Day Air Saver(R) offers next
day delivery by 3:00 or 4:30 p.m. to commercial destinations and by the end of
the day to residential destinations in the 48 contiguous United States.

UPS SonicAir Best Flight(SM) provides same-day and next-flight-out
delivery services to virtually any location in the United States.

We offer three options for customers who desire guaranteed delivery
services but do not require overnight delivery.

o UPS 2nd Day Air A.M.(R) provides guaranteed delivery of packages
and documents to commercial addresses by noon of the second
business day.

o UPS 2nd Day Air(R) provides guaranteed delivery of packages and
documents in two business days.

<PAGE>

o UPS 3 Day Select(R) provides guaranteed delivery in three
business days. 3 Day Select is priced between traditional
ground and air-express services.

In 1998, we introduced the first reusable Next Day Air letter
container, which features a resealable flap and is made from 100% recycled
material. We also expanded our On-Call Air Pickup services to 94% of all
businesses.

International Delivery Services

We deliver international shipments to more than 200 countries and
territories worldwide, and we provide guaranteed overnight delivery to many of
the world's most important business centers. Throughout 1998, we continued to
develop our global delivery and logistics network. We offer a complete
portfolio of services that are designed to provide a uniform service offering
across major countries. This portfolio includes guaranteed 8:30 a.m. and 10:30
a.m. next business day delivery to major cities, as well as scheduled
day-definite ground service. We offer complete customs clearance service for
any mode of transportation, regardless of carrier, at all UPS Customhouse
Brokerage sites in the U.S. and Canada.

UPS Worldwide Express(SM) provides door-to-door, customs-cleared
delivery to over 200 countries and territories. This service includes
guaranteed overnight delivery of documents from major U.S. cities to many
international business centers. For package delivery, UPS Worldwide Express
provides guaranteed overnight delivery to major cities in Mexico and Canada
and guaranteed second business day delivery for packages to over 290 cities in
Europe. Shipments to other destinations via UPS Worldwide Express are
generally delivered in two business days.

UPS Worldwide Express Plus(SM) complements our regular express
service by providing guaranteed early morning delivery options from
international locations to major cities around the world and guaranteed early
morning second business day delivery from the United States to over 150 cities
in Europe. In February 1998, we introduced two new shipment pricing options
for UPS Worldwide Express and UPS Worldwide Express Plus: the UPS 10KG Box(TM)
and the UPS 25KG Box(TM). These new options offer a simple, convenient,
door-to-door fixed-rate shipping solution for express shipments up to 10
kilograms and 25 kilograms. Customers using this packaging option receive flat
rates based on destination.

We also offer UPS Worldwide Expedited(SM) service, which is designed
to meet customers' requirements for routine shipments that do not require
overnight or express delivery. From the United States, shipments to Mexico and
Canada are delivered in three business days, and shipments to most major
destinations in Europe and Asia are generally delivered in four business days.
Both UPS Worldwide Express and UPS Worldwide Expedited services are offered
between many international locations and from international locations to the
United States, providing guaranteed service from international locations that
vary from country to country.

49
<PAGE>

UPS International Standard(SM) service provides scheduled delivery
of shipments within and between the European Union countries, within Canada
and Mexico and between the United States and Canada. This service includes
day-specific delivery of less-than-urgent package shipments. The service
offers delivery typically between one and three days, depending on the
distance.

We operate a European air hub in Cologne, Germany and an Asia Pacific
air hub in Taipei, Taiwan.

Non-Package Operations

We provide other services that are distinct from our package
operations, a component of which is UPS Logistics Group, Inc., discussed
below. We formed UPS Logistics Group, Inc. in early 1996. It is the parent
company for a number of operating subsidiaries.

UPS Worldwide Logistics(R), Inc., a subsidiary of UPS Logistics
Group, Inc., provides third-party supply chain management solutions for a
number of industries, including high-tech, telecommunications, apparel,
automotive and electronics. It designs and operates basic inventory, warehouse
and transportation management services, as well as complex integrated
logistics services for its customers' inbound, outbound and international
logistics needs. It operates warehouses in the United States, Mexico,
Singapore, Hong Kong, Japan, The Netherlands, Germany, Taiwan, France and the
United Kingdom, using state-of-the-art information systems that reduce
customers' distribution and capital costs.

Service Parts Logistics. We believe that supply chain management will
be a significant new segment of opportunity. Service Parts Logistics brings
together a number of our competencies to the management of field service
technicians for manufacturers of computers and other office equipment. Our
services include call center and technical service hotline management,
inventory financing, just-in-time inventory stocking and transportation, and
parts repair and return.

Some of the other subsidiaries of UPS Logistics Group, Inc. are:

o SonicAir(R), Inc., which provides same-day and next-flight-out
delivery services and critical parts warehousing to virtually
any location in the United States and locations in more than
180 countries.

o Roadnet(R) Technologies, Inc., a route scheduling software
developer.

o Diversified Trimodal, Inc., also known as Martrac(R), which
transports produce and other commodities in temperature-
controlled trailers over railroads.

o Worldwide Dedicated Services, Inc., which provides dedicated
contract fleet management services.

50
<PAGE>

o PS Truck Leasing(R), Inc., a subsidiary of UPS Logistics Group,
Inc., rents and leases trucks and tractors to commercial users
under full-service rental agreements. In addition, it provides
maintenance for other companies' fleets of vehicles on a
contract basis.

Electronic Services

We also provide a family of electronic shipping and tracking
solutions under the UPS OnLine(R) shipping system. UPS OnLine Office is
software that helps shippers streamline their shipping activities. It
processes shipments, prints address labels, tracks packages and provides basic
management reports from a desktop computer. Office software supports
international shipments as easily as domestic shipments and quickly prepares
any export documentation. UPS OnLine Professional is designed to support a
complex shipping environment with solutions for domestic and international
shipping. It combines a powerful shipping and tracking system with
sophisticated information management tools. UPS OnLine Tracking software is
easily installed on personal computers and provides the user with immediate
tracking and delivery information for packages anywhere in the world. Packages
can be tracked with a tracking number or the shipper's own reference number.
UPS OnLine Host Access provides electronic connectivity between UPS and the
shipper's host computer system, linking UPS shipping information directly to
all parts of the customer's organization. UPS OnLine Host Access can be used
to enhance and streamline the customer's sales, service, distribution and
accounting functions by providing direct access to vital transportation
planning, shipment status and merchandise delivery information. UPS OnLine
Compatible Solutions offer similar benefits to customers using shipping
systems supplied by third parties.

Our website, www.ups.com, brings a wide array of information services
to customers worldwide. Package tracking, pick-up requests, rate quotes,
service mapping, drop-off locator, transit times and supply ordering services
are all available at the customer's desktop. The site also displays full
domestic and international service information and provides an avenue for
customers to download UPS software.

UPS Document Exchange(SM), featuring UPS OnLine Courier Service(SM),
is a delivery solution that utilizes the Internet as the mode of transport.
This service offers features not found in traditional e-mail applications,
such as document tracking, version translation, scheduled delivery, delivery
confirmation, security options and the ability to carry any type of digital
file. This gives customers the ability to send any digitally produced material
in a secured environment, which allows them to take advantage of the speed and
efficiencies of electronic delivery.

In April 1998, we established a website at www.ec.ups.com to support
our commitment to e-commerce. This site promotes the advantages of e-commerce
and spotlights our unique position with regard to the facilitation of
commerce.

51
<PAGE>

Delivery Service Options

We offer additional services such as Consignee Billing, Delivery
Confirmation and Call Tag Service to those customers who require customized
package distribution solutions. We designed Consignee Billing for customers
who receive large volumes of merchandise from a number of vendors. We bill
these consignee customers directly for their shipping charges, enabling the
customer to obtain tighter control over inbound transportation costs. Delivery
Confirmation provides automatic confirmation and weekly reports of deliveries
and is available throughout the United States and Puerto Rico. Immediate
confirmation is also available upon request. Call Tag Service provides prompt
pick-up and return of packages previously delivered by UPS from any address in
the 48 contiguous states.

Sales and Marketing

Our sales force consists of about 3,500 account executives worldwide,
spread across our 15 regions. Account executives, except for regional
management account executives, are further allocated to individual operating
districts. We have an organization of regionally based account managers, who
report directly to our corporate office, for our biggest multi-site customers.

We recently instituted our new Sales Force 2000 initiative, which
realigned our sales force based on an assessment of customer revenue and
potential. Account responsibilities were rationalized, and account executives'
workloads were distributed based on the size and strategic importance of
individual customers.

We are also in the process of providing each of our account
executives with laptop computers loaded with our proprietary "Link" account
management software. These systems will provide account executives with useful
productivity tools, and we have determined that the systems increase the time
our account executives are able to spend with customers and potential
customers and improve their overall effectiveness.

In addition to our general sales force, we have overlaid three
supplemental sales forces: International Business, focused on international
business out of major U.S. business centers; UPS HundredWeight Service(SM)
business; and e-commerce. Within these specialty sales forces, the account
executives report to their respective districts. Our logistics operations and
other subsidiaries maintain their own sales forces.

Our marketing organization is organized along similar lines. We
generally advertise and promote our company on a national and global basis,
with major decisions made out of corporate headquarters. Individual regions
and districts also engage in local marketing and promotions to varying
degrees.

Our marketing operation is also charged with district/regional
business planning and determination of appropriate discounts and other
customer incentives. Each district or region is given a substantial degree of
flexibility to vary the prices of our products and services before being
required to seek approval from higher management.

52
<PAGE>

Employees

During 1998, we employed over 330,000 employees. We were recently
named one of Fortune magazine's Diversity Elite - one of the 50 best companies
for Asians, Blacks and Hispanics.

Approximately 89,000 full-time and 116,000 part-time employees are
represented by various labor unions, primarily the International Brotherhood
of Teamsters. We and the Teamsters are parties to a five-year master agreement
that expires July 31, 2002. This is the longest agreement we have ever reached
with the Teamsters. In addition, we employ about 2,100 pilots represented by
the Independent Pilots Association. We and the Independent Pilots Association
have an eight-year agreement that becomes amendable on January 1, 2004.

We believe that our relations with our employees are good.

Properties and Facilities

We own our headquarters, which are located in Atlanta, Georgia and
consist of about 735,000 square feet of office space on an office campus.

We also own our 29 principal U.S. package operating facilities, which
have floor spaces that range from about 354,000 to 693,000 square feet. In
addition, we have a 1.9 million square foot operating facility near Chicago,
Illinois, which is designed to streamline shipments between East coast and
West coast destinations.

We also own about 730, and lease about 873, smaller operating
facilities, throughout the United States for our package operations. The
smaller of these facilities have vehicles and drivers stationed for the pickup
of packages and facilities for the sorting, transfer and delivery of packages.
The larger of these facilities have additional facilities for servicing our
vehicles and equipment and employ specialized mechanical installations for the
sorting and handling of packages. We also own or lease other facilities that
support our international package and non-package operations. We believe our
facilities are adequate to support our current operations.

Our aircraft are operated in a hub and spokes pattern in the United
States. Our principal air hub in the United States is located in Louisville,
Kentucky, with regional air hubs in Columbia, South Carolina, Dallas, Texas,
Hartford, Connecticut, Ontario, California, Philadelphia, Pennsylvania, and
Rockford, Illinois. These hubs house facilities for the sorting, transfer and
delivery of packages. Our Louisville, Kentucky hub handles the largest volume
of packages for air delivery in the United States. Our European air hub is
located in Cologne, Germany, and our Asia-Pacific air hub is in Taipei,
Taiwan. Regional air hubs in Canada include facilities in Hamilton, Ontario
and Montreal, Quebec. Our new automated sorting facility, "Hub 2000," is
currently under construction in Louisville, Kentucky, and we expect it to
commence partial operations in 2000. We expect this new facility to increase
our hub capacity by over 40% in Louisville.

53
<PAGE>

Our computer operations are consolidated in a 435,000 square foot
leased facility, the Ramapo Ridge facility, which is located on a 39-acre site
in Mahwah, NJ. We have leased this facility for an initial term ending in 2019
for use as a data processing, telecommunications and operations facility. We
also own a 160,000 square foot facility located on a 25-acre site in the
Atlanta, Georgia area, which serves as a backup to the main computer
operations facility in New Jersey. This facility provides production functions
and backup capacity in case a power outage or other disaster incapacitates the
main data center. It also helps us to meet communication needs.

Fleet

Aircraft

As of December 31, 1998, our fleet consisted of the following 536
aircraft:

<TABLE>

Number Number Leased Number Under Option
Description Owned from Others on Order
<S> <C> <C> <C> <C>

McDonnell-Douglas DC-8-71............ 23 -- -- --
McDonnell-Douglas DC-8-73............ 26 -- -- --
Boeing 727-100....................... 51 -- -- --
Boeing 727-200....................... 10 -- -- --
Boeing 747-100....................... 12 -- -- --
Boeing 747-200....................... 4 -- -- --
Boeing 757-200....................... 64 9 2 --
Boeing 767-300....................... 21 6 3 --
Airbus A300-600...................... -- -- 30 30
Other................................ -- 310 -- --
--- --- --- ---
Total................................ 211 325 35 30
=== === === ===
</TABLE>

We maintain an inventory of spare engines and parts for each
aircraft.

All of the aircraft we own meet Stage III federal noise regulations,
and can operate at airports that have aircraft noise restrictions. We became
the first major airline to successfully operate a 100% Stage III fleet more
than three years in advance of the date required by federal regulations.

During 1998, we took delivery of two Boeing 747-200, three Boeing
757-200 and five Boeing 767-300 aircraft. We also exercised options to
purchase ten Boeing 757- 200 aircraft that we previously accounted for under
operating leases. We have firm commitments to take delivery of two Boeing
757-200 and three Boeing 767-300 aircraft in 1999. We also have firm
commitments to purchase four Airbus A300-600 aircraft during 2000 and 26
Airbus A300-600 aircraft between 2001 and 2005, and we have options to
purchase 30 Airbus A300-600 aircraft between 2002 and 2009.

54
<PAGE>

Because of our maintenance schedules, and our fewer daily flight
cycles as compared to commercial passenger airlines, we do not anticipate the
need to retire any currently owned aircraft in the next ten years.

Vehicles

We operate a fleet of about 149,000 delivery vehicles, ranging from
panel delivery vehicles to large tractors and trailers, including about 1,400
temperature-controlled trailers owned by Martrac and about 4,000 vehicles
owned by UPS Truck Leasing.

Our management believes that these aircraft and vehicles are adequate
to support our operations over the next year.

Safety

We promote safety throughout our operations.

Our Automotive Fleet Safety Program is built with the following
components:

o Selection. Six out of every seven drivers come from our
part-time ranks. Therefore, many of our new drivers are
familiar with our philosophy, policies, practices and training
programs.

o Training. Training is the cornerstone of our Fleet Safety
Program. Our approach starts with training the trainer. All
trainers undergo a rigorous training workshop to ensure that
they have the skills and motivation to effectively train novice
drivers. The first 30 days of a new driver's employment includes
eight hours of classroom "space and visibility" training
followed by three safety training rides integrated into their
training cycle.

o Responsibility. Our operations managers are responsible for
their drivers' safety records. We investigate every accident.
If we determine that the accident could have been prevented, we
re-train the driver.

o Preventive Maintenance. An integral part of our Fleet Safety
Program is a comprehensive Preventive Maintenance Program. Our
fleet is tracked by computer to ensure that each vehicle is
serviced before a breakdown or accident can occur.

o Honor Plan. A well-defined safe driver honor plan recognizes and
rewards our drivers when they achieve success. We currently have
about 2,850 drivers who have driven for 25 years or more without
an avoidable accident.

Our workplace safety program consists of a comprehensive health and
safety program that is monitored by our employee-management health & safety
committees. The workplace safety process focuses on employee conditioning and
safety-related habits. We enlist employees' help in designing facilities and
work processes.

55
<PAGE>

Competition

We are the largest package distribution company in the world, in
terms of both revenue and volume. We offer a broad array of services in the
package delivery industry and therefore compete with many different companies
and services on a local, regional, national and international basis. These
competitors include the postal services of the United States and other
nations, various motor carriers, express companies, freight forwarders, air
couriers and others. Our major competitors include Federal Express, the United
States Postal Service, RPS, Inc., Airborne Express and DHL Worldwide Express.

Competition is increasingly based on a carrier's ability to integrate
its distribution and information systems with its customers' systems to
provide unique transportation solutions at competitive prices. We rely on our
vast infrastructure and service portfolio to attract and maintain customers.
As we move into the logistics and other non-package areas, we compete with a
number of participants in the logistics, financial services and information
technology industries.

Government Regulation

Both the Department of Transportation and the Federal Aviation
Administration regulate air transportation services.

The DOT's authority relates primarily to economic aspects of air
transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations or cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international
routes, fares, rates and practices, and is authorized to investigate and take
action against discriminatory treatment of United States air carriers abroad.
The FAA's authority relates primarily to safety aspects of air transportation,
including aircraft standards and maintenance, personnel and ground facilities.
In 1988, the FAA granted us an operating certificate, which remains in effect
so long as we meet the operational requirements of federal aviation
regulations.

The FAA has issued rules mandating repairs on all Boeing Company and
McDonnell-Douglas Corporation aircraft that have completed a specified number
of flights, and has also issued rules requiring a corrosion control program
for Boeing Company aircraft. Our total expenditures under these programs for
1998 were about $16.4 million. The future cost of repairs pursuant to these
programs may fluctuate. All mandated repairs have been completed or are
scheduled to be completed within the timeframes specified by the FAA.

Our ground transportation of packages in the United States is subject
to the DOT's jurisdiction with respect to the regulation of routes, and both
the DOT's and the states' jurisdiction with respect to the regulation of
safety, insurance and hazardous materials. We are subject to similar
regulation in many foreign jurisdictions.

<PAGE>

Postal Rate Proceedings

The Postal Reorganization Act of 1970 created the postal service as
an independent establishment of the executive branch of the federal
government, and vested the power to recommend domestic postal rates in a
regulatory body, the Postal Rate Commission. We believe that the postal
service consistently attempts to set rates for its monopoly services,
particularly first class letter mail, above the cost of providing these
services, in order to use the excess revenues to subsidize its expedited,
parcel, international and other competitive services. Therefore, we
participate in the postal rate proceedings before the Postal Rate Commission
in an attempt to secure fair postal rates for competitive services.

On June 29, 1998, the Postal Service Board of Governors adopted, with
minor exceptions, the Postal Rate Commission's Recommended Decision in the
general rate case filed by the postal service in 1997. On July 13, 1998, we
filed a notice of appeal with the United States Court of Appeals for the
District of Columbia, claiming the Postal Rate Commission erred in the
treatment of air transportation costs associated with the movement of parcel
post packages in the state of Alaska and Priority Mail's contribution to
covering institutional (overhead) costs. The appeal is pending.

Legislation has been proposed that would result in significant
amendments to the Postal Reorganization Act. If adopted, it would introduce a
form of rate-cap regulation of monopoly services, loosen regulation of
competitive services and, for some matters, strengthen the powers of the
Postal Rate Commission.

Environmental Regulation

The Clean Air Act Amendments of 1990 require a ten-year phase-in of
clean-fuel vehicles by some fleets in urban areas with the worst air quality
problems. We began a project in 1989 using clean compressed natural gas as a
fuel in some package cars. By the end of 1998, more than 850 UPS package cars
were running on compressed natural gas in various cities. The EPA's final
rules under the Clean Air Act Amendments of 1990 established regulations
governing the exemption of clean fuel fleet vehicles from some transportation
control measures. The regulations exempt clean fuel vehicles, such as our
compressed natural gas vehicles, from urban transportation control measures,
which include truck bans and time-of-day restrictions. The regulations also
permit the compressed natural gas vehicles to travel in high occupancy vehicle
lanes, if they meet emission criteria.

All of the aircraft we own meet Stage III federal noise regulations.

Litigation

During the second quarter of 1995, we received a Notice of Deficiency
from the United States Internal Revenue Service asserting that we are liable
for additional tax for the 1983 and 1984 tax years. The Notice of Deficiency
is based in large part on the theory that we are liable for tax on income of
Overseas Partners Ltd., a Bermuda company, which has reinsured excess value
package insurance purchased by our customers from unrelated

57
<PAGE>

insurers. The tax deficiency sought by the IRS relating to package insurance
is based on a number of theories, which we believe are inconsistent, and
ranges from $8 million to $35 million, plus penalties and interest for 1984.
In August 1995, we filed a petition in the United States Tax Court in
opposition to the Notice of Deficiency related to the 1983 and 1984 tax years.
The matter was tried before the Tax Court in late 1997.

During the first quarter of 1999, the IRS issued two additional
Notices of Deficiency asserting that we are liable for additional tax for the
1985 through 1987 tax years and the 1988 through 1990 tax years. In all
cases, the primary assertions by the IRS relate to the reinsurance of excess
value package insurance. The tax deficiency sought by the IRS relating to
package insurance for these periods ranges, based on alternative theories,
from $115 million to $121 million for the 1985 through 1987 tax years, and
from $131 million to $138 million for the 1988 through 1990 tax years, plus in
each case penalties and interest. The IRS has based its assertions on the same
theories included in the 1983-1984 Notice of Deficiency.

In addition to package insurance, the IRS has raised a number of
other issues relating to the timing of deductions, the characterization of
expenses as capital rather than ordinary and our entitlement to the Investment
Tax Credit and the Research Tax Credit in the 1983 through 1990 tax years. We
estimate the amounts at issue with respect to these additional items at
approximately $12 million in tax for the 1983 and 1984 tax years, $88 million
in tax for the 1985 through 1987 tax years and $245 million in tax for the
1988 through 1990 tax years, plus in each case penalties and interest. The
majority of these adjustments are timing adjustments that would reverse in
future years. We have filed petitions with the Tax Court in opposition to the
Notices of Deficiency. The IRS may take positions similar to those described
above for periods subsequent to 1990. We believe the eventual resolution of
the matters raised by the IRS will not result in a material adverse effect
upon our financial condition.

We are a defendant in various employment-related lawsuits. In one of
these actions, which alleges employment discrimination by UPS, class action
status has been granted, and the United States Equal Employment Opportunity
Commission has been granted the right to intervene. We are also a defendant in
various other lawsuits that arose in the normal course of business. In our
opinion, none of these cases is expected to have a material adverse effect
upon our financial condition.

58
<PAGE>

THE MERGER, THE PUBLIC OFFERING AND
THE TENDER OFFER

The Merger

How It Will Work

Old UPS currently owns all of New UPS's (United Parcel Service, Inc.)
common stock, and New UPS currently owns all of ___________'s common stock.
When Old UPS merges with -------------:

o Old UPS will survive the merger, and ____________ will cease to
exist

o all of Old UPS's outstanding common stock will automatically
convert into New UPS's class A common stock, and Old UPS's
current shareowners will own all of New UPS's class A common
stock

o New UPS will own all of Old UPS's common stock

The result will be that our current shareowner-owned company, Old
UPS, will become a subsidiary of New UPS, and you will own New UPS Class A
common stock instead of Old UPS common stock. The new shareowner-owned
company, New UPS, will have a new certificate of incorporation and bylaws,
while Old UPS's certificate of incorporation will remain unchanged.

We believe that New UPS's capital structure will help preserve the
best aspects of our employee-owned and owner-managed culture while providing
us with a publicly traded equity security that we could use for strategic
alliances and acquisitions in important markets around the world. You no
longer will be required to offer your shares to us before you can sell them to
third parties. And we are seeking to terminate the right of recall by
terminating the Managers Stock Trust, the Employees Stock Trust and similar
Trusts. See "Purposes of the Merger."

New UPS's Certificate of Incorporation

New UPS's certificate of incorporation will be different from our
current certificate of incorporation in the following principal ways:

o it will replace the current common stock with class A-1 common
stock, class A-2 common stock, class A-3 common stock and class
B common stock

o it will eliminate the requirement that you must offer your
shares to us for purchase before you can sell them to third
parties

o it will modify our "scaled voting" provision so that it does not
reduce the voting power of shareowners unless they own more than
25% of our total voting power

<PAGE>

o it will add provisions that restrict the transferability of the
class A common stock for a period of time to allow us to
complete a successful public offering

There are additional changes in New UPS's certificate of
incorporation. You should read "Description of Capital Stock, Certificate of
Incorporation and Bylaws" and New UPS's certificate of incorporation, which is
filed as an exhibit to the registration statement of which this proxy
statement/prospectus is a part.

Voting Rights

Holders of class A common stock will be entitled to ten votes per
share on all matters voted upon by our shareowners. Holders of class B common
stock will have the same economic rights as holders of class A common stock,
but will be entitled to one vote per share on all matters voted upon by our
shareowners. Any person or group that beneficially owns more than 25% of our
total voting power will be allowed only 1/100th of a vote with respect to each
share in excess of 25% of our total voting power. Old UPS's certificate of
incorporation contains a similar provision, but it applies to any person or
group that owns more than 10% of our total voting power.

What You Will Receive

When we effect the merger, all of our outstanding common stock will
convert automatically into shares of New UPS's class A common stock. Of the
Old UPS shares you own:

o one-third will be converted into class A-1 common stock

o one-third will be converted into class A-2 common stock

o one-third will be converted into class A-3 common stock

Except for the applicable restricted period, which we describe below,
each share of class A common stock will be identical.

Separately, we are seeking approval to terminate the UPS Managers
Stock Trust, the UPS Employees Stock Trust and other Trusts that give us
recall rights. The shares of class A common stock you receive as a result of
the merger will not be subject to these Trusts and may not be recalled by us.

Transfer Restrictions on Shares of Class A Common Stock

You will not be able to sell or transfer shares of class A common
stock or convert shares of class A common stock into class B shares until the
relevant restricted period expires. This restricted period will expire:

o six months after our public offering for class A-1 common stock

o 12 months after our public offering for class A-2 common stock

60
<PAGE>

o 18 months after our public offering for class A-3 common stock

Subject to restrictions on persons deemed to be our affiliates, you
will be able to transfer shares of class A common stock freely after the
applicable restricted period expires. Management thinks that it is important
for our people to have a significant investment in our common stock in order
to be truly motivated to strive for our continued success. Other than sales in
the tender offer, management expects that, in the future, our people will
maintain their investment in the company until retirement.

If you transfer any shares of class A common stock to someone who is
not a "permitted transferee," those shares automatically will convert into
shares of class B common stock.

Listing

The class A common stock will not be listed on a national securities
exchange or traded in the organized over-the-counter market. The class B
common stock will be listed on the New York Stock Exchange.

The Public Offering

Soon after the merger is approved, subject to market conditions, we
plan to make a public offering of New UPS's class B common stock.

After the public offering:

o class A common stock will constitute about 90% of our total
outstanding common stock and about 99% of our total voting power

o class B common stock will constitute about 10% of our total
outstanding common stock and about 1% of our total voting power

The Tender Offer

After the public offering, we intend to use the net proceeds of the
public offering to fund a cash tender offer for some of the class A-1 common
stock. This will give you an opportunity to sell a portion of your class A
common stock before the restricted periods expire.

We will purchase shares in the tender offer pursuant to an offer to
purchase and related materials, which we will distribute to you when we
commence the tender offer. We will also file a Schedule 13E-4 with the SEC in
connection with the tender offer.

How We Will Effect the Merger and the Public Offering

If approved, we will effect the merger immediately prior to the
closing of the public offering. At that time, we will file a certificate of
merger with the Secretary of State of the State of Delaware. We currently
expect that this will occur by the end of 1999.

61
<PAGE>

Your shares will be converted automatically, without any action on
your part, into New UPS's class A common stock. Shortly after the completion
of our public offering, we will send you a letter telling you how you will
receive certificates for your class A common stock.

You should not send any share certificates to us at this time.

Conditions to the Merger

We will cause the merger to become effective only if each of the
following conditions is satisfied or waived:

o A majority of the outstanding shares of our common stock
entitled to vote at the special meeting approve the merger
agreement

o We consummate the initial public offering of our class B shares

o Certain of our employee benefit plans receive an exemption or
opinion from the Department of Labor to the effect that the
exchange of Old UPS common stock for New UPS class A common
stock is not a "prohibited transaction" under ERISA

Federal Income Tax Consequences of the Merger

The merger, the conversion of your shares into New UPS's class A
common stock and the public offering will not be taxable transactions for you
for U.S. federal income tax purposes. Any sale of your class A common stock,
in the tender offer or otherwise, will be a taxable transaction for you for
U.S. federal income tax purposes. You should consult your individual tax
adviser about your tax consequences from any transaction involving our shares.

<PAGE>

PURPOSES OF THE MERGER

The purposes of the merger are:

o to put in place a capital structure that will give us greater
financial flexibility to respond to changes in global market
conditions

o to give us a publicly traded equity security that we could use
when appropriate for strategic alliances and acquisitions in
important markets around the world

o to preserve the best aspects of our employee-owned and
owner-managed culture

Our current capital structure and certificate of incorporation have
functioned well for us over the past century as a private company. The
transfer restrictions that apply to all of our voting stock have ensured that
we remained owned and controlled by our managers and employees and their heirs
and descendants. We have provided limited liquidity to our shareowners by
offering to purchase shares at prices set by our board of directors.

But as we enter the 21st century, we face a rapidly changing
competitive and operating environment. The package delivery industry is
globalizing and consolidating at an unprecedented rate. We face new
competitive challenges from postal monopolies, which have considerable
resources and infrastructures. We believe that we should have a publicly
traded equity security that we could use when appropriate for strategic
alliances and acquisitions in order to maintain our pre-eminent position.

We have determined that we and our shareowners would benefit from
having a publicly traded equity security. We also have determined that
employee ownership and owner management are important facets of our corporate
identity that should not be sacrificed. Therefore, we have designed the merger
and related transactions and New UPS's certificate of incorporation to
continue our historical culture of employee ownership and owner management,
while allowing us to simultaneously issue our stock to the public.

New UPS's certificate of incorporation accomplishes these goals by
concentrating both our equity ownership and voting power in our newly created
class A common stock, while offering our newly created class B common stock,
which has the same economic rights but has less voting power and represents
less of our total equity, to the public. Because we initially will issue our
class A common stock only to our current shareowners, and because we intend to
issue our class A common stock primarily to our managers and employees in the
future, this structure will maintain and enhance our historical ownership
profile. Simultaneously, our class B common stock will be publicly traded,
providing us with a market pricing mechanism for all of our stock and a
publicly traded equity security that we could use when appropriate for
strategic alliances and acquisitions in the future.

63
<PAGE>

THE SPECIAL MEETING; VOTING RIGHTS AND PROXIES

We are furnishing this proxy statement/prospectus to you in
connection with our solicitation of proxies at the special meeting. We are
first mailing this proxy statement/prospectus and the accompanying form of
proxy on or about _____________, 1999. We also are furnishing this proxy
statement/prospectus as a prospectus in connection with New UPS's issuance of
class A common stock as a result of the merger.

Time, Place and Purposes

We will hold the special meeting at _________________ on
_____________ ___, 1999. At the special meeting, we will ask you to vote upon
one proposal: to approve an Agreement and Plan of Merger, dated as of
_________, 1999, among Old UPS, New UPS and ___________, pursuant to which
___________ will merge with and into Old UPS and all of our currently
outstanding stock will be converted into shares of New UPS's class A common
stock.

Record Date; Voting Rights; Votes Required for Approval

Our board has fixed the close of business on _______________, 1999 as
the record date for determining shareowners entitled to receive notice of and
to vote at the special meeting. Only shareowners of record as of the close of
business on the record date will be entitled to vote at the special meeting.

We had ______ shares of common stock outstanding and entitled to vote
as of the close of business on the record date. These shares are the only
securities that may be voted at the special meeting. Each share is entitled to
one vote. First Union, as trustee under the Managers Stock Trust, the
Employees Stock Trust and the Qualified Stock Ownership Plan and Trust, owns
_______ shares, which constitute _____% of our outstanding common stock
entitled to vote as of the record date.

Holders of a majority of the issued and outstanding shares of our
common stock, present in person or by proxy, will constitute a quorum for the
transaction of business at the special meeting.

A majority of all outstanding shares of our common stock entitled to
vote is required to adopt and approve the merger at the special meeting.

Voting and Revocation of Proxies

All shares represented by valid proxies that we receive before the
special meeting will be voted at the special meeting as specified in the
proxy, unless the proxy has been previously revoked. If no specification is
made on a proxy, the related shares will be voted FOR the merger.

64
<PAGE>

Unless you indicate otherwise, your proxy card also will confer
discretionary authority on the board-appointed proxies to vote the shares
represented by the proxy on any matter that is properly presented for action
at the special meeting.

You have the right to revoke your proxy at any time before it is
voted by giving written notice of revocation to our Secretary, by submitting a
subsequent later-dated proxy or by voting in person at the special meeting.

If you own shares of our common stock that are held by First Union as
trustee under the UPS Managers Stock Trust, the UPS Employees Stock Trust or
the UPS Qualified Stock Ownership Plan and Trust, you may direct voting of
these shares by executing and returning to First Union voting instructions
that are included with this proxy statement/prospectus. If you do not return
voting instructions to First Union, First Union may execute a proxy that will
enable a member of our management to vote your shares in his or her discretion
at the special meeting. If this occurs, your shares would be voted FOR the
merger.

Costs of Solicitation

We will pay the expenses of printing, assembling and mailing this
proxy statement/prospectus. In addition to the use of the mails, our
directors, officers or regular employees may solicit proxies without
additional compensation, except for reimbursement of actual expenses. They may
do so using the mails, in person, by telephone, by facsimile transmission or
by other means of electronic communications.

We have retained ______________ for proxy solicitation services, for
which we will pay __________ a fee of $_________ and will reimburse it for its
expense charges, which we anticipate to be about $_______. We also have agreed
to indemnify _____________ against some liabilities and expenses in connection
with its engagement, including liabilities under the federal securities laws.
_____________ will solicit proxies from individuals, brokers, bank nominees
and others. It will utilize about ____ persons in its solicitation efforts,
which may be made by telephone, telegram, facsimile and in person.

We will reimburse brokers, fiduciaries, custodians and other nominees
for out-of-pocket expenses incurred in sending these proxy materials to, and
obtaining instructions from, beneficial owners.

No Appraisal Rights

You will not be entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law in connection with the merger or the
conversion of our outstanding common stock into New UPS's class A common
stock.

<PAGE>

DESCRIPTION OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND
BYLAWS

Authorized Capitalization

New UPS's capital structure will consist of _____ authorized class
A-1 shares, ___ authorized class A-2 shares, ___ authorized class A-3 shares,
_____ authorized class B shares and _____ authorized preferred shares. After
the merger and the public offering, there will be class A-1, __ class A-2, __
class A-3 and __ class B shares outstanding. This assumes that the
underwriters do not exercise their over-allotment option in connection with
the public offering.

Old UPS's capital structure consists of 900,000,000 authorized shares
of common stock and 200,000,000 authorized shares of preferred stock. As of
the record date, ___ shares of Old UPS's common stock and no shares of preferred
stock were outstanding.

Description of New UPS's Certificate of Incorporation

This section describes other key provisions of New UPS's certificate
of incorporation.

o Right of First Refusal. New UPS's certificate of incorporation
will not include the right of first refusal that is contained
in our current certificate of incorporation.

o Scaled Voting. New UPS's certificate of incorporation will
provide that any person or group that owns more than 25% of New
UPS's total voting power will be entitled to only 1/100th of a
vote for each share it owns in excess of 25% of New UPS's voting
power. Old UPS's certificate of incorporation contains a similar
provision, but it applies to any person or group that owns more
than 10% of our total voting power.

o No Shareowner Action by Written Consent. New UPS's certificate
of incorporation prohibits shareowner action by written consent.
This does not differ from our current certificate of
incorporation and bylaws.

o No Shareowner Ability to Call a Special Meeting. New UPS's
certificate of incorporation will provide that special meetings
of our shareowners may be called only by our board of directors
or the chairman of our board of directors. This does not differ
from our current certificate of incorporation.

o Limitation of Director Liability. New UPS's certificate of
incorporation will provide that our directors are not liable to
our shareowners for monetary damages for breach of fiduciary
duty, except for liability:

o for breach of duty of loyalty;

<PAGE>

o for acts or omissions not in good faith or involving
intentional misconduct or knowing violation of law;

o under Section 174 of the Delaware General Corporation Law
(unlawful dividends); and

o for transactions from which the director derived improper
personal benefit.

These director liability provisions do not differ from our
current certificate of incorporation.

o Indemnification of Directors and Officers. New UPS's certificate
of incorporation will not provide for indemnification of our
directors and officers, but New UPS's bylaws will provide that
we must indemnify our directors and officers to the fullest
extent authorized by the Delaware General Corporation Law,
subject to very limited exceptions. This does not differ
materially from our current certificate of incorporation and
bylaws.

o No Classified Board of Directors. New UPS's certificate of
incorporation will not provide for a classified board of
directors. This does not differ from our current certificate of
incorporation.

o No Cumulative Voting. New UPS's certificate of incorporation will
provide that our shareowners are not entitled to cumulative
voting in the election of our directors. This does not differ
from our current certificate of incorporation.

o No Preemptive Rights. New UPS's certificate of incorporation
will provide that our shareowners are not entitled to preemptive
rights to subscribe to any class of our stock. This does not
differ from our current certificate of incorporation.

Comparison of Our Currently Outstanding Common Stock to New UPS's Class A
Common Stock and Class B Common Stock

The following table compares our currently outstanding common stock
and New UPS's class A common stock and class B common stock.

<TABLE>

Old UPS's New UPS's New UPS's
Common Stock Class A Shares Class B Shares
<S> <C> <C> <C>

Public Market None. None. Will be listed on the New York
Stock Exchange, subject to
official notice of issuance.

Voting Rights One vote per share on all Ten votes per share on all One vote per share on all
matters voted upon by our matters voted upon by our matters voted upon by our
shareowners. shareowners. shareowners.

67
<PAGE>

Old UPS's New UPS's New UPS's
Common Stock Class A Shares Class B Shares

The voting rights of any The voting rights of any The voting rights of any
shareowner or shareowners as a shareowner or shareowners as a shareowner or shareowners as a
group who beneficially own more group who beneficially own more group who beneficially own more
than 10% of the common stock than 25% of the common stock than 25% of the common stock
(except for the UPS Managers (except for any of our employee (except for any of our employee
Stock Trust, the UPS Employees benefit plans) may cast only benefit plans) may cast only
Stock Trust, the UPS Qualified 1/100th of a vote with respect 1/100th of a vote with respect
Stock Ownership Plan and Trust to each share in excess of 25% to each share in excess of 25%
or any of our employee benefit of the outstanding shares of of the outstanding shares of
plans) may cast only 1/100th of common stock. common stock.
a vote with respect to each
share in excess of 10% of the
outstanding shares of common
stock.

No cumulative voting in the No cumulative voting in the No cumulative voting in the
election of our directors. election of our directors. election of our directors.

Transfer Subject to right of first Not subject to right of first Not subject to right of first
Restrictions refusal by UPS. refusal. refusal.

If held in the UPS Managers Will not be subject to the
Will not be subject to the UPS UPS Managers Stock Trust or
Will not be subject to the UPS the UPS Employees Stock Trust.
Stock Trust, the UPS Employees
Managers Stock Trust or the UPS
Managers Stock Trust or the UPS
Stock Trust or the UPS Qualified
Employees Stock Trust. Employees
Stock Trust. Stock Ownership
Plan and Trust, subject to our
right to purchase shares at fair
market value, as defined, when
you retire, die or cease to be
our employee, or when you request
the withdrawal of shares from the
trust. Also subject to purchase
by us after we receive a request
from you to release the shares
from the trust and upon occurrence
of several other enumerated events.

Class A-1 shares may
not be transferred or
converted into class B
shares until six months
after our public
offering; Class A-2
shares may not be
transferred or
converted into class B
shares until 12 months
after our public
offering; Class A-3
shares may not be
transferred or
converted into class B
shares until 18 months
after our public
offering.

68
<PAGE>

Old UPS's New UPS's New UPS's
Common Stock Class A Shares Class B Shares

If you transfer any
class A shares to
someone who is not a
"permitted transferee,"
those shares
automatically will
convert into class B
shares.

A "permitted
transferee" of an
employee is that
employee's spouse or
child or a trust
established by that
employee for the sole
benefit of one or more
of his or her permitted
transferees.

Conversion Not convertible. If you transfer any class A Not convertible.
shares to someone who
is not a "permitted
transferee," those
shares automatically
will convert into class
B shares.

Rights upon None specified. In the event that we reorganize, In the event that we reorganize,
Merger, merge or consolidate with one or merge or consolidate with one or
Consolidation or more other corporations, holders more other corporations, holders
Reorganization of class A shares will be of class B shares will be
entitled to receive the same entitled to receive the same
kind and amount of securities or kind and amount of securities or
property that is receivable by property that is receivable by
holders of class B shares. holders of class A shares.
</TABLE>

Dividends; Subdivision and Combinations

Subject to the rights of the holders of preferred stock, holders of
class A shares and class B shares will be entitled to receive dividends and
other distributions in cash, stock of any corporation (other than our common
stock) or our property as our board of directors may declare from time to time
out of our legally available assets or funds, and will share equally on a per
share basis in all such dividends and other distributions. If dividends or
other distributions are payable in New UPS's common stock, including
distributions pursuant to stock splits or divisions of our common stock, only
class A shares will be paid or distributed with respect to class A shares and
only class B shares will be paid or distributed with respect to class B
shares. The number of class A shares and class B shares so distributed will be
equal on a per share basis.

Neither our class A shares nor our class B shares may be
reclassified, subdivided or combined unless the reclassification, subdivision
or combination occurs simultaneously and in the same proportion for each
class.

<PAGE>

When the merger becomes effective, all the outstanding class A shares
will be validly issued, fully paid and nonassessable. When our public offering
is completed, all the outstanding class B shares will be validly issued, fully
paid and nonassessable.

Preferred Stock

New UPS's board of directors has the authority to issue shares of
preferred stock from time to time on terms that it may determine, to divide
preferred stock into one or more classes or series, and to fix the
designations, voting powers, preferences and relative participating, optional
or other special rights of each class or series, and the qualifications,
limitations or restrictions of each class or series, to the fullest extent
permitted by Delaware law. The issuance of preferred stock could have the
effect of decreasing the market price of our common stock, impeding or
delaying a possible takeover and adversely affecting the voting and other
rights of the holders of common stock. This does not differ from our current
certificate of incorporation.

Anti-Takeover Effects of Various Provisions of Delaware Law and New UPS's
Certificate of Incorporation and Bylaws

Our current certificate of incorporation and bylaws, and New UPS's
certificate of incorporation and bylaws, contain provisions that may have some
anti-takeover effects. Provisions of Delaware law may have similar effects
under both our current certificate of incorporation and New UPS's certificate
of incorporation.

Delaware Anti-Takeover Statute

We are now, and New UPS will be, subject to Section 203 of the
Delaware General Corporation Law. Subject to specific exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless:

o the "business combination," or the transaction in which
the stockholder became an "interested stockholder" is approved
by the board of directors prior to the date the "interested
stockholder" attained that status;

o upon consummation of the transaction that resulted in the
stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction
commenced (excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or

o on or subsequent to the date a person became an "interested
stockholder," the "business combination" is approved by the
board of directors and authorized at an annual or special
meeting of shareowners by the affirmative vote of at least

<PAGE>

two-thirds of the outstanding voting stock that is not owned by
the "interested stockholder."

"Business combinations" include mergers, asset sales and other
transactions resulting in a financial benefit to the "interested stockholder."
Subject to various exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's outstanding voting stock.
These restrictions could prohibit or delay the accomplishment of mergers or
other takeover or change-in-control attempts with respect to us and,
therefore, may discourage attempts to acquire us.

In addition, various provisions of our certificate of incorporation
and bylaws and New UPS's certificate of incorporation and bylaws, which are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a shareowner might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
shareowners.

No Cumulative Voting

Our certificate of incorporation and New UPS's certificate of
incorporation expressly deny you the right to cumulate votes in the election
of directors.

No Shareowner Action by Written Consent; Calling of Special Meetings
of Shareowners

Our certificate of incorporation and New UPS's certificate of
incorporation prohibit shareowner action by written consent. They also provide
that special meetings of our shareowners may be called only by the board of
directors or the chairman of our board of directors.

Advance Notice Requirements for Shareowner Proposals

Our bylaws and New UPS's bylaws provide that shareowners seeking to
bring business before an annual meeting of shareowners must provide timely
notice of their proposal in writing to the corporate secretary. To be timely,
a shareowner's notice must be delivered or mailed and received at our
principal executive offices not less than 120 days in advance of the
anniversary date of our proxy statement in connection with our previous year's
annual meeting. Our bylaws and New UPS's bylaws also specify requirements as
to the form and content of a shareowner's notice. These provisions may impede
shareowners' ability to bring matters before an annual meeting of shareowners
or make nominations for directors at an annual meeting of shareowners.

Limitations on Liability and Indemnification of Officers and Directors

The Delaware General Corporation Law authorizes corporations to limit
or eliminate the personal liability of directors to corporations and their
shareowners for monetary

<PAGE>

damages for breaches of directors' fiduciary duties.
Our certificate of incorporation and New UPS's certificate of incorporation
include a provision that eliminates the personal liability of directors for
monetary damages for actions taken as a director, except for liability:

o for breach of duty of loyalty

o for acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law

o under Section 174 of the Delaware General Corporation Law
(unlawful dividends)

o for transactions from which the director derived improper
personal benefit.

Our certificate of incorporation and New UPS's bylaws provide that we
must indemnify our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law, subject to very limited exceptions. We
are also expressly authorized to carry directors' and officers' insurance
providing indemnification for our directors, officers and certain employees
for some liabilities. We believe that these indemnification provisions and
insurance are necessary to attract and retain qualified directors and
executive officers.

The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage shareowners from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our shareowners. In addition, your
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions.

There is currently no pending litigation or proceeding involving any
of our directors, officers or employees for which indemnification is sought.
We are unaware of any threatened litigation that may result in claims for
indemnification.

Authorized But Unissued Shares

New UPS's authorized but unissued shares of common stock and
preferred stock will be available for future issuance without your approval.
We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.

72
<PAGE>

Supermajority Provisions

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority in interest of the shares entitled to vote on
any matter is required to amend a corporation's certificate of incorporation
or bylaws, unless the certificate of incorporation requires a greater
percentage. Our current certificate of incorporation provides that the
following provisions may be amended only by a vote of 80% or more of all of
the outstanding shares of our stock entitled to vote:

o the requirement that you must offer your shares to us before you
can sell them to third parties

o the reduction in voting power of shares held by beneficial
owners of more than 10% of our stock

o the prohibition on shareowner action by written consent

o the ability to call a special meeting of shareowners being
vested solely in our board of directors and the chairman of our
board

New UPS's certificate of incorporation will also provide that each of
these provisions may be amended only by an 80% vote, except that the reduction
in voting power will apply only to beneficial owners of more than 25% of New
UPS's stock, and New UPS's certificate of incorporation will not include any
requirement that you must offer your shares to us before you can sell them to
third parties.

Transfer Agent and Registrar

First Union is the Transfer Agent and Registrar for Old UPS's common
stock and will be the Transfer Agent and Registrar for New UPS's class A
common stock and class B common stock.

<PAGE>

MARKET FOR OLD UPS'S COMMON EQUITY AND
RELATED SHAREOWNER MATTERS

The following description relates to Old UPS's common stock.

Each share of Old UPS common stock is entitled to one vote in the
election of directors and other matters. Any shareowner, or shareowners acting
as a group, however, who beneficially own Old UPS more than 10% of the voting
stock are entitled to only one one-hundredth of a vote with respect to each
vote in excess of 10% of the voting power of the then outstanding shares of
voting stock. Holders have no preemptive or other right to subscribe to
additional shares. In the event of liquidation or dissolution, shareowners are
entitled to share ratably in the assets available after payment of all
obligations. The shares are not redeemable by us except through our exercise
of the preferential right of purchase mentioned below and, in the case of
stock subject to the UPS Managers Stock Trust, the UPS Employees Stock Trust
and the UPS Qualified Stock Ownership Plan and Trust, our right of purchase in
the circumstances described therein. Old UPS common stock is not listed on a
national securities exchange or traded in the organized over-the-counter
market.

Our certificate of incorporation provides that no outstanding shares
of our common stock entitled to vote generally in the election of directors
may be transferred to any other person, except by bona fide gift or
inheritance, unless the shares first shall have been offered, by written
notice, for sale to us at the same price and on the same terms upon which they
are to be offered to the proposed transferee.

We have the right, within 30 days after receipt of the notice, to
purchase all or a part of the shares at the price and on the terms offered. If
we fail to exercise or waive the right, the shareowner may, within a period of
20 days thereafter, sell to the proposed transferee all, but not part, of the
shares that we elected not to purchase, for the price and on the terms
described in the offer. All transferees of shares hold their shares subject to
the same restrictions. Shares previously offered but not transferred within
the 20 day period remain subject to the initial restrictions. Shares may be
pledged or otherwise used for security purposes, but no transfer may be made
upon a foreclosure of the pledge until the shares have been offered to us at
the price and on the terms and conditions bid by the purchaser at the
foreclosure.

We have been the principal purchaser of our common stock, which we
have used primarily for awards under the UPS Managers Incentive Plan, the UPS
1991 Stock Option Plan, the UPS 1996 Stock Option Plan and the matching
contribution of our stock under the UPS Qualified Stock Ownership Plan, and
for sales under the UPS 1997 Managers Stock Purchase Plan, the UPS 1997
Employee Stock Purchase Plan, and the UPS Qualified Stock Ownership Plan. We
have notified our shareowners periodically of our willingness to purchase a
limited number of shares at specified prices determined by our board of
directors.

In determining the share price, our board has considered a variety of
factors, including past and current earnings, earnings estimates, the ratio of
our common stock to our

<PAGE>

debt, other factors affecting our business and long-range prospects and
general economic conditions, as well as opinions furnished from time to time
by investment counselors acting as independent appraisers.

In its determination of the prices to be paid for our stock, our
board has not followed any predetermined formula. It has considered a number
of formulas commonly used in the evaluation of securities of closely held and
publicly held companies, but its decisions have been based primarily on its
judgment as to our long-range prospects rather than what it considers to be
short-range trends relating to us or to the values of securities generally.
Thus, for example, the board has not given substantial weight to short-term
variations in average price-earnings ratios of publicly traded securities,
which at times have been considerably higher, and at other times considerably
lower, than those at which we have offered to purchase our shares. But our
board's decision as to price has taken into account factors generally
affecting the market prices of publicly traded securities.

One factor in determining the prices at which securities trade in the
organized securities markets is that of supply and demand. When demand is high
in relation to the shares which investors seek to sell, prices tend to
increase, while prices tend to decrease when demand is low in relation to
shares being sold. Our board of directors has not given significant weight to
supply-demand considerations in determining the prices to be paid by us for
our shares. In the past, we have needed some of the shares that we have been
able to acquire for purposes of awards under the plans mentioned above, and
eligible employees have purchased some of the other available shares.

After the merger and the public offering are completed, we intend to
discontinue our policy of purchasing shares when offered by shareowners.

The prices at which we have published notices of our willingness to
purchase shares since January 1997 are as follows:

January 1, 1997.......................... $29.25
February 13, 1997........................ 29.75
May 14, 1997............................. 30.50
August 20, 1997.......................... 30.00
November 13, 1997........................ 30.75
February 27, 1998........................ 32.00
May 22, 1998............................. 34.00
August 20, 1998.......................... 37.00
November 19, 1998........................ 40.00
February 18, 1999........................ 43.00
May 20, 1999............................. 47.00

In each case, the price was applicable until the date of the next
published notice. From time to time, we have waived our right of first refusal
to purchase our shares in order to permit eligible employees to purchase
shares at the same price we were willing to pay. The grant of waiver in these
cases has been subject to those needs. Persons who purchased shares in this
manner were required to deposit them in the UPS Managers Stock Trust or the
UPS Employees Stock Trust.

<PAGE>

On May 20, 1999, we expressed our willingness to purchase shares at
$47.00 per share, which is still the applicable price at the date of this
proxy statement/prospectus.

Most of the shares of Old UPS common stock owned by our employees
currently are held subject to the UPS Managers Stock Trust, the UPS Employees
Stock Trust or the UPS Qualified Stock Ownership Plan and Trust. First Union
serves as trustee under these trusts. The trust agreements have given us the
right to purchase a member's shares of our common stock that have been
deposited in the trusts at their fair market value, as defined, when the
member retires, dies or ceases to be our employee, or when the member requests
the withdrawal of shares from the trust. Fair market value has been defined as
the fair market value of the shares at the time of the sale, or in the event
of differences of opinion as to value, the average price per share of all
shares of our common stock sold during the 12 months preceding the sale
involved. We also are entitled to purchase shares of our common stock held
under the trusts after receipt of a request from the member to release the
shares from the trust and upon occurrence of several other enumerated events.
If we did not elect to purchase the shares and did not pay for the shares
within the prescribed periods, the member would have become entitled, upon
request, to the delivery of the shares of our common stock free and clear of
the trusts, unless the purchase period had been extended by agreement of us
and the member.

Members of the trusts are entitled to the dividends on shares of Old
UPS common stock held for their accounts (except that stock dividends are
added to the shares held by the trustee for the benefit of the individual
members), to direct the trustee as to how the shares held for their benefit
are to be voted and, except holders under the UPS Qualified Stock Ownership
Plan and Trust, to request proxies from the trustee to vote shares held for
their accounts.

As of February 28, 1999, there were about 3,200 record holders of our
equity securities. First Union, as trustee, owns all the shares of our common
stock subject to the trusts. As of February 28, 1999, there were about 115,000
beneficial owners of shares of common stock subject to the trusts.

<PAGE>

MANAGEMENT AND STOCK OWNERSHIP INFORMATION

Directors and Executive Officers

John W. Alden, Age 57. Director since 1988. UPS Vice Chairman of the
Board, Senior Vice President and Business Development Group Manager

In 1986, John joined the Management Committee and was elected Senior Vice
President of Business Development. He has served on the board of directors
since 1988 and in November 1996 became Vice Chairman of the Board. He
currently oversees marketing, sales, advertising, public relations and the UPS
Logistics Group and its subsidiaries. John, who majored in history while
attending Boston University, started with UPS as an operations report clerk in
Watertown, Massachusetts in 1965. Two years later, he was promoted into
supervision. After several staff and hub assignments, he became the East New
England District Customer Service Office Manager in 1971. The following year,
John was named to manage the Customer Service function for the district. In
1977, John was promoted to Midwest Region Customer Service Manager, and in
1978 he joined the UPS corporate office as Customer Development Manager. John
is also a director of Browning-Ferris Industries, Inc. and serves on its
compensation committee.

William H. Brown, III, Age 71. Director since 1983. Partner in the
law firm of Schnader Harrison Segal & Lewis LLP in Philadelphia,
Pennsylvania

Bill received a bachelor's degree from Temple University in 1952 and graduated
from the University of Pennsylvania School of Law in 1955. From 1955 to 1968,
Bill practiced in a small law firm from which four of seven partners became
federal judges, and three others became state judges. In 1968, he became a
Deputy District Attorney in Philadelphia. Bill was appointed to the U.S. Equal
Employment Opportunity Commission by President Johnson in 1968 and was
selected as its Chairman by President Nixon in 1969. While with the EEOC, he
won nationwide attention for his work in negotiating a consent decree in the
EEOC complaint against AT&T. Bill joined his current firm after leaving his
EEOC post in 1973. Since then, his broad experience in litigation and other
matters includes handling a number of legal matters on behalf of UPS.

Robert J. Clanin, Age 55. Director since 1996. UPS Senior Vice
President, Treasurer and Chief Financial Officer

Bob joined UPS in 1971 as a part-time accounting clerk in the Metro Chicago
District. Two years later he was promoted to Accounting Manager. In 1979 he
was named Wisconsin District Controller and worked in Corporate Finance and
Accounting before accepting the position of Southwest Region Controller in
1987. Bob returned to corporate in 1989 as Treasury Manager and then Finance
Manager prior to assuming responsibilities for his current position. Bob
received a bachelor's degree from Bradley University in Business
Administration. Bob is also a director of the Georgia Council on Economic
Education and Overseas Partners Ltd.

<PAGE>

Michael L. Eskew, Age 49. Director since 1998. UPS Senior Vice
President and Group Manager of Engineering and Corporate Development

Mike joined UPS in 1972, after he received a Bachelor of Science Degree in
Industrial Engineering from Purdue University. He also attended graduate
school at Butler University and completed the Advanced Management Program at
the Wharton School of the University of Pennsylvania. Mike was responsible for
all industrial engineering activities in Germany when the Company began its
international expansion into Germany. In 1982, he was named Industrial
Engineering ("I.E.") Manager of our Northwest Region. He was in charge of I.E.
for the Air Group from 1984 to 1991. Mike was a District Manager in the
Central Jersey District from 1991 to 1993, and was promoted to Corporate I.E.
Manager in 1993. He became Manager of our Engineering Group in 1996. Mike
serves on the Georgia Institute of Technology's Advisory Board and is a member
of the University of Michigan Trucking Industry Program.

James P. Kelly, Age 55. Director since 1991. UPS Chairman of the
Board and Chief Executive Officer

Jim joined UPS in 1964 as a package car driver in the Metro Jersey District.
He entered supervision two years later and was promoted to Center Manager in
1968. Subsequent assignments included Package Division Manager and Labor
Relations Manager in the Metro Jersey District. By attending night school
during that period, he earned a degree in Management from Rutgers University.
Jim was named Atlantic District Manager in 1979 and later served as Pacific
Region Labor Relations Manager before being promoted to North Central Region
Manager in 1985. In 1988, he was assigned as a Corporate Labor Relations
Manager and became U.S. Operations Manager in 1990. In June 1992, Jim became
Chief Operating Officer and in February 1994, he became Executive Vice
President. From May through December 1996, Jim was Vice Chairman of the Board.
In January 1997, he was elected the Chief Executive Officer and Chairman of
the Board of the Company. Jim is a director of Georgia-Pacific Corporation.

Ann M. Livermore, Age 40. Director since 1997. Vice President of
Hewlett-Packard Company

Ann is vice president of Hewlett-Packard Company ("HP") and general manager of
its Enterprise Computing Solutions Organization. Ann joined HP in 1982, was
named marketing services manager for the Application Support Division in 1985,
and was promoted to marketing manager of that division in 1989. Ann became the
marketing manager of the Professional Services Division in 1991 and was named
sales and marketing manager of the former Worldwide Customer Support
Organization. Ann was elected a vice president of HP in 1995 and was promoted
to general manager of Worldwide Customer Support Operations in 1996. In 1997,
she took on responsibility for HP's software businesses as general manager of
the newly formed Software and Services Group. In 1998, she was named general
manager of the new Enterprise Computing Solutions Organization. Born in
Greensboro, N.C., Ann holds a bachelor's degree in Economics from the
University of North Carolina at Chapel Hill and an M.B.A. from Stanford
University.

<PAGE>

Ann is also on the board of visitors of the Kenan-Flagler Business School at
the University of North Carolina at Chapel Hill.

Gary E. MacDougal, Age 62. Director since 1973. Former Chairman of
the Board and Chief Executive Officer of Mark Controls Corporation

From 1963 to 1968, Gary was with McKinsey & Co., an international management
consulting firm, where he became a partner. From 1969 to 1987, Gary was
Chairman and Chief Executive Officer of Mark Controls Corporation, a flow
control products manufacturer. In 1988, he became honorary Chairman. Also in
1988, Gary was assistant campaign manager in the Bush presidential campaign,
and in 1989 was appointed by President Bush as a delegate and alternate
representative in the U.S. delegation to the United Nations. He is a director
of the Bulgarian American Enterprise Fund and a trustee of the Annie E. Casey
Foundation. From 1993 to 1997, he was Chairman of the Governor's Task Force on
Human Service Reform for the State of Illinois. Gary received his bachelor's
degree from the University of California at Los Angeles in Engineering in
1958. After receiving his degree, he spent three years as a U.S. Navy officer.
Following service, Gary attended Harvard Business School where he received his
M.B.A. degree. He is a director and Chairman of the public policy committee
and a member of the compensation and nominating committee of Union Camp
Corporation, a forest products producer. He also serves as an advisory
director of Saratoga Partners, a New York-based venture capital fund.

Joseph R. Moderow, Age 50. Director since 1988. UPS Senior Vice
President, Secretary and Legal & Public Affairs Group Manager

In 1986, Joe was named Legal & Regulatory Group Manager and elected Senior
Vice President and Secretary. He assumed additional responsibility for Public
Affairs in 1989. Joe began his UPS career in 1968 as a sorter and unloader in
the South California District while an undergraduate student. He earned a
bachelor's degree in Economics from California State University and a law
degree from Western State University. He is a member of the State Bar of
California. Joe was promoted into supervision in 1973 and later served as the
Arizona District Industrial Engineering Manager. In 1977, he was assigned to
the National Legal & Regulatory Group. In 1981, Joe participated in the
President's Commission on Executive Exchange in Washington, DC where he served
in the U.S. Department of Labor. In 1982, Joe became the West Virginia
District Manager. He was then assigned to the national Labor Relations group
and later headed the operations team during the start-up of international air
service.

Kent C. ("Oz") Nelson, Age 61. Director since 1983. Former UPS
Chairman of the Board and Chief Executive Officer

Oz graduated from Ball State University in 1959 with a bachelor's degree in
Business Administration. Two days later he began his UPS career as a Sales and
Customer Service Representative in Kokomo, Indiana. He served as Customer
Service Manager in the Indiana, North Illinois and Metro Chicago Districts as
well as the North Central Region. In 1973, Oz assumed national customer
development responsibilities. He served first on the

<PAGE>

study team and then on the team that implemented our service in Germany in
1976. In 1978, he was named National Customer Service Manager and also was
assigned to develop our Marketing Department. Oz was elected Senior Vice
President in 1983 and was our Finance Group Manager and Chief Financial
Officer from 1984 to 1987. He became Executive Vice President in 1986 and Vice
Chairman of the Board in February 1989. In November 1989, Oz succeeded Jack
Rogers as Chief Executive Officer and Chairman of the Board. In January 1997,
Oz retired as Chief Executive Officer and Chairman of the Board of the
Company. He also is a director of Columbia/HCA Healthcare Corporation.

Victor A. Pelson, Age 61. Director since 1990. Senior Advisor,
Warburg Dillon Read, LLC

Prior to the merger of SBC Warburg and Dillon Read in 1997, Vic served as a
director and Senior Advisor to the New York investment banking firm of Dillon
Read since April 1996. He previously was Chairman of Global Operations for
AT&T, with responsibility for AT&T's operations in the U.S. and around the
world. Vic started with AT&T in 1959 as an engineer and held a variety of
assignments in different departments, including engineering, operations,
finance, marketing and sales. At the time of his retirement from AT&T in 1996,
he was a member of the AT&T Board of Directors and the Management Executive
Committee. He also is a member of the Board of Directors of Eaton Corp. and
Carrier 1 International, S.A. Vic received a bachelor's degree from New Jersey
Institute of Technology and an M.B.A. from New York University. He is Chairman
of the Board of Trustees of New Jersey Institute of Technology and a director
of The Dun & Bradstreet Corporation.

John W. Rogers, Age 65. Director since 1979. Former UPS Chairman of
the Board and Chief Executive Officer

Jack was elected a director and Vice President in November 1979. In January
1979, he was given responsibility for our national operations. Jack graduated
from Miami University in Ohio with a degree in Business Administration in
1957. He began his career with UPS that same year as a trainee in Cincinnati.
His first UPS assignments involved night loading and delivering. He next
worked in industrial engineering and personnel before entering hub and
delivery operations. Jack then was promoted to Division Manager in Chicago and
later Operations Manager in the Wisconsin District. He became the first
Georgia District Manager in 1966. In 1972, he was appointed West Region
Manager. Two years later, he was named the Northeast Region Manager. In 1976,
Jack was assigned to national operations with coordinating responsibilities
for four regions. He was elected Senior Vice President and then Vice Chairman
in 1983 and became Chief Executive Officer and Chairman of the Board of the
Company in May 1984. He stepped down as Chairman of the Board in November 1989
and retired from active employment at the end of that year.

Charles L. Schaffer, Age 53. Director since 1992. UPS Senior Vice
President and Chief Operating Officer

Chuck joined UPS in 1970 as a part-time loader/unloader in the Metro Chicago
District. He was later promoted to hub supervisor, and became a full-time
personnel supervisor in 1973

<PAGE>

after graduation from the University of Illinois, where he earned a bachelor's
degree in Quantitative Methods. He was assigned to I.E. in 1974, and became a
member of the West Region I.E. staff in 1977. Chuck was promoted to Missouri
District I.E. Manager in 1978. Chuck then held a variety of package and hub
operations assignments before being named North Illinois I.E. Manager in 1981.
He was promoted to Midwest Region I.E. Manager in 1984. In 1986, Chuck was
named Arizona District Manager. In 1988, he became the Technology Task Group
Coordinator in Strategic Planning, and was promoted to Corporate Plant
Engineering Manager in 1989. Chuck became our Engineering Group Manager in
1990 and in 1996 was promoted to U.S. Operations Manager. In 1997, Chuck
became our Chief Operating Officer. Chuck is also Chairman of the Board of
Trustees for Kettering University.

Lea N. Soupata, Age 48. Director since 1998. UPS Senior Vice
President and Human Resources Group Manager

A native of New York City, Lea joined UPS in 1969 and is now responsible for
the human resources function for approximately 330,000 employees worldwide.
Following several assignments with UPS in Human Resources, Sales and
Operations, Lea became the Human Resources Manager in our North New England
and Metro New York Districts. Lea also served as Regional Human Resources
Manager for the East and East Central Regions. In 1990, Lea became the
District Manager of the Central New York District. She was transferred in 1994
to the Company's corporate office as Vice President of Human Resources prior
to being named to her current position. Lea serves as chair of The UPS
Foundation, our charitable arm, and has been active in a number of community
services programs, including United Way. She also is a trustee of the Annie E.
Casey Foundation, the world's largest philanthropic foundation dedicated to
helping disadvantaged children.

Robert M. Teeter, Age 60. Director since 1990. President of Coldwater
Corporation

Bob is a graduate of Albion College and holds a master's degree from Michigan
State University. He is president of Coldwater Corporation, a Michigan
consulting and research firm that specializes in the areas of strategic
planning, policy development and public opinion analysis. For more than 20
years he held several management positions, including President of Market
Opinion Research Company, one of the nation's largest marketing research
firms. Bob is also a director of Browning-Ferris Industries, Inc., Optical
Imaging Systems and Durakon Industries.

Thomas H. Weidemeyer, Age 51. Director since 1998. UPS Senior Vice
President and Transportation Group Manager

Tom joined UPS in 1972 in National Personnel after receiving his Law Degree
from the University of North Carolina Law School and his Bachelor's Degree
from Colgate University. In 1974, he moved to the Metro Detroit District and
worked in various operations assignments. In 1978, he joined our Legal
Department. In 1986, he was promoted to District Manager of Arkansas and later
helped set up our Northwest Ohio District. Tom became Manager of the Americas
Region in 1989, and in that capacity established the

<PAGE>

delivery network throughout Central and South America. In 1990, Tom became
Vice President and Airline Manager of UPS Airlines and in 1994 was elected
President and Chief Operating Officer of that subsidiary. Tom became Manager
of the Air Group and a member of the Management Committee that same year. He
serves on the Board of Directors of the Air Transport Association of America
and is a member of the Military Airlift Committee. He also serves on the Board
of the National Center for Family Literacy.

82
<PAGE>

Stock Ownership

Set forth below is information relating to the beneficial ownership
of our common stock as of January 31, 1999 by each person known by us to own
beneficially more than 5% of our outstanding common stock, each of our
directors, our Chief Executive Officer and each of our four highest paid
executive officers and all directors and executive officers as a group:

<TABLE>

Additional Shares in which
Number of shares as to the Beneficial Owner has
which the Beneficial Owner or Participates in the
Exercises Sole Voting or Voting or Investment Total Shares and Percent
Name of Beneficial Owner Investment Power power(4) of Class(6)
- --------------------------------- --------------------------- --------------------------- ------------------------
<S> <C> <C> <C>

John W. Alden 196,651(1)(2) 21,834,274(a) 22,030,925 4.01
William H. Brown, III 31,640 0 31,640 0.01
Robert J. Clanin 210,009(1)(2) 22,882,923(a)(c) 23,092,932 4.20
Michael L. Eskew 110,535(1)(2) 1,048,649(c) 1,159,184 0.21
James P. Kelly 207,172(1)(2) 22,882,923(a)(c) 23,090,095 4.20
Ann M. Livermore 2,229 0 2,229 0.00
Gary E. MacDougal 35,991(1) 21,834,274(a) 21,870,265 3.98
Joseph R. Moderow 154,243(1)(2) 24,183,821(a)(b) 24,338,064 4.42
Kent C. Nelson 270,448(1)(2) 24,183,821(a)(b) 24,454,269 4.45
Victor A. Pelson 12,344 0 12,344 0.00
John W. Rogers 450,971(1) 0 450,971 0.08
Charles L. Schaffer 177,838(1)(2) 1,168,900(e) 1,346,738 0.24
Lea N. Soupata 103,060(2) 24,240,923(a)(c)(d) 24,343,983 4.43
Robert M. Teeter 30,000 0 30,000 0.01
Thomas H. Weidemeyer 169,309(1)(2) 1,048,649(c) 1,217,958 0.22

Shares held by all directors and
executive officers as a group
(including the above) 2,853,893(3) 27,759,370(5) 30,613,263 5.56
</TABLE>

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

(1) Includes shares owned by family members as follows: Alden -- 15,104;
Clanin --92,347; Eskew --20,900; Kelly - 29,800; MacDougal -- 1,000; Moderow
- -- 21,648; Nelson -- 21,324; Rogers -- 87,842; Schaffer -- 21,500; Weidemeyer
- -- 4,000; and five other executive officers -- 50,706. Each named individual
disclaims all beneficial ownership of such shares.

(2) Includes shares which may be acquired within 60 days of January 31, 1999,
upon the exercise of outstanding stock options as follows: Alden -- 17,707;
Clanin -- 4,293; Eskew -- 3,606; Kelly -- 21,249; Moderow -- 16,420; Nelson --
33,483; Schaffer -- 15,776; Soupata -- 3,022; and Weidemeyer -- 9,337.

(3) Shares owned by executive officers as a group include 163,620 shares which
may be acquired within 60 days of January 31, 1999, upon the exercise of
outstanding stock options.

(4) None of the directors and the officers listed in the table above, nor
members of their families, have any ownership rights in the shares listed in
this column. Of the shares: (a) 21,834,274 shares are owned by the Annie E.
Casey Foundation, Inc., of which Messrs. Alden, Clanin, Kelly, MacDougal,
Moderow and Nelson, Ms. Soupata, and other non-UPS persons constitute the
corporate Board of Trustees; (b) 2,349,547 shares are held by various trusts
of which Messrs. Moderow and Nelson are co-fiduciaries; (c) 1,048,649 shares
are held by the UPS Foundation, Inc., a Company-sponsored charitable
foundation of which Messrs. Clanin, Eskew, Kelly and Weidemeyer, Ms. Soupata
and an executive officer not listed above, are trustees; (d) 1,358,000 shares
are held by two Voluntary Employee Beneficiary Associations ("VEBAs") of which
Ms. Soupata is a fiduciary; and (e) 1,168,900 shares that are held by an
employee benefit plan of which Mr. Schaffer is a trustee.

(5) This number includes shares held by the foundations, VEBAs, employee
benefit plans and trusts of which directors and executive officers listed
above are trustees or fiduciaries. This number eliminates duplications in the
reported number of shares arising from the fact that several directors and
executive officers share in the voting power with respect to these shares.

<PAGE>

(6) The percentages are calculated on the basis of the amount of outstanding
shares plus the shares which may be acquired by the named individual and the
group, as applicable, within 60 days of January 31, 1999, upon exercise of
outstanding stock options.

These holdings are reported in accordance with the SEC's regulations
requiring disclosure of shares as to which directors and "Named Executive
Officers" hold voting or dispositive power, notwithstanding that they are held
in a fiduciary rather than a personal capacity, and that such power is shared
among a number of fiduciaries including, in several cases, corporate trustees,
directors or other persons who are neither executive officers nor directors of
UPS.

Meetings of the Board of Directors

The UPS board of directors held four meetings during 1998. During
1998, each director of UPS attended at least 75% of the total number of
meetings of the board and any committees of which he or she was a member.

Committees of the Board of Directors

The UPS board of directors has an Executive Committee, an Audit
Committee, an Officer Compensation Committee, a Salary Committee and a
Nominating Committee.

Messrs. Alden, Clanin, Kelly, Moderow and Schaffer served as members
of the Executive Committee throughout 1998. Calvin Tyler, a former director
and officer, served as a member of the Executive Committee until his
retirement on January 15, 1998, and Messrs. Eskew and Weidemeyer and Ms.
Soupata have served as members of the Committee since their appointments in
May 1998. This Committee may exercise all powers of the board of directors in
the management of the business and affairs of UPS except for those powers
expressly reserved to the board under Delaware law, such as amendment of the
certificate of incorporation or bylaws, declaration of dividends, issuance of
stock, mergers, consolidations, a sale of substantially all of the assets of
UPS and a dissolution. In 1998, this Committee held 13 meetings.

Mr. Brown served as a member of the Audit Committee throughout 1998,
Carl Kaysen, a former director, served as a member of the Committee until he
retired from the board in April 1998 and Ms. Livermore has served as a member
of the Committee since her appointment in February 1998. The primary
responsibilities of the Audit Committee are to:

o recommend annually the independent public accountants for
appointment by the board as auditors for UPS and its
subsidiaries;

o review the scope of the audit to be made by the accountants;

84
<PAGE>

o review the audit reports submitted by the accountants;

o review the annual program for the internal audit of records
and procedures;

o review audit reports submitted by the internal auditing
staff; conduct such other reviews as the Audit Committee
deems appropriate and make reports and recommendations to
the board within the scope of its functions.

In 1998, this Committee held three meetings.

Messrs. Pelson, MacDougal and Rogers served as members of the Officer
Compensation Committee throughout 1998. The primary responsibility of this
Committee is to set the proper and appropriate compensation of the Chairman
and Chief Executive Officer and to set the proper and appropriate compensation
of executive officers based upon the recommendation of the Chief Executive
Officer. The Committee also is responsible for making awards to the executive
officers under the UPS 1996 Stock Option Plan and the UPS Managers Incentive
Plan. The UPS 1996 Stock Option Plan also provides for grants of options to
non-employee directors. In 1998, the Officer Compensation Committee held two
meetings. See "-- Compensation of Executive Officers and Other Information
- -- Compensation of Directors."

Messrs. Clanin and Kelly served as members of the Salary Committee
throughout 1998, and Ms. Soupata served as administrator of the Committee
until April 1998 and has since served as a member of the Committee. This
Committee determines the compensation for all management employees other than
executive officers and is responsible for the administration of the UPS
Managers Incentive Plan, the UPS 1991 Stock Option Plan and the UPS 1996 Stock
Option Plan for these employees. In 1998, the Salary Committee held 12
meetings.

Messrs. Nelson, Rogers and Teeter served as members of the Nominating
Committee throughout 1998. Mr. Kaysen served as a member of the Committee
until he retired in April 1998. This Committee recommends nominees for
election to the board. In 1998, this Committee held one meeting.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own beneficially more than 10%
of our common stock to file reports of ownership and changes in ownership of
such stock with the SEC. Directors, executive officers and greater than 10%
shareowners are required by SEC regulations to furnish us with copies of all
such forms they file. To our knowledge, our directors and executive officers
complied during 1998 with all applicable Section 16(a) filing requirements.

<PAGE>

Compensation of Executive Officers and Other Information

The following table shows the cash compensation paid or to be paid by
us or any of our subsidiaries, as well as certain other compensation paid or
accrued, during the fiscal years indicated to our Chief Executive Officer and
our "Named Executive Officers" (our other four highest paid executive
officers), in all capacities in which they served:

<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
-------------------------------- -------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus(1) Stock Options Compensation(2)
------------------ ----- ------ -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
James P. Kelly 1998 $771,500 $319,277 50,468 $4,800
Chairman and Chief 1997 717,500 169,647 21,621 ---
Executive Officer 1996 575,500 182,260 22,298 ---

John W. Alden 1998 588,000 252,480 38,493 4,800
Vice Chairman, Senior Vice 1997 550,500 134,726 19,321 ---
President and Business 1996 470,000 148,748 17,737 ---
Development Group Manager

Robert J. Clanin 1998 450,500 194,620 29,084 4,800
Senior Vice President, Treasurer 1997 409,000 102,629 13,801 ---
and Chief Financial Officer 1996 363,000 120,635 13,683 ---

Joseph R. Moderow 1998 442,000 189,360 29,084 4,800
Senior Vice President, Secretary and 1997 417,000 110,160 14,721 ---
Legal & Public Affairs Group Manager 1996 392,000 134,769 15,203 ---

Charles L. Schaffer 1998 492,000 210,400 29,939 4,800
Senior Vice President and 1997 427,500 113,400 14,951 ---
Chief Operating Officer 1996 396,250 137,150 15,203 ---

- ------------
(1) Reflects the value of awards accrued and paid under the UPS Managers
Incentive Plan for the respective fiscal years.

(2) Reflects the value of common stock contributed by us to the accounts
of the named individuals pursuant to the UPS SavingsPLUS plan.
</TABLE>

86
<PAGE>

Stock Option Grants

The following table sets forth information concerning option grants
to the Named Executive Officers in 1998.

<TABLE>
Number of % of Total
Securities Options Potential Realized Value at
Underlying Granted to Exercise Assumed Annual Rates of Stock
Options Employees in Price per Expiration Price Appreciation for
Name Granted 1998 Share (1) Date(2) Option Term
---- ------- ---- --------- ------- -----------------------------
5% 10%
------ ------
<S> <C> <C> <C> <C> <C> <C>
James P. Kelly 50,468 1.23% $ 32.00 2003 $ 446,188 $985,959

John W. Alden 38,493 0.94% $ 32.00 2003 $ 340,317 $752,012

Robert J. Clanin 29,084 0.71% $ 32.00 2003 $ 257,132 $568,194

Joseph R. Moderow 29,084 0.71% $ 32.00 2003 $ 257,132 $568,194

Charles L. Schaffer 29,939 0.73% $ 32.00 2003 $ 264,691 $584,898

- ------------
(1) Represents the current price on the date of grant. The exercise price
may be paid by the delivery of already owned shares, subject to
certain conditions.

(2) Generally, options may not be exercised until the expiration of five
years from the date of grant, and then from April 1 through April 30
of the year of exercise.
</TABLE>

87
<PAGE>

Stock Option Exercises and Holdings

The following table sets forth information on stock option exercises
in 1998 by the Named Executive Officers and the value of such officers'
unexercised options on December 31, 1998:

<TABLE>
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Shares Options at End of 1998(2) End of 1998
Acquired on Value Exercisable/ Exercisable/
Name Exercise(1) Realized Unexercisable Unexercisable
- ------------------------ ----------- -------- ------------------------- -------------
<S> <C> <C> <C> <C>
James P. Kelly 21,175 $280,569 None/ n/a
137,533 $1,669,478
John W. Alden 18,254 $241,866 None/ n/a
110,545 $1,349,485
Robert J. Clanin 3,895 $ 51,609 None/ n/a
71,233 $801,050
Joseph R. Moderow 17,159 $227,357 None/ n/a
91,274 $1,146,574
Charles L. Schaffer 15,333 $203,162 None/ n/a
91,139 $1,134,337

- ------------
(1) Represents gross number of common shares underlying the options exercised
under the 1991 Plan.

(2) Represents common shares subject to options granted under the 1991 and 1996 Plans.
</TABLE>

88
<PAGE>

Retirement Plans

The following table shows the estimated annual retirement benefit
payable on a single life only annuity basis to participating employees,
including the Named Executive Officers, under the UPS Retirement Plan and UPS
Excess Coordinating Benefit Plan for years of service rendered upon
retirement, which is assumed to occur at age 65. Participating employees also
are entitled to receive $16,008 per year, the maximum currently payable, in
primary Social Security benefits:

<TABLE>
Average
Final
Earnings 15 Years 20 Years 25 Years 30 Years 35 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 45,998 $ 61,325 $ 76,669 $ 91,996 $107,341
250,000 58,498 77,990 97,504 116,996 136,511
300,000 70,998 94,655 118,339 141,996 165,681
350,000 83,498 111,320 139,174 166,996 194,851
400,000 95,998 127,985 160,009 191,996 224,021
450,000 108,498 144,650 180,844 216,996 253,191
500,000 120,998 161,315 201,679 241,996 282,361
600,000 145,998 194,645 243,349 291,996 340,701
700,000 170,998 227,975 285,019 341,996 399,041
800,000 195,998 261,305 326,689 391,996 457,381
900,000 220,998 294,635 368,359 441,996 515,721
1,000,000 245,998 327,965 410,029 491,996 574,061
1,100,000 270,998 361,295 451,699 541,996 632,401
1,200,000 295,998 394,625 493,369 591,996 690,741
</TABLE>

Amounts exceeding $120,000, which is adjusted from time to time by
the Internal Revenue Service, would be paid under the UPS Excess Coordinating
Benefit Plan. Pursuant to this plan, participants may choose to receive the
benefit in the form of a life annuity, cash lump sum or life insurance with a
cash value up to 100% of the present value of the benefit. Beginning with
1994, no more than $150,000, which is adjusted from time to time by the
Internal Revenue Service, of cash compensation could be taken into account in
calculating benefits payable under the UPS Retirement Plan. Participants who
elect forms of payment with survivor options will receive lesser amounts than
those shown in the above table.

The compensation upon which the benefits are summarized in the table
above includes salary and bonuses awarded under the UPS Managers Incentive
Plan. The average final compensation for each participant in the plans is the
average covered compensation of the participant during the five highest
consecutive years out of the last ten full calendar years of service.

As of December 31, 1998, estimated or actual credited years of
service under the plans to the Named Executive Officers was as follows: Kelly
- --34, Alden --34, Schaffer --29, Clanin--28 and Moderow --28.

The plans permit participants with 25 or more years of benefit
service to retire as early as age 55 with no or only a limited reduction in
the amount of their monthly benefits.

<PAGE>

Compensation of Directors

In 1998, directors who were not employees of UPS received an annual
director's fee of $50,000. Members of the Audit, Officer Compensation and
Nominating Committees who were not employees of UPS received an additional
annual fee of $2,500 for each committee on which they served, except that
committee chairmen received an additional annual fee of $4,000. Mr. Rogers has
declined to accept any fees for his services as a director.

UPS established a retirement plan in February 1991, which provided
retirement and disability benefits for directors who were neither employees
nor former employees of UPS. Effective January 1, 1997, the board agreed to
discontinue this plan and, in conjunction therewith, increase the options for
which outside directors are eligible under the 1996 Plan. In satisfaction of
the obligations previously accrued under the retirement plan, the board agreed
to allocate to each director certain amounts. The amounts so allocated to each
director will appreciate or depreciate in tandem with the changes in the share
price of our common stock inclusive of dividends. At the time each director
ceases to be a director of UPS, the then-current value of the account will be
payable to him, or his designated beneficiary, either in cash or common stock.
The value of these accounts at December 31, 1998, was: Mr. Brown, $458,029;
Mr. MacDougal, $458,029; Mr. Pelson, $229,014; and Mr. Teeter, $229,014. The
value of Mr. Kaysen's account at the time of his retirement was $429,632.

In addition to permitting grants of options to eligible employees,
the 1996 Plan provides for grants of non-qualified options to the outside
directors. These non-qualified options are granted on the first day in each
year on which any option is granted to an employee optionee and allow a
director to purchase a number of shares equal to 109.5% of such outside
director's annual director's fee divided by the Current Price of the common
stock as defined in the 1996 Plan. Each of Messrs. Brown, MacDougal, Pelson
and Teeter and Ms. Livermore were granted options under the 1996 Plan during
1998.

Outside directors also have the option of deferring some or all of
the fees and/or retainer payable in connection with their services on the
board into the UPS Deferred Compensation Plan for Non-Employee Directors.
Amounts deferred under such plan are treated as invested in certain mutual
funds selected by each director. At the time a participating director ceases
to be a director, the total value of the director's account will be payable to
him or her, or his or her designated beneficiary, in 40 quarterly
installments.

Compensation Committee Interlocks and Insider Participation

The following non-employee directors are the members of the Officer
Compensation Committee of the board of directors: Victor A. Pelson, Gary E.
MacDougal and John W. Rogers. None of the members of the Compensation
Committee has any direct or indirect material interest in or relationship with
UPS outside of his position as director and other than his benefits accrued
while serving as an employee of UPS. Mr. Rogers is a former Chairman of the
Board and Chief Executive Officer of UPS. He retired from active employment
with UPS in 1989. To UPS's knowledge, there were no interlocks involving

<PAGE>

members of the Compensation Committee or other directors of UPS requiring
disclosure in this proxy statement/prospectus.

Certain Business Relationships

William H. Brown, III, a director of UPS, is a partner of Schnader
Harrison Segal & Lewis LLP, a law firm that provides legal services from time
to time to us and our subsidiaries.

Some of our executive officers are trustees of the UPS Retirement
Plan. The UPS Retirement Plan, through wholly owned subsidiaries, owns real
property that is leased to our subsidiaries for operating purposes at rental
rates determined by independent firms of real estate appraisers. The rentals
charged to our subsidiaries for the leased real estate during 1998 by this
Plan aggregated $282,437.

91
<PAGE>

RELATIONSHIPS WITH OVERSEAS PARTNERS LTD.

UPS has significant historical and current relationships with
Overseas Partners Ltd., a Bermuda-based company that is engaged in reinsurance
and other businesses. Many of the current shareowners of UPS also are
shareowners of OPL, and a majority of the directors and officers of OPL are
current or former employees of UPS. In 1998, OPL derived approximately 30% of
its revenues from reinsurance business related to UPS. UPS regularly reviews
its relationships with its primary insurers, including OPL, and may make
changes in such relationships, either as a result of the tax disputes with the
United States Internal Revenue Service referred to below or for other reasons.
Such changes could have significant economic consequences for UPS and OPL.

In 1983, UPS spun off OPL by paying a special dividend to its
shareowners of one share of OPL common stock for each share of UPS common
stock. In addition, UPS has offered its employees the opportunity periodically
to purchase OPL shares under UPS's various employee stock purchase plans.

Members of OPL's board of directors who are current or former
officers of UPS are: Robert J. Clanin, UPS's Chief Financial Officer and a
director of UPS; Joseph M. Pyne, UPS's Senior Vice President, Corporate
Marketing; and Edwin H. Reitman, the retired former Vice President, Corporate
Marketing of UPS. D. Scott Davis, formerly Vice President, Finance and
Accounting for UPS, is the current Chief Executive Officer and a director of
OPL.

OPL was organized to reinsure shippers' risks relating to packages
carried by UPS, as well as to underwrite other reinsurance for insureds
unaffiliated with UPS. Since commencing operations in 1984, OPL's primary
reinsurance business has been reinsuring insurance by United States-based
insurance companies unaffiliated with UPS or OPL. This reinsurance covers the
risk of loss or damage to shippers' packages carried by UPS and unaffiliated
foreign common carriers whose declared value exceeds $100 or the equivalent in
foreign currency. The reinsurance of shippers' risk insurance does not involve
transactions conducted directly between UPS and OPL. Various subsidiaries of
American International Group, Inc., an insurance company unaffiliated with OPL
or UPS, insure customer packages in return for premiums paid by the customers.
OPL reinsures these primary insurers, whose premium payments constitute OPL's
largest source of revenues and profits. Reinsurance premiums earned by OPL for
reinsuring these risks during 1998 were $371.8 million or 29.6% of OPL's 1998
revenues, a reduction from 32.3% in 1997. OPL's reinsurance business also has
included reinsurance of workers' compensation insurance issued by another
unaffiliated United States-based insurance company covering risks of a UPS
subsidiary in the State of California.

OPL and its subsidiaries also are engaged in the leasing of real
property and, until July 1998, aircraft, to subsidiaries of UPS.

In December 1989, an OPL subsidiary acquired from UPS the Ramapo
Ridge facility. In July 1990, the OPL subsidiary leased the facility to UPS
for an initial term ending in

92
<PAGE>

2019. UPS uses the facility as a data processing, telecommunications and
operations center. Lease payments have fixed and variable components. The fixed
component provides for aggregate lease payments of approximately $216 million
over the initial term of the lease. The variable component of the lease payments
is based on the number of customer accounts maintained by UPS. At the conclusion
of the lease, UPS has the right to purchase the Ramapo Ridge facility at fair
market value. UPS has an option to purchase the land on which the facility is
located, but not the buildings, from an OPL subsidiary in 2050 for approximately
$63.7 million, subject to certain adjustments for increases in the fair market
value of the land. In 1998, OPL received rental payments of approximately $27.1
million from UPS pursuant to these leases.

OPL has assigned the right to receive the fixed rentals on the Ramapo
Ridge facility lease to a subsidiary, and the subsidiary pledged its interest
in these payments to secure bonds issued to finance the acquisition of the
leased assets. UPS's obligation to pay the fixed rental is unconditional
during the initial lease term, and continues after an early lease termination
unless UPS pays an amount sufficient to defease the remaining interest
payments on the OPL subsidiary's bonds.

In December 1989 an OPL subsidiary acquired from UPS rights to
purchase five Boeing 757 aircraft for approximately $67.9 million. The
manufacturer delivered the aircraft to OPL in 1990 and OPL leased them to UPS
until July 1998. At that time, OPL sold the aircraft to UPS for approximately
$202 million, yielding a gain on sale to OPL before income taxes of
approximately $12 million.

In considering which risks related to UPS's business to insure or
reinsure, or which leasing or other arrangements to enter into between OPL and
UPS, UPS's and OPL's directors and officers consider the impact of their
business decisions on each of the two companies. Although the directors
consider prevailing market conditions in making such decisions, there can be
no assurance that transactions relating to the two companies will be on the
most favorable terms that could be obtained by either party in transactions
entirely with unrelated parties.

UPS and OPL do not have any formal conflict of interest resolution
procedures. Nevertheless, in connection with OPL's reinsurance of risks
related to UPS's business, UPS believes the rates charged by the primary
insurers reinsured by OPL are competitive with those charged to shippers
utilizing other carriers. In connection with other major transactions in which
UPS and OPL have been involved, primarily leasing transactions, UPS generally
has obtained fairness or valuation opinions from investment banking firms or
other organizations with significant expertise in the evaluation of the
interests involved.

In connection with its relationship with OPL, UPS received a notice
of deficiency in 1995 from the United States Internal Revenue Service
asserting that UPS is liable for additional tax for the 1983 and 1984 tax
years. The IRS bases its notice of deficiency in large part on the theory that
UPS is liable for tax on OPL's income. The tax deficiency is based on a number
of theories, which UPS believes are inconsistent, and ranges from $8 million
to $35 million, plus penalties and interest for 1984. In August 1995, UPS
filed

<PAGE>

petitions with the Tax Court in opposition to the Notices of Deficiency. The IRS
and UPS tried the matter before the Tax Court in late 1997.

During the first quarter of 1999, the IRS issued two additional
Notices of Deficiency asserting that UPS is liable for additional tax for the
1985 through 1987 tax years and the 1988 through 1990 tax years. In all
cases, the primary assertions by the IRS relate to the reinsurance of excess
value package insurance. The tax deficiency sought by the IRS relating to
package insurance for these periods ranges, based on alternative theories,
from $115 million to $121 million for the 1985 through 1987 tax years, and
from $131 million to $138 million for the 1988 through 1990 tax years, plus in
each case penalties and interest. The IRS has based its assertions on the same
theories included in the 1983-1984 Notice Of Deficiency.

In connection with its deficiency notices and the Tax Court
proceedings, in addition to package insurance, the IRS has raised a number of
other issues relating to the timing of deductions, the characterization of
expenses as capital rather than ordinary and UPS's entitlement to the
Investment Tax Credit and the Research Tax Credit in the 1983 through 1990 tax
years. UPS estimates the amounts at issue with respect to these additional
items at approximately $12 million in tax for the 1983 and 1984 tax years, $88
million in tax for the 1985 through 1987 tax years and $245 million in tax for
the 1988 through 1990 tax years, plus, in each case penalties and interest.
The majority of these adjustments are timing adjustments that would reverse in
future years. UPS has filed petitions with the Tax Court in opposition to the
Notices of Deficiency related to the 1985 through 1987 tax years and the 1988
through 1990 tax years. The IRS may take positions similar to those described
above for periods subsequent to 1990.

<PAGE>

FEDERAL INCOME TAX CONSEQUENCES TO SHAREOWNERS

The following is a discussion of the material federal income tax
considerations of the merger that are generally applicable to holders of UPS
shares. Gibson, Dunn & Crutcher LLP, counsel to UPS, is of the opinion that
the following discussion accurately describes these material federal income
tax consequences.

This discussion does not deal with all income tax considerations that
may be relevant to particular UPS shareowners in light of their particular
circumstances, such as shareowners who are dealers in securities, foreign
persons, banks, insurance companies or tax-exempt entities, shareowners who
hold their shares as part of a hedging, straddle, conversion or other risk
reduction transaction or shareowners who acquired their shares in connection
with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the merger other
than the tender offer (whether or not these transactions are in connection
with the merger), including transactions in which UPS shares were or are
acquired or in which New UPS class A shares were or are disposed of.
Furthermore, no foreign, state or local tax considerations are addressed in
this proxy statement/prospectus. The discussion is based on federal income tax
law in effect as of the date of this proxy statement/prospectus, which could
change at any time, possibly with retroactive effect. Accordingly, UPS
shareowners are urged to consult their own tax advisers as to the specific tax
consequences of the merger, including the applicable federal, state, local and
foreign tax consequences to them of the merger and applicable tax return
reporting requirements.

The following federal income tax consequences will result from the
merger:

o No gain or loss will be recognized by holders of UPS shares solely
as a result of their receipt of New UPS class A shares in the
merger;

o The aggregate tax basis of the New UPS class A shares received in
the merger by a UPS shareowner will be the same as the aggregate tax
basis of the UPS shares surrendered in exchange for such New UPS
class A shares;

o The holding period of the New UPS class A shares received in the
merger by a UPS shareowner will include the period during which the
shareowner held the UPS shares surrendered in exchange for such New
UPS class A shares, so long as the UPS shares are held as a capital
asset at the time of the merger; and

o None of New UPS, ______________ or UPS will recognize gain or loss
solely as a result of the merger.

The opinion of counsel that the merger will qualify as a tax-free
transaction will be subject to the limitations and qualifications referred to
in this document. In addition, the opinions will rely upon the truth and
accuracy of representations and covenants set forth in the merger agreement
and in certificates to be delivered to counsel prior to the effective

<PAGE>

time by New UPS, ____________ and UPS. The parties are not requesting a ruling
from the Internal Revenue Service in connection with the merger. The opinion of
counsel referred to above does not bind the IRS or prevent the IRS from adopting
a contrary position.

It is conceivable, although unlikely, that the contemplated cash
tender offer and the merger will be treated as part of the same transaction
for federal income tax purposes. In this event, if you tender shares, cash
received by you in the tender offer could be treated as "boot" for federal
income tax purposes. As a result, you would be required to recognize any gain
realized in the merger with respect to all of your UPS shares up to the full
amount of the cash received in the tender offer. In contrast, if the tender
offer were not treated as part of the same transaction as the merger, you
would be required to recognize gain only with respect to those New UPS shares
actually tendered. You are urged to consult your own tax advisor regarding the
consequences of participating in the tender offer.

<PAGE>

LEGAL MATTERS

The validity of the shares of our class A common stock issued as a
result of the merger will be passed upon for us by Gibson, Dunn & Crutcher
LLP, Washington, D.C. Certain tax consequences of the merger will be passed
upon for us, as a condition to the merger becoming effective, by Gibson, Dunn
& Crutcher LLP, Washington, D.C. Morris Manning & Martin LLP has acted as our
special counsel in connection with the merger and related transactions, and
has passed upon certain legal matters for us.

SUBMISSION OF SHAREOWNER PROPOSALS

UPS expects to hold its 2000 Annual Meeting in May 2000. If you
intend to submit a proposal for inclusion in our proxy materials for UPS's
2000 Annual Meeting, you must submit the proposal to our Secretary by November
15, 1999.

SEC rules set forth standards as to what shareowner proposals we are
required to include in our proxy statement for an annual meeting.

EXPERTS

The financial statements of United Parcel Service of America, Inc. as
of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998 included in this proxy statement/prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

The balance sheet of United Parcel Service, Inc. as of July 19, 1999
included in this proxy statement/prospectus has been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and is included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Page
Number

Audited Consolidated Financial Statements

Independent Auditors' Report............................................F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............F-3
Statements of Consolidated Income for the Years ended December 31,
1996, 1997 and 1998...................................................F-4
Statements of Consolidated Shareowners' Equity for the Years
ended December 31, 1996, 1997 and 1998................................F-5
Statements of Consolidated Cash Flows for the Years ended
December 31, 1996, 1997 and 1998......................................F-6
Notes to Audited Consolidated Financial Statements......................F-7

Unaudited Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999.......................................................F-24
Statements of Consolidated Income for the Three Months Ended
March 31, 1998 and 1999..............................................F-25
Statement of Consolidated Shareowners' Equity for the Three
Months Ended March 31, 1999..........................................F-26
Statements of Consolidated Cash Flows for the Three Months
Ended March 31, 1998 and 1999........................................F-27
Notes to Unaudited Consolidated Financial Statements...................F-28

UNITED PARCEL SERVICE, INC.

INDEX TO FINANCIAL STATEMENT

Audited Financial Statement

Independent Auditors' Report...........................................F-31
Balance Sheet as of July 19, 1999......................................F-32
Notes to Balance Sheet.................................................F-32

F-1
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareowners
United Parcel Service of America, Inc.
Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of United Parcel
Service of America, Inc., and its subsidiaries as of December 31, 1997 and 1998,
and the related consolidated statements of income, shareowners' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of United Parcel Service of America,
Inc., and its subsidiaries at December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
February 8, 1999

F-2
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
(In millions except share and per share amounts)

<TABLE>
December 31,
----------------------
ASSETS 1997 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................... $ 460 $ 1,240
Marketable securities................................................... - 389
Accounts receivable..................................................... 2,405 2,713
Prepaid employee benefit costs.......................................... 669 703
Materials, supplies and other prepaid expenses.......................... 417 380
Common stock held for stock plans....................................... 526 -
------ ------
Total Current Assets.................................................. 4,477 5,425
------ ------
Property, Plant and Equipment:
Vehicles................................................................ 3,519 3,482
Aircraft (including aircraft under capitalized leases).................. 6,771 7,739
Land.................................................................... 654 651
Buildings............................................................... 1,433 1,478
Leasehold improvements.................................................. 1,734 1,803
Plant equipment......................................................... 4,063 4,144
Construction-in-progress................................................ 328 257
------ ------
18,502 19,554
Less accumulated depreciation and amortization.......................... 7,495 8,170
------ ------
11,007 11,384
Other Assets............................................................... 428 258
------ ------
$15,912 $17,067
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY

Current Liabilities:
Accounts payable........................................................ $ 1,207 $ 1,322
Accrued wages and withholdings.......................................... 1,194 1,092
Dividends payable....................................................... 191 247
Deferred income taxes................................................... 140 114
Current maturities of long-term debt.................................... 41 410
Other current liabilities............................................... 625 532
------ ------
Total Current Liabilities............................................. 3,398 3,717
------ ------
Long-Term Debt (including capitalized lease obligations)................... 2,583 2,191
------ ------
Accumulated Postretirement Benefit Obligation, Net......................... 911 969
------ ------
Deferred Taxes, Credits and Other Liabilities.............................. 2,933 3,017
------ ------
Shareowners' Equity:
Preferred stock, no par value, authorized 200,000,000 shares,
none issued........................................................... - -
Common stock, par value $.10 per share, authorized 900,000,000 shares,
issued 562,000,000 and 559,000,000 in 1997 and 1998.................... 56 56
Additional paid-in capital............................................. - 325
Retained earnings....................................................... 6,112 7,280
Cumulative foreign currency adjustments................................. (81) (62)
Unrealized loss on marketable securities................................ - (1)
------ ------
6,087 7,598
------ ------
Treasury stock, at cost (11,605,952 shares)............................. - (425)
------ ------
6,087 7,173
------ ------
$15,912 $17,067
====== ======

See notes to audited consolidated financial statements.
</TABLE>

F-3
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Years Ended December 31, 1996, 1997 and 1998
(In millions except per share amounts)

<TABLE>

Year Ended December 31,
------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue.................................... $22,368 $22,458 $24,788
------ ------ ------
Operating Expenses:
Compensation and benefits............... 13,326 13,289 14,346
Other................................... 7,013 7,471 7,352
------ ------ ------
20,339 20,760 21,698
------ ------ ------
Operating Profit........................ 2,029 1,698 3,090
------ ------ ------

Other Income and (Expense):
Investment income....................... 39 70 84
Interest expense........................ (95) (187) (227)
Miscellaneous, net...................... (63) (28) (45)
------ ------ ------
(119) (145) (188)
------ ------ ------
Income Before Income Taxes................. 1,910 1,553 2,902
Income Taxes............................... 764 644 1,161
------ ------ ------
Net Income.............................. $ 1,146 $ 909 $ 1,741
====== ====== ======
Basic Earnings Per Share................ $2.06 $1.65 $3.18
====== ====== ======
Diluted Earnings Per Share.............. $2.03 $1.63 $3.14
====== ====== ======

See notes to audited consolidated financial statements.
</TABLE>

F-4
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREOWNERS' EQUITY
Years Ended December 31, 1996, 1997 and 1998
(In millions except per share amounts)

<TABLE>
Cumulative Unrealized
Common Stock Additional Foreign Loss on Treasury Total
------------ Paid-In Retained Currency Marketable Stock Shareowners'
Shares Amount Capital Earnings Adjustments Securities at Cost Equity
------ ------ ---------- -------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996....................... 570 $57 $ 76 $4,961 $ 57 $ - $ - $5,151
Comprehensive income:
Net income................................ - - - 1,146 - - - 1,146
Foreign currency adjustments.............. - - - - (36) - - (36)
-----
Comprehensive income........................ 1,110
-----
Dividends ($.68 per share).................. - - - (379) - - - (379)
Gain on issuance of common stock held for
stock plans............................... - - 33 - - - - 33
Exercise of stock options................... - - (14) - - - - (14)
--- --- --- ----- --- --- --- -----
Balance, December 31, 1996..................... 570 57 95 5,728 21 - - 5,901
Comprehensive income:
Net income................................ - - - 909 - - - 909
Foreign currency adjustments.............. - - - - (102) - - (102)
-----
Comprehensive income........................ 807
-----
Dividends ($.70 per share).................. - - - (385) - - - (385)
Gain on issuance of common stock held for
stock plans............................... - - 27 - - - - 27
Exercise of stock options................... - - (26) - - - - (26)
Constructive retirement of common stock..... (8) (1) (96) (140) - - - (237)
--- --- --- ----- --- --- --- -----
Balance, December 31, 1997..................... 562 56 - 6,112 (81) - - 6,087
Comprehensive income:
Net income................................ - - - 1,741 - - - 1,741
Foreign currency adjustments.............. - - - - 19 - - 19
Unrealized loss on marketable securities.. - - - - - (1) - (1)
-----
Comprehensive income........................ 1,759
-----
Dividends ($.85 per share).................. - - - (466) - - - (466)
Gain on issuance of common stock held for
stock plans............................... - - 70 - - - - 70
Exercise of stock options................... - - (8) (17) - - - (25)
Retirement of common stock.................. (3) - - (90) - - - (90)
Reclassification of common stock held for
stock plans............................... - - - - - - (425) (425)
Managers Incentive Plan award to be
distributed in common stock............... - - 263 - - - - 263
--- --- --- ----- --- --- --- -----
Balance, December 31, 1998..................... 559 $56 $325 $7,280 $(62) $(1) $(425) $7,173
=== === === ===== === === === =====

See notes to audited consolidated financial statements.
</TABLE>

F-5
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended December 31, 1996, 1997 and 1998
(In millions)

<TABLE>
Year Ended December 31,
------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $1,146 $909 $1,741
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 964 1,063 1,112
Postretirement benefits................................ 78 70 58
Deferred taxes, credits and other...................... 479 406 23
Changes in assets and liabilities:
Accounts receivable.................................. (416) (64) (308)
Prepaid employee benefit costs....................... (116) (268) (34)
Materials, supplies and other prepaid expenses....... (196) 164 37
Accounts payable..................................... 18 52 115
Accrued wages and withholdings....................... 74 (7) 161
Dividends payable.................................... 16 (3) 56
Other current liabilities............................ 4 184 (93)
----- ----- -----
Net cash from operating activities................. 2,051 2,506 2,868
----- ----- -----
Cash flows from investing activities:
Capital expenditures..................................... (2,333) (1,984) (1,645)
Disposals of property, plant and equipment............... 127 111 216
Purchases of marketable securities....................... - - (390)
Other asset receipts (payments).......................... (60) 46 164
----- ----- -----
Net cash (used in) investing activities................ (2,266) (1,827) (1,655)
----- ----- -----
Cash flows from financing activities:
Proceeds from borrowings................................. 1,345 2,097 287
Repayments of borrowings................................. (484) (2,065) (310)
Purchases of common stock................................ (650) (719) (774)
Issuances of common stock pursuant to stock awards and
employee stock purchase plans........................... 532 487 785
Dividends................................................ (379) (385) (466)
Other transactions....................................... 19 1 45
----- ----- -----
Net cash from (used in) financing activities........... 383 (584) (433)
----- ----- -----
Effect of exchange rate changes on cash..................... 13 (27) -
----- ----- -----
Net increase in cash and cash equivalents................... 181 68 780
Cash and cash equivalents:
Beginning of year........................................ 211 392 460
----- ----- -----
End of year.............................................. $ 392 $ 460 $1,240
===== ===== =====
Cash paid during the period for:
Interest, net of amount capitalized...................... $ 50 $ 130 $ 298
===== ===== =====
Income taxes............................................. $ 484 $ 319 $1,181
===== ===== =====

See notes to audited consolidated financial statements.
</TABLE>

F-6
<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

Basis of Financial Statements and Business Activities

The accompanying consolidated financial statements include the accounts of
United Parcel Service of America, Inc., and all of its subsidiaries
(collectively "UPS" or the "Company"). All material intercompany balances and
transactions have been eliminated.

UPS concentrates its operations in the field of transportation services,
primarily domestic and international letter and package delivery. Revenue is
recognized upon delivery of a letter or package.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

As of December 31, 1998, the Company had approximately 202,000 employees
(62% of total employees) employed under collective bargaining agreements with
various locals of the International Brotherhood of Teamsters. These agreements
expire on July 31, 2002. In addition, the majority of the Company's pilots are
employed under a collective bargaining agreement with the Independent Pilots
Association ("IPA"), which becomes amendable January 1, 2004.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments (including
investments in debt securities and variable rate preferred stocks of $207 and
$936 million at December 31, 1997 and 1998, respectively) that are readily
convertible into cash. The carrying amount approximates fair value because of
the short-term maturity of these instruments.

Marketable Securities

Marketable securities are classified as available-for-sale and are carried
at fair value, with related unrealized gains and losses reported as other
comprehensive income and as a separate component of shareowners' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income, along with interest and dividends. The cost of securities sold is based
on the specific identification method; realized gains and losses resulting from
such sales are included in investment income.

F-7

<PAGE>

Common Stock Held for Stock Plans

Prior to December 31, 1998, UPS accounted for its common stock held for
awards and distributions under various UPS stock and benefit plans as a current
asset. Common stock held in excess of current requirements was constructively
retired and accounted for as a reduction in Shareowners' Equity.

As a result of a change in position by the Securities and Exchange
Commission ("SEC") as well as a change by the Financial Accounting Standards
Board ("FASB"), UPS has reclassified its Common Stock Held for Stock Plans from
current assets to Treasury Stock, a separate component of Shareowners' Equity.
In 1998, 3 million shares in excess of current requirements were retired and 18
million shares previously constructively retired were also retired.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation (including
amortization) is provided by the straight-line method over the estimated useful
lives of the assets, which are as follows: Vehicles -- 9 years; Aircraft -- 12
to 20 years; Buildings -- 20 to 40 years; Leasehold Improvements -- lives of
leases; Plant Equipment -- 5 to 8-1/3 years.

Costs in Excess of Net Assets Acquired

Costs of purchased businesses in excess of net assets acquired are
amortized over a 10-year period using the straight-line method.

Income Taxes

Income taxes are accounted for under FASB Statement No. 109, "Accounting
for Income Taxes" ("FAS 109"). FAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, FAS
109 generally considers all expected future events other than proposed changes
in the tax law or rates.

Capitalized Interest

Interest incurred during the construction period of certain property, plant
and equipment is capitalized until the underlying assets are placed in service,
at which time amortization of the capitalized interest begins, straight-line,
over the estimated useful lives of the related assets. Capitalized interest was
$53, $43 and $27 million for 1996, 1997 and 1998, respectively.

F-8

<PAGE>

Derivative Instruments

UPS has entered into interest rate swap agreements, cross-currency interest
rate swap agreements and forward currency contracts. All of these agreements
relate to the Company's long-term debt and are specifically matched to the
underlying cash flows. They have been entered into for the purposes of reducing
UPS's borrowing costs and to protect UPS against adverse changes in foreign
currency exchange rates. Any periodic settlement payments are accrued monthly,
as either a charge or credit to expense, and are not material to net income.
Based on estimates provided by third party investment bankers, the Company has
determined that the fair value of these agreements is not material to its
financial statements.

The Company also purchases options to reduce the impact of changes in
foreign currency rates on its foreign currency purchases and purchases options
and forward contracts to moderate the impact of price increases in the cost of
crude oil on fuel expense. The forward contracts and options are adjusted to
fair value at period end based on market quotes and are not material to the
Company's financial statements.

The Company does not utilize derivatives for trading or other speculative
purposes. UPS is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, UPS does not
anticipate nonperformance by the counterparties. UPS is exposed to market risk
based upon changes in interest rates, foreign currency exchange rates and fuel
prices.

Stock Option Plans

UPS has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options. Under APB 25,
compensation expense is generally not recognized when both the exercise price is
the same as the market price and the number of shares to be issued is set on the
date the employee stock option is granted. Since UPS employee stock options are
granted on this basis, the Company does not recognize compensation expense for
grants under its plans.

Segment Information

Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which changes the method used by the Company to report information about
its operating segments. Information for 1997 and 1996 has been restated in order
to conform to the 1998 presentation. FAS 131 establishes standards to be used by
enterprises to identify and report information about operating segments and for
related disclosures about products and services, geographic areas and major
customers. The adoption of FAS 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information
contained in Note 10.

F-9

<PAGE>

Changes in Presentation

Certain prior year amounts have been reclassified to conform to the current
year presentation.

2. LONG-TERM DEBT AND COMMITMENTS

Long-term debt, as of December 31, consists of the following (in millions):

<TABLE>
1997 1998
---- ----
<S> <C> <C>
8 3/8% debentures, due April 1, 2020 (i)..................................... $ 700 $ 424
8 3/8% debentures, due April 1, 2030 (i)..................................... - 276
Commercial paper (ii)........................................................ 98 112
Industrial development bonds, Philadelphia Airport facilities, due
December 1, 2015 (iii)..................................................... 100 100
Capitalized lease obligations (iv)........................................... 633 598
5.5% Eurobond notes, due January 4, 1999..................................... 201 200
3.25% 200 million Swiss Franc notes, due October 22, 1999.................... 166 166
6.875% 100 million Pound Sterling notes, due February 25, 2000............... 166 166
6.625% EuroNotes, due April 25, 2001......................................... 200 200
6.25% EuroNotes, due July 7, 2000............................................ 298 301
Installment notes, mortgages and bonds at various rates from 6.0% to 8.6%... 62 58
----- -----
2,624 2,601
Less current maturities...................................................... (41) (410)
----- -----
$2,583 $2,191
===== =====
</TABLE>

(i) On January 22, 1998, the Company exchanged $276 million of the original
$700 million debentures for new debentures of equal principal with a maturity of
April 1, 2030. The new debentures have the same interest rate as the 8 3/8%
debentures due 2020 until April 1, 2020, and, thereafter, the interest rate will
be 7.62% for the final 10 years. The new 2030 debentures are redeemable in whole
or in part at the option of the Company at any time. The redemption price is
equal to the greater of 100% of the principal amount and accrued interest or the
sum of the present values of the remaining scheduled payouts of principal and
interest thereon discounted to the date of redemption at a benchmark treasury
yield plus five basis points plus accrued interest. The remaining $424 million
of 2020 debentures are not subject to redemption prior to maturity. Interest is
payable semiannually on the first of April and October for both debentures and
neither debenture is subject to sinking fund requirements.

(ii) The weighted average interest rate on the commercial paper outstanding
as of December 31, 1997 and 1998, was 5.7% and 5.1%, respectively. The
commercial paper has been classified as long-term debt in accordance with the
Company's intention and ability to refinance such obligations on a long-term
basis under its revolving credit facilities. However, the amount of commercial
paper outstanding in 1999 is expected to fluctuate. UPS is authorized to borrow
up to $2.0 billion under this program as of December 31, 1998.

F-10

<PAGE>

(iii) The industrial development bonds bear interest at either a daily,
variable or fixed rate. The average interest rates for 1997 and 1998 were 3.5%
and 3.3%, respectively.

(iv) UPS has capitalized lease obligations for certain aircraft which are
included in Property, Plant and Equipment at December 31 as follows (in
millions):

1997 1998
---- ----
Aircraft.......................................... $614 $614
Accumulated amortization.......................... (16) (38)
--- ---
$598 $576
=== ===

The aggregate annual principal payments for the next five years, excluding
commercial paper and capitalized leases, are (in millions): 1999 -- $371; 2000
- -- $471; 2001 -- $203; 2002 -- $2; and 2003 -- $2.

Based on the borrowing rates currently available to the Company for
long-term debt with similar terms and maturities, the fair value of long-term
debt, including current maturities, is approximately $2.8 billion as of December
31, 1997 and 1998.

UPS leases certain aircraft, facilities, equipment and vehicles under
operating leases which expire at various dates through 2034. Total aggregate
minimum lease payments under capitalized leases and under operating leases are
as follows (in millions):

Capitalized Operating
Year Leases Leases
- ---- ----------- ---------
1999.................................................... $ 67 $ 211
2000.................................................... 67 146
2001.................................................... 67 115
2002.................................................... 67 94
2003.................................................... 67 77
After 2003.............................................. 526 477
--- -----
Total minimum lease payments............................ 861 $1,120
=====
Less imputed interest................................... (263)
---
Present value of minimum capitalized lease payments..... 598
Less current portion.................................... (39)
---
Long-term capitalized lease obligations................. $ 559
===

As of December 31, 1998, UPS has outstanding letters of credit totaling
approximately $1.2 billion issued in connection with routine business
requirements.

As of December 31, 1998, UPS has commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $2.6 billion,
with the following amounts expected to be spent during the next five years (in
millions): 1999 -- $649; 2000 -- $295; 2001 -- $436; 2002 -- $383; and 2003 --
$393.

F-11

<PAGE>

UPS maintains two credit agreements with a consortium of banks which
provide revolving credit facilities of $1.25 billion each, with one expiring
April 29, 1999, and the other April 30, 2003. At December 31, 1998, there were
no outstanding borrowings under these facilities.

UPS also maintains a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, UPS may, from time to time, issue
notes denominated in a variety of currencies. There is currently $500 million
available under this program.

In January 1999, UPS filed a shelf registration with the SEC, under which
UPS may issue debt in the U.S. marketplace of up to $2.0 billion. There is
currently no debt issued under this shelf registration.

3. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (in millions except per share amounts):

<TABLE>

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share - net income....... $1,146 $909 $1,741
===== ==== =====
Denominator:
Weighted-average shares............................................ 555 551 545
Contingent shares - Managers Incentive Plan........................ 2 1 2
----- ---- ----
Denominator for basic earnings per share.............................. 557 552 547

Effect of dilutive securities:
Additional contingent shares - Managers Incentive Plan............. 4 4 4
Stock option plans................................................. 3 2 3
----- ---- ----
Denominator for diluted earnings per share............................ 564 558 554
===== ==== =====
Basic earnings per share.............................................. $2.06 $1.65 $3.18
===== ==== =====
Diluted earnings per share............................................ $2.03 $1.63 $3.14
===== ==== =====
</TABLE>

4. LEGAL PROCEEDINGS

During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS") asserting
that it is liable for additional tax for the 1983 and 1984 tax years. The Notice
of Deficiency is based in large part on the theory that UPS is liable for tax on
income of Overseas Partners Ltd., a Bermuda company, which has reinsured excess
value package insurance purchased by UPS's customers from unrelated insurers.
The deficiency sought by the IRS relating to package insurance is based on a
number of theories, which the Company believes are inconsistent, and ranges from
$8 million to $35 million of tax, plus penalties and interest for 1984.

F-12

<PAGE>

In August 1995, the Company filed a petition in the United States Tax Court
("Tax Court") in opposition to the Notice of Deficiency related to the 1983 and
1984 tax years. The matter was tried before the Tax Court in late 1997. Even
though the Tax Court has no scheduled date for its opinion to be rendered, the
Company does not anticipate a decision before mid-1999.

During the first quarter of 1999, the IRS issued two Notices of Deficiency
asserting that UPS is liable for additional tax for the 1985 through 1987 tax
years, and the 1988 through 1990 tax years. In all cases, the primary assertions
by the IRS relate to the reinsurance of excess value package insurance, the
issue raised for the 1983 through 1984 tax years. The additional tax sought by
the IRS relating to package insurance for these periods ranges, based on
alternative theories, from $115 million to $121 million for the 1985 through
1987 tax years, and from $131 million to $138 million for the 1988 through 1990
tax years, plus penalties and interest. The IRS has based their assertions on
the same theories included in the 1983-1984 Notice of Deficiency.

In addition to package insurance, the IRS has raised a number of other
issues relating to the timing of deductions; the characterization of expenses as
capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit
and the Research Tax Credit in the 1983 through 1990 tax years. These issues
total $32 million in tax for the 1983 and 1984 tax years, $88 million in tax for
the 1985 through 1987 tax years, and $245 million in tax for the 1988 through
1990 tax years. Penalties and interest are in addition to these amounts. The
majority of these adjustments would reverse in future years. The Company is
currently in the process of preparing petitions to the Tax Court for the 1985
through 1987 tax years and the 1988 through 1990 tax years. The IRS may take
positions similar to those described above for periods subsequent to 1990.
Management believes the eventual resolution of the matters raised by the IRS
will not result in a material adverse effect upon the financial condition of the
Company.

The Company is a defendant in various employment-related lawsuits. In one
of these actions, which alleges employment discrimination by the Company, class
action status has been granted, and the United States Equal Employment
Opportunity Commission has been granted the right to intervene. UPS is also a
defendant in various other lawsuits that arose in the normal course of business.
In the opinion of management, none of these cases is expected to have a material
adverse effect upon the financial condition of the Company.

5. EMPLOYEE BENEFIT PLANS

UPS maintains several defined benefit plans (the "Plans"). The Plans are
noncontributory and include all employees who meet certain minimum age and years
of service requirements, except those employees covered by certain
multi-employer plans provided for under collective bargaining agreements.

F-13

<PAGE>

The Plans provide for retirement benefits based on either service credits
or average compensation levels earned by employees prior to retirement. The
Plans' assets consist primarily of publicly traded stocks and bonds and include
approximately 13.3 million and 13.5 million shares of UPS common stock at
December 31, 1997 and 1998, respectively. UPS's funding policy is consistent
with relevant federal tax regulations. Accordingly, UPS contributes amounts
deductible for federal income tax purposes.

UPS sponsors postretirement medical plans that provide health care benefits
to its retirees who meet certain eligibility requirements and who are not
otherwise covered by multi-employer plans. Generally, this includes employees
with at least 10 years of service who have reached age 55 and employees who are
eligible for postretirement medical benefits from a Company-sponsored plan
pursuant to collective bargaining. The Company has the right to modify or
terminate certain of these plans. In many cases, these benefits have been
provided to retirees on a noncontributory basis; however, in certain cases,
employees are required to contribute towards the cost of the coverage.

The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets, and a statement of funded status
as of September 30, with certain amounts included in the balance sheet as of
December 31 (in millions):

<TABLE>
Postretirement
Pension Benefits Medical Benefits
-------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year.......... $2,678 $3,311 $1,096 $1,139
Service cost......................................... 108 147 41 39
Interest cost........................................ 220 260 89 86
Plan amendments...................................... 98 60 (29) (24)
Actuarial (gain) loss................................ 296 518 (17) 18
Gross benefits paid.................................. (89) (93) (41) (46)
----- ----- ----- -----
Net benefit obligation at end of year ............... 3,311 4,203 1,139 1,212
----- ----- ----- -----
Change in Plan Assets
Fair value of plan assets at October 1, 1997......... 2,768 3,856 237 291
Actual return on plan assets......................... 768 53 53 3
Employer contributions............................... 409 114 42 42
Gross benefits paid.................................. (89) (93) (41) (46)
----- ----- ----- -----
Fair value of plan assets at September 30, 1998...... 3,856 3,930 291 290
----- ----- ----- -----
Funded status at end of year......................... 545 (273) (848) (922)
Unrecognized net actuarial (gain) loss............... (495) 280 (65) (24)

Unrecognized prior service cost...................... 224 305 2 (23)
Unrecognized net transition obligation............... 71 19 - -
----- ----- ----- -----
Net asset (liability) recorded at end of year........ $ 345 $ 331 $ (911) $ (969)
===== ===== ===== =====
</TABLE>

F-14

<PAGE>

Net periodic benefit cost for the years ended December 31 included the
following components (in millions):

<TABLE>
Postretirement
Pension Benefits Medical Benefits
---------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.................................... $109 $108 $147 $ 37 $ 41 $ 39
Interest cost................................... 203 220 260 82 89 86
Expected return on assets....................... (202) (240) (310) (18) (21) (26)
Amortization of:
Transition obligation........................ 4 4 8 - - -
Prior service cost........................... 11 11 23 3 3 1
Actuarial loss............................... 2 - - 1 - -
--- --- --- --- --- ---
Net periodic benefit cost....................... $127 $103 $128 $105 $112 $100
=== === === === === ===
</TABLE>

The significant assumptions used in the measurement of the Company's
benefit obligations are as follows:

<TABLE>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Expected long-term rate of earnings on plan assets........................... 9.5% 9.5% 9.5%
Discount rate................................................................ 8.0% 7.5% 6.75%
Rate of increase in future compensation levels for pension benefits.......... 4.0% 4.0% 4.0%
</TABLE>

Future postretirement medical benefit costs were forecasted assuming an
initial annual increase of 6.0% for pre-65 medical costs and an increase of 5.0%
for post-65 medical costs, decreasing to 5.0% for pre-65 and 4.0% for post-65 by
the year 2000 and with consistent annual increases at those ultimate levels
thereafter.

Assumed health care cost trends have a significant effect on the amounts
reported for the health care plans. A one-percent change in assumed health care
cost trend rates would have the following effects (in millions):

<TABLE>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components................ $10 $(10)
Effect on post retirement benefit obligation........................... $94 $(94)
</TABLE>

UPS also contributes to several multi-employer pension plans for which the
above information is not determinable. Amounts charged to operations for pension
contributions to these multi-employer plans were $652, $597 and $757 million
during 1996, 1997 and 1998, respectively.

UPS also contributes to several multi-employer health and welfare plans
which cover both active and retired employees for which the above information is
not determinable. Amounts charged to operations for contributions to
multi-employer health and welfare plans were $441, $448 and $458 million during
1996, 1997 and 1998, respectively.

F-15

<PAGE>

UPS also sponsors a defined contribution plan for all employees not covered
under collective bargaining agreements. Beginning January 1, 1998, the Company
matched, in shares of UPS common stock, a portion of the participating
employees' contributions. Matching contributions charged to expense were $49
million for 1998.

6. MANAGEMENT INCENTIVE PLANS

UPS maintains the UPS Managers Incentive Plan. Persons earning the right to
receive awards are determined annually by either the Officer Compensation
Committee or the Salary Committee of the UPS Board of Directors. Awards consist
primarily of UPS common stock and cash equivalent to the tax withholdings on
such awards. The total of all such awards is limited to 15% of consolidated
income before income taxes for the 12-month period ending each September 30,
exclusive of gains and losses from the sale of real estate and stock of
subsidiaries and the effect of certain other nonrecurring transactions or
accounting changes. Amounts charged to operations were $324, $244 and $448
million during 1996, 1997 and 1998, respectively.

As a result of the reclassification of Common Stock Held for Stock Plans
discussed in Note 1, the Company recorded $263 million of the $448 million 1998
Managers Incentive Plan award, that was distributed in UPS common stock in
February 1999, as Additional Paid-In Capital.

UPS maintains fixed stock option plans under which options are granted to
purchase shares of UPS common stock at the current price of UPS shares as
determined by the Board of Directors on the date of option grant. UPS applies
APB Opinion 25 and related Interpretations in accounting for these plans.
Accordingly, no compensation expense has been recorded for the grant of stock
options during 1996, 1997 or 1998. Pro forma information regarding net income
and earnings per share is required by Statement of Financial Accounting
Standards No. 123 ("FAS 123") and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. For purposes of pro forma disclosures, the estimated fair value of
the options granted in 1996, 1997 and 1998 is amortized to expense over the
vesting period of the options.

The pro forma information is as follows (in millions except per share
amounts):

<TABLE>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C> <C>
Net income...............................As reported...... $1,146 $ 909 $1,741
Pro forma........ $1,143 $ 904 $1,734
Basic earnings per share.................As reported...... $ 2.06 $ 1.65 $ 3.18
Pro forma........ $ 2.05 $ 1.64 $ 3.17
Diluted earnings per share...............As reported...... $ 2.03 $ 1.63 $ 3.14
Pro forma........ $ 2.03 $ 1.62 $ 3.13
</TABLE>

F-16

<PAGE>

The weighted average fair value of options granted during 1996, 1997 and
1998 was $3.80, $5.24 and $3.60, respectively, using the minimum value method
for nonpublic entities specified by FAS 123. The assumptions used, by year, are
as follows:

1996 1997 1998
------ ------ ------
Semiannual dividend per share............... $0.35 $0.35 $0.45
Risk-free interest rate..................... 6.05% 6.73% 5.56%
Expected life in years...................... 5 5 5

Persons earning the right to receive stock options are determined each year
by either the Officer Compensation Committee or the Salary Committee of the UPS
Board of Directors. Options covering a total of 30 million common shares may be
granted during the five-year period ending in 2001 under the UPS 1996 Stock
Option Plan. Except in the case of death, disability or retirement, options are
exercisable only during a limited period after the expiration of five years from
the date of grant but are subject to earlier cancellation or exercise under
certain conditions.

Following is an analysis of options for shares of common stock issued and
outstanding:

Weighted Number of
Average Shares
Exercise Price (in thousands)
-------------- --------------
Outstanding at January 1, 1996.............. $19.16 19,333
Exercised................................... $15.25 (3,474)
Granted..................................... $27.00 3,322
Canceled.................................... $21.64 (225)
------
Outstanding at December 31, 1996............ $21.21 18,956
Exercised................................... $16.50 (3,956)
Granted..................................... $29.75 3,262
Canceled.................................... $22.72 (313)
------
Outstanding at December 31, 1997............ $23.77 17,949
Exercised................................... $18.75 (3,894)
Granted..................................... $32.00 4,150
Canceled.................................... $24.75 (220)
------
Outstanding at December 31, 1998............ $26.74 17,985
======

No options were exercisable at December 31, 1996, 1997 or 1998. The
following table summarizes information about stock options outstanding at
December 31, 1998:

Number of Weighted Average
Shares Remaining Life Weighted Average
(in thousands) (in years) Exercise Price
-------------- ---------- --------------
3,823 0.3 $21.25
3,721 1.3 $23.75
3,154 2.3 $27.00
3,168 3.3 $29.75
4,119 4.3 $32.00
------
17,985 2.3 $26.74
======

F-17

<PAGE>

7. INCOME TAXES

The provision for income taxes for the years ended December 31 consists of
the following (in millions):

1996 1997 1998
---- ---- ----
Current:
Federal....................................... $333 $455 $ 917
State......................................... 71 76 127
--- --- -----
Total Current............................... 404 531 1,044
--- --- -----
Deferred:
Federal....................................... 324 100 104
State......................................... 36 13 13
--- --- -----
Total Deferred.............................. 360 113 117
--- --- -----
Total....................................... $764 $644 $1,161
=== === =====

Income before income taxes includes losses of international subsidiaries of
$160, $70 and $20 million for 1996, 1997 and 1998, respectively.

A reconciliation of the statutory federal income tax rate to the effective
income tax rate for the years ended December 31 consists of the following:

1996 1997 1998
---- ---- ----

Statutory federal income tax rate.................... 35.0% 35.0% 35.0%
State income taxes (net of federal benefit).......... 3.8 3.7 3.1
Other................................................ 1.2 2.8 1.9
---- ---- ----
Effective income tax rate............................ 40.0% 41.5% 40.0%
==== ==== ====

F-18

<PAGE>

Deferred tax liabilities and assets are comprised of the following at
December 31 (in millions):

1997 1998
---- ----
Excess of tax over book depreciation.................... $1,727 $1,957
Pension plans........................................... 300 265
Prepaid health and welfare.............................. 131 124
Leveraged leases....................................... 87 62
Other................................................... 402 400
----- -----
Gross deferred tax liabilities.......................... 2,647 2,808
----- -----
Other postretirement benefits........................... 377 407
Loss carryforwards (international)...................... 322 308
Insurance reserves...................................... 74 104
Other................................................... 229 229
----- -----
Gross deferred tax assets............................... 1,002 1,048
Deferred tax assets valuation allowance................. (322) (308)
----- -----
Net deferred tax assets................................. 680 740
----- -----
Net deferred tax liability.............................. $1,967 $2,068
===== =====

The valuation allowance decreased $43 million and $14 million during the
years ended December 31, 1997 and 1998, respectively.

UPS has international loss carryforwards of approximately $698 million as
of December 31, 1998. Of this amount, $324 million expires in varying amounts
through 2008. The remaining $374 million may be carried forward indefinitely.
These international loss carryforwards have been fully reserved in the deferred
tax assets valuation allowance due to the uncertainty resulting from a lack of
previous international taxable income within certain international tax
jurisdictions. In addition, a portion of these losses has been deducted on the
U.S. tax return, which could affect the amount of any future benefit.

8. DEFERRED TAXES, CREDITS AND OTHER LIABILITIES

Deferred taxes, credits and other liabilities, as of December 31, consist
of the following (in millions):

1997 1998
---- ----
Deferred federal and state income taxes..................... $1,829 $1,954
Insurance reserves.......................................... 606 704
Other credits and noncurrent liabilities.................... 498 359
----- -----
$2,933 $3,017
===== =====

F-19

<PAGE>

9. OTHER OPERATING EXPENSES

The major components of other operating expenses for the years ended
December 31 are as follows (in millions):

1996 1997 1998
---- ---- ----
Repairs and maintenance..................... $ 823 $ 804 $ 864
Depreciation and amortization............... 964 1,063 1,112
Purchased transportation.................... 1,306 1,374 1,519
Fuel........................................ 685 736 604
Other occupancy............................. 388 395 375
Other expenses.............................. 2,847 3,099 2,878
----- ----- -----
$7,013 $7,471 $7,352
===== ===== =====

10. SEGMENT AND GEOGRAPHIC INFORMATION

The Company is managed based on two primary segments of operation: package
and non-package. Package operations represent the core business of the Company
and are broken down into regional levels worldwide. Regional operations managers
are responsible for both domestic and export operations within their geographic
region with the exception of the U.S., which is further divided between U.S.
domestic and U.S. export operations. International package operations include
U.S. export operations as a separate geographic region. Non-package operations,
which include the UPS Logistics Group, are distinct from package operations and
are thus managed and reported separately. Based on the requirements of FAS 131,
reportable segments include U.S. domestic package operations, international
package operations and non-package operations.

In evaluating financial performance, management focuses on operating profit
as a segment's measure of profit or loss. Operating profit is before interest
expense, interest income, other non-operating gains and losses and income taxes.
The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies (Note 1), with certain expenses
allocated between the segments using activity-based costing methods.

F-20

<PAGE>

Segment information as of, and for the years ended December 31, is as
follows (in millions):

1996 1997 1998
---- ---- ----
U.S. Domestic Package:
Revenue................................... $18,881 $18,868 $20,650
Operating profit.......................... $2,181 $1,654 $2,899
Assets.................................... $9,958 $10,985 $11,225

International Package:
Revenue................................... $2,989 $2,934 $3,237
Operating profit/(loss)................... $(281) $(67) $56
Assets.................................... $2,053 $2,051 $2,325

Non-Package:
Revenue................................... $498 $656 $901
Operating profit.......................... $129 $111 $135
Assets.................................... $1,861 $1,858 $1,824

Consolidated:
Revenue................................... $22,368 $22,458 $24,788
Operating profit.......................... $2,029 $1,698 $3,090
Assets.................................... $14,954 $15,912 $17,067

Non-package operating profit included $129, $111 and $102 million for 1996,
1997 and 1998, respectively, of intersegment profit with a corresponding amount
of operating expense included in the U.S. domestic package segment. Consolidated
assets include $1.082, $1.018 and $1.693 billion for 1996, 1997 and 1998,
respectively, which are not allocated to individual segments.

Revenue by product type for the years ended December 31, is as follows (in
millions):

1996 1997 1998
---- ---- ----

Letters and packages....................... $21,870 $21,802 $23,887
Other...................................... 498 656 901
------ ------ ------
$22,368 $22,458 $24,788
====== ====== ======

F-21

<PAGE>

Geographic information as of, and for the years ended December 31, is as
follows (in millions):

1996 1997 1998
---- ---- ----
U.S.:
Revenue................................. $20,108 $20,238 $22,252
Long-lived assets....................... $9,376 $10,063 $9,832

International:
Revenue................................. $2,260 $2,220 $2,536
Long-lived assets....................... $1,323 $1,372 $1,810

Consolidated:
Revenue................................. $22,368 $22,458 $24,788
Long-lived assets....................... $10,699 $11,435 $11,642

Revenue, for geographic disclosure, is based on the location in which
service originates. Long-lived assets include property, plant and equipment,
long-term investments and goodwill.

11. MARKETABLE SECURITIES

The following is a summary of marketable securities at December 31, 1998
(in millions):

<TABLE>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- --------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government securities................... $194 $2 $- $196
U.S. corporate securities.................... 188 2 - 190
Other debt securities........................ 2 - - 2
--- -- -- ---
Total debt securities..................... 384 4 - 388
Equity securities............................ 6 - 5 1
--- -- -- ---
$390 $4 $5 $389
=== == == ===
</TABLE>

F-22

<PAGE>

The gross realized gains on sales of marketable securities totaled $6
million, and the gross realized losses totaled $1 million. The net adjustment to
unrealized holding losses on marketable securities included in other
comprehensive income, and as a separate component of shareowners' equity,
totaled $1 million.

The amortized cost and estimated fair value of marketable securities at
December 31, 1998, by contractual maturity, are shown below (in millions).
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.

Estimated
Cost Fair Value
---- ----------
Due in one year or less.............................. $ 44 $ 44
Due after one year through three years............... 66 67
Due after three years through five years............. 156 159
Due after five years................................. 118 118
--- ---
384 388
Equity securities.................................... 6 1
--- ---
$390 $389
=== ===

F-23

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and March 31, 1999 (unaudited)
(In millions except share and per share amounts)

<TABLE>
ASSETS 1998 1999
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................................. $ 1,240 $ 2,795
Marketable securities................................................. 389 480
Accounts receivable................................................... 2,713 2,677
Prepaid employee benefit costs........................................ 703 461
Materials, supplies and other prepaid expenses........................ 380 417
------ ------
TOTAL CURRENT ASSETS................................................ 5,425 6,830

PROPERTY, PLANT AND EQUIPMENT (including aircraft under capitalized
lease obligations)- at cost, net of accumulated depreciation and
amortization of $8,170 in 1998 and $8,374 in 1999...................... 11,384 11,420

OTHER ASSETS............................................................. 258 248
------ ------
$17,067 $18,498
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY

CURRENT LIABILITIES:

Commercial paper...................................................... $ - $ 781
Accounts payable...................................................... 1,322 1,147
Accrued wages and withholdings........................................ 1,092 1,140
Dividends payable..................................................... 247 -
Deferred income taxes................................................. 114 107
Current maturities of long-term debt.................................. 410 376
Other current liabilities............................................. 532 877
------ ------
TOTAL CURRENT LIABILITIES........................................... 3,717 4,428

LONG-TERM DEBT (including capitalized lease obligations)................. 2,191 2,142
------ ------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION, NET....................... 969 993
------ ------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES............................ 3,017 3,089
------ ------
SHAREOWNERS' EQUITY:
Preferred stock, no par value,
Authorized 200,000,000 shares, none issued........................... - -
Common stock, par value $.10 per share,
Authorized 900,000,000 shares, issued 559,000,000.................... 56 56
Additional paid-in capital............................................ 325 168
Retained earnings..................................................... 7,280 7,779
Accumulated other comprehensive income................................ (63) (125)
------ ------
7,598 7,878
------ ------
Treasury stock, at cost (11,605,952 and 745,911 shares in 1998
and 1999)........................................................... (425) (32)
------ ------
7,173 7,846
------ ------
$17,067 $18,498
====== ======

See notes to unaudited consolidated financial statements.
</TABLE>

F-24

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended March 31, 1998 and 1999
(In millions except per share amounts)
(unaudited)

Three Months Ended March 31,
----------------------------
1998 1999
---- ----

Revenue.............................................. $ 5,859 $ 6,331
----- -----
Operating Expenses:
Compensation and benefits......................... 3,471 3,652
Other............................................. 1,748 1,813
----- -----
5,219 5,465
----- -----

Operating Profit..................................... 640 866
----- -----
Other Income and (Expense):
Investment income................................. 14 31
Interest expense.................................. (58) (49)
Miscellaneous, net................................ 5 (16)
----- -----
(39) (34)
----- -----

Income Before Income Taxes........................... 601 832

Income Taxes......................................... 249 333
----- -----

Net Income........................................... $ 352 $ 499
===== =====

Basic Earnings Per Share............................. $ 0.64 $ 0.90
===== =====

Diluted Earnings Per Share........................... $ 0.64 $ 0.88
===== =====

See notes to unaudited consolidated financial statements.

F-25

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
Three Months Ended March 31, 1999
(In millions)
(unaudited)

<TABLE>
Accumulated
Common Stock Additional Other Treasury Stock, At Cost Total
------------ Paid-In Retained Comprehensive ----------------------- Shareowners'
Shares Amount Capital Earnings Income Shares Amount Equity
------ ------ ---------- -------- ------------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999............ 559 $ 56 $ 325 $7,280 $ (63) (12) $ (425) $ 7,173
Comprehensive income:
Net income..................... - - - 499 - - - 499
Foreign currency adjustments... - - - - (65) - - (65)
Unrealized gain on marketable
securities.................... - - - - 3 - - 3
-----
Comprehensive income............. $ 437
-----
Gain on issuance of treasury
stock/......................... - - 31 - - - - 31
Stock award plans ............... - - (188) - - 7 287 99
Treasury stock purchases......... - - - - - (5) (216) (216)
Treasury stock issuances......... - - - - - 9 322 322
--- --- --- ----- --- -- --- -----
Balance, March 31, 1999............. 559 $ 56 $ 168 $7,779 $ (125) (1) $ (32) $ 7,846
=== === === ===== === == === =====

See notes to unaudited consolidated financial statements.
</TABLE>

F-26

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended March 31, 1998 and 1999
(In millions)
(unaudited)

<TABLE>
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $352 $499
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization..................................... 265 283
Postretirement benefits........................................... 25 24
Deferred taxes, credits, and other................................ 101 63
Stock award plans................................................. - (188)
Changes in assets and liabilities:................................
Accounts receivable............................................. 48 36
Prepaid employee benefit costs.................................. (272) 242
Materials, supplies and other prepaid expenses.................. (49) (37)
Accounts payable................................................ (85) (175)
Accrued wages and withholdings.................................. (94) 48
Dividends payable............................................... (191) (247)
Other current liabilities....................................... 179 345
--- -----
Net cash from operating activities.................................. 279 893
--- -----
Cash flows from investing activities:

Capital expenditures................................................ (290) (214)
Disposals of property, plant and equipment.......................... 90 12
Purchases of marketable securities.................................. - (487)
Sales and maturities of marketable securities....................... - 399
Construction funds in escrow........................................ - (149)
Other asset receipts................................................ 65 2
--- -----
Net cash (used in) investing activities............................. (135) (437)
--- -----
Cash flows from financing activities:

Proceeds from borrowings............................................ 128 959
Repayments of borrowings............................................ (67) (261)
Purchases of treasury stock......................................... (227) (216)
Issuances of treasury stock pursuant to stock awards and employee
stock purchase plans............................................... 188 609
Other transactions.................................................. 2 31
--- -----
Net cash from financing activities ................................. 24 1,122

Effect of exchange rate changes on cash................................ (4) (23)
--- -----
Net increase in cash and cash equivalents.............................. 164 1,555

Cash and cash equivalents:
Beginning of period................................................. 460 1,240
--- -----
End of period....................................................... $624 $2,795
=== =====
Cash paid during the period for:
Interest (net of amount capitalized)................................ $ 40 $ 35
=== =====
Income taxes........................................................ $132 $ 26
=== =====

See notes to unaudited consolidated financial statements.
</TABLE>

F-27

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. For interim consolidated financial statement purposes, UPS computes its tax
provision on the basis of its estimated annual effective income tax rate, and
provides for accruals under its various employee benefit plans for each three
month period based on one quarter of the estimated annual expense.

In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which requires that certain costs to
develop or obtain computer software for internal use be capitalized. The Company
adopted the new standard on January 1, 1999. Prior to adoption of SOP 98-1, the
Company expensed all internal use software costs as incurred. The effect of
adopting the SOP was to increase net income for the quarter ended March 31, 1999
by $19 million or $.03 per share.

2. In the opinion of management, the accompanying interim, unaudited,
consolidated financial statements contain all adjustments (consisting solely of
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 1999, the results of operations for the three months ended March
31, 1998 and 1999, and cash flows for the three months ended March 31, 1998 and
1999.

3. The following table sets forth the computation of basic and diluted
earnings per share (in millions except per share amounts):

<TABLE>
1998 1999
---- ----
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share - net income....... $352 $499
==== ====
Denominator:
Weighted-average shares- denominator for basic earnings per share..... 546 556

Effect of dilutive securities:
Additional contingent shares - Managers Incentive Plan................ 3 4
Stock option plans.................................................... 3 4
---- ----
Denominator for diluted earnings per share............................... 552 564
==== ====
Basic earnings per share................................................. $0.64 $0.90
==== ====
Diluted earnings per share............................................... $0.64 $0.88
==== ====
</TABLE>

4. During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS") asserting
that it is liable for additional tax for the 1983 and 1984 tax years. The Notice
of Deficiency is based in large part on the theory that UPS is liable for tax on
income of Overseas Partners Ltd., a Bermuda company, which has reinsured excess
value package insurance purchased by UPS's customers from unrelated insurers.
The deficiency sought by the IRS relating to package insurance is based on a
number of theories, which the Company believes are inconsistent, and ranges from
$8 million to $35 million of tax, plus penalties and interest for 1984.

F-28

<PAGE>

UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

In August 1995, the Company filed a petition in the United States Tax
Court ("Tax Court") in opposition to the Notice of Deficiency related to the
1983 and 1984 tax years. The matter was tried before the Tax Court in late 1997.
Even though the Tax Court has no scheduled date for its opinion to be rendered,
the Company does not anticipate a decision before mid-1999.

During the first quarter of 1999, the IRS issued two Notices of
Deficiency asserting that UPS is liable for additional tax for the 1985 through
1987 tax years, and the 1988 through 1990 tax years. In all cases, the primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1983 through 1984 tax years. The additional
tax sought by the IRS relating to package insurance for these periods ranges,
based on alternative theories, from $115 million to $121 million for the 1985
through 1987 tax years, and from $131 million to $138 million for the 1988
through 1990 tax years, plus penalties and interest. The IRS has based their
assertions on the same theories included in the 1983-1984 Notice of Deficiency.

In addition to package insurance, the IRS has raised a number of other
issues relating to the timing of deductions; the characterization of expenses as
capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit
and the Research Tax Credit in the 1985 through 1990 tax years. These issues
total $12 million in tax for the 1983 and 1984 tax years, $88 million in tax for
the 1983 through 1987 tax years, and $245 million in tax for the 1988 through
1990 tax years. Penalties and interest are in addition to these amounts. The
majority of these adjustments would reverse in future years. The Company has
filed a petition with the Tax Court for the 1985 through 1987 tax years and is
currently in the process of preparing a petition to the Tax Court for the 1988
through 1990 tax years. The IRS may take positions similar to those described
above for periods subsequent to 1990. Management believes the eventual
resolution of the matters raised by the IRS will not result in a material
adverse effect upon the financial condition of the Company.

The Company is a defendant in various employment-related lawsuits. In
one of these actions, which alleges employment discrimination by the Company,
class action status has been granted, and the United States Equal Employment
Opportunity Commission has been granted the right to intervene. UPS is also a
defendant in various other lawsuits that arose in the normal course of business.
In the opinion of management, none of these cases is expected to have a material
adverse effect upon the financial condition of the Company.

F-29

<PAGE>

5. Segment information for the three months ended March 31, is as follows (in
millions):

1998 1999
---- ----
U.S. Domestic Package:
Revenue............................................. $4,892 $5,231
Operating profit.................................... $594 $765

International Package:
Revenue............................................. $761 $839
Operating profit.................................... $11 $44

Non-Package:
Revenue............................................. $206 $261
Operating profit.................................... $35 $25

Consolidated:
Revenue............................................. $5,859 $6,331
Operating profit.................................... $640 $866

Non-package operating profit included $24 and $27 million for the three
months ended March 31, 1998 and 1999, respectively, of intersegment profit with
a corresponding amount of operating expense included in the U.S. domestic
package segment. Consolidated operating profit for the three months ended March
31, 1999 included $32 million of capitalized software costs that were not
allocated to individual segments.

6. Certain prior period amounts have been reclassified to conform to the
current period presentation.

F-30

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareowner
United Parcel Service, Inc.
Atlanta, Georgia

We have audited the accompanying balance sheet of United Parcel Service, Inc. as
of July 19, 1999. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

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

In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of United Parcel Service, Inc. at July 19, 1999 in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
July 20, 1999

F-31
<PAGE>

UNITED PARCEL SERVICE, INC.

BALANCE SHEET
July 19, 1999

ASSETS--Cash............................................................... $100

SHAREOWNER'S EQUITY--Common stock subscribed............................... $100

NOTES TO BALANCE SHEET

1. ORGANIZATION AND PURPOSE--United Parcel Service, Inc. (the "Company") was
incorporated in Delaware on July 15, 1999 to become a wholly-owned
subsidiary of United Parcel Service of America, Inc. ("UPS"). Subject to
the approval of the shareowners of UPS, a wholly-owned subsidiary of the
Company will merge with UPS, and all of the outstanding common stock of UPS
will be exchanged for new Class A common stock of the Company.

2. SHAREOWNER'S EQUITY--The Company is authorized to issue 1,000 shares of
$.01 par value common stock. UPS has subscribed for 100 shares in exchange
for $100.

F-32

<PAGE>

[BACK COVER]

<PAGE>

PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law ("DGCL")
generally provides that all directors and officers (as well as other employees
and individuals) may be indemnified against expenses (including attorney's
fees) judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with certain specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation-- a "derivative action"), if they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe their conduct was
unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification extends only to expenses (including
attorneys' fees) actually and reasonably incurred in connection with defense
or settlement of an action and the DGCL requires court approval before there
can be any indemnification where the person seeking indemnification has been
found liable to the corporation. Section 145 of the DGCL also provides that
the rights conferred thereby are not exclusive of any other right which any
person may be entitled to under any bylaw, agreement, vote of shareowners or
disinterested directors or otherwise, and permits a corporation to advance
expenses to or on behalf of a person to be indemnified upon receipt of an
undertaking to repay the amounts advanced if it is determined that the person
is not entitled to be indemnified.

New UPS's bylaws provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding by reason of the fact that he is or was a director or officer of
the Company (or is or was serving at the request of the Company as director,
officer, employee or agent of another entity), shall be indemnified and held
harmless by the Company to the fullest extent authorized by the DGCL, as in
effect (or to the extent that indemnification is broadened, as it may be
amended), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith. Except with respect to actions initiated by an officer
or director against the Company to recover the amount of an unpaid claim, the
Company is required to indemnify an officer or director in connection with an
action, suit or proceeding initiated by such person only if such action, suit
or proceeding was authorized by the board of directors of the Company. The
bylaws further provide that an officer or director may (thirty days after a
written claim has been received by the Company) bring suit against the Company
to recover an unpaid claim and, if such suit is successful, the expense of
bringing such suit. While it is a defense to such suit that the claimant has
not met the applicable standards of conduct which make indemnification
permissible under the DGCL, neither the failure of the board of directors to
have made a determination that indemnification is proper, nor an actual
determination that the claimant has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. The bylaws also
provide that the rights conferred thereby are contract rights,

II-1

<PAGE>

that they are not exclusive of any other rights which an officer or director may
have or hereafter acquire under any statute, any other provision of the
certificate of incorporation, bylaw, agreement, vote of shareowners or
disinterested directors or otherwise, and that they include the right to be paid
by the Company the expenses incurred in defending any specified action, suit or
proceeding in advance of its final disposition provided that, if the DGCL so
requires, such payment shall only be made upon delivery to the Company by the
officer or director of an undertaking to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified under the bylaws or otherwise.

Item 21. Exhibits and Financial Statement Schedules.

(a) Exhibits
Exhibit
No. Description
--- -----------

2.1 Form of Agreement and Plan of Merger, dated as of _____, 1999,
among United Parcel Service of America, Inc., United Parcel
Service, Inc. and __________.*
3.1 Certificate of Incorporation of United Parcel Service, Inc.*
3.2 Bylaws of United Parcel Service, Inc.*
4.1 Form of Class A Common Stock Certificate.*
4.2 Form of Class B Common Stock Certificate.*
4.3 Specimen Certificate of Capital Stock of UPS (incorporated by
reference to Exhibit 3(a) to Form 10, as filed April 29, 1970).
4.4 UPS Managers Stock Trust Agreement, as amended and restated
(incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 1 to Registration Statement on Form S-3 (No.
33-54297)).
4.5 Specimen Certificate of 8 3/8% Debentures due April 1,
2020 (incorporated by reference to Exhibit 4(c) to
Registration Statement No. 33-32481, filed December 7,
1989).
4.6 Indenture relating to 8 3/8% Debentures due April 1, 2020
(incorporated by reference to Exhibit 4(c) to Registration
Statement No. 33-32481, filed December 7, 1989).
4.7 UPS Employees Stock Trust Agreement (incorporated by reference to
Exhibit 4(iv) to Registration Statement on Form S-8 (No.
33-62169), filed August 28, 1995).
4.8 Specimen Certificate of $166,000,000 of 3.25% Swiss Franc Notes
due October 22, 1999 (available to the Commission upon request).
4.9 Indenture relating to $166,000,000 of 3.25% Swiss Franc Notes due
October 22, 1999 (available to the Commission upon request).
4.10 Specimen Certificate of Sterling 100 million of 6.875% Notes due
2000 (available to the Commission upon request).
4.11 Indenture relating to Sterling 100 million of 6.8755% Notes due
2000 (available to the Commission upon request).

II-2

<PAGE>

Exhibit
No. Description
--- -----------

4.12 Specimen Certificate of $500,000,000 of Temporary and Permanent
Global Notes in connection with the European medium term note
program (available to the Commission upon request).
4.13 Indenture relating to the $500,000,000 European Medium term note
program (available to the Commission upon request).
4.14 Specimen Certificate of Exchange Offer Notes Due 2030
(incorporated by reference to Exhibit T-3C to Form T-3 filed
December 18, 1997).
4.15 Indenture relating to Exchange Offer Notes Due 2030 (incorporated
by reference to Exhibit T-3C to Form T-3 filed December 18,
1997).
4.16 Specimen Certificate of $200,000,000 of 6.625% Euro Notes due
April 25, 2001 (available to the Commission upon request).
4.17 Indenture relating to $200,000,000 of 6.625% Euro Notes due April
25, 2001 (available to the Commission upon request).
4.18 Specimen Certificate of $300,000,000 of 6.25% Euro Notes due July
7, 2000 (available to the Commission upon request).
4.19 Indenture relating to $300,000,000 of 6.25% Euro Notes due July
7, 2000 (available to the Commission upon request).
4.20 Specimen Certificate of $1,000,000,000 of Temporary and Permanent
Global Notes in connection with the European medium term note
program (available to the Commission upon request).
4.21 Indenture relating to the $1,000,000,000 European medium term
note program (available to the Commission upon request).
4.22 Indenture relating to $2,000,000,000 of debt securities
(incorporated by Reference to Exhibit 4.1 to Pre-Effective
Amendment No. 1 to Registration Statement on Form S-3 (No.
333-08369) as filed January 26, 1999).
4.23 Subscription Agreement - Cash Purchase (incorporated by reference
to Exhibit 4(u) to 1998 Annual Report on Form 10-K).
4.24 Subscription Agreement - Eligible Fiduciaries (incorporated by
reference to Exhibit 4(v) to 1998 Annual Report on Form 10-K).
5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the legal
validity of the securities being registered for issuance.*
8.1 Opinion of Gibson, Dunn & Crutcher LLP regarding certain tax
matters.*
10.1 UPS Thrift Plan, as Amended and Restated January 1, 1976,
including Amendment Nos. 1 and 2.
(1) Amendment No. 3 to the UPS Thrift Plan (incorporated by
reference to Exhibit 20(b) to 1980 Annual Report on
Form 10-K).
(2) Amendment No. 4 to the UPS Thrift Plan
(incorporated by reference to Exhibit 20(b) to
1981 Annual Report on Form 10-K).

II-3

<PAGE>

Exhibit
No. Description
--- -----------

(3) Amendment No. 5 to the UPS Thrift Plan
(incorporated by reference to Exhibit 19(b) to
1983 Annual Report on Form 10-K).
(4) Amendment No. 6 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(4)
to 1985 Annual Report on Form 10-K).
(5) Amendment No. 7 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(5)
to 1985 Annual Report on Form 10-K).
(6) Amendment No. 8 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(6)
to 1987 Annual Report on Form 10-K).
(7) Amendment No. 9 to the UPS Thrift Plan
(incorporated by Reference to Exhibit 10(a)(7)
to 1987 Annual Report on Form 10-K).
(8) Amendment No. 10 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(8)
to 1990 Annual Report on Form 10-K).
(9) Amendment No. 11 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(9)
to 1991 Annual Report on Form 10-K).
(10) Amendment No. 12 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(10)
to 1991 Annual Report on Form 10-K).
(11) Amendment No. 13 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(11)
to 1991 Annual Report on Form 10-K).
(12) Amendment No. 14 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(12)
to 1991 Annual Report on Form 10-K).
(13) Amendment No. 15 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(13)
to 1992 Annual Report on Form 10-K).
(14) Amendment No. 16 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(14)
to 1993 Annual Report on Form 10-K).
(15) Amendment No. 17 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(15)
to 1993 Annual Report on Form 10-K).
(16) Amendment No. 18 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(16)
to 1994 Annual Report on Form 10-K).

II-4

<PAGE>

Exhibit
No. Description
--- -----------

(17) Amendment No. 19 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(17)
to 1994 Annual Report on Form 10-K).
(18) Amendment No. 20 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(18)
to 1995 Annual Report on Form 10-K).
(19) Amendment No. 21 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(19)
to 1995 Annual Report on Form 10-K).
(20) Amendment No. 22 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(20)
to 1996 Annual Report on Form 10-K).
(21) Amendment No. 23 to the UPS Thrift Plan
(incorporated by reference to Exhibit 10(a)(21)
to 1996 Annual Report on Form 10-K).
10.2 UPS Retirement Plan (including Amendments 1 through 4)
(incorporated by reference to Exhibit 9 to 1979 Annual Report on
Form 10-K).
(1) Amendment No. 5 to the UPS Retirement Plan (incorporated
by reference to Exhibit 20(a) to 1980 Annual Report on
Form 10-K).
(2) Amendment No. 6 to the UPS Retirement Plan (incorporated
by reference to Exhibit 19(a) to 1983 Annual Report on
Form 10-K).
(3) Amendment No. 7 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(3)
to 1984 Annual Report on Form 10-K).
(4) Amendment No. 8 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(4)
to 1985 Annual Report on Form 10-K).
(5) Amendment No. 9 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(5)
to 1985 Annual Report on Form 10-K).
(6) Amendment No. 10 to the UPS Retirement Plan
(incorporated by reference to Exhibit 19(a) to
1988 Annual Report on Form 10-K).
(7) Amendment No. 11 to the UPS Retirement Plan
(incorporated by reference to Exhibit 19(b) to
1988 Annual Report on Form 10-K).
(8) Amendment No. 12 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(8)
to 1989 Annual Report on Form 10-K).

II-5

<PAGE>

Exhibit
No. Description
--- -----------

(9) Amendment No. 13 to the UPS Retirement Plan
(incorporated by Reference to Exhibit 10(b)(9)
to 1989 Annual Report on Form 10-K).
(10) Amendment No. 14 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(10)
to 1990 Annual Report on Form 10-K).
(11) Amendment No. 15 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(11)
to 1992 Annual Report on Form 10-K).
(12) Amendment No. 16 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(12)
to 1994 Annual Report on Form 10-K).
(13) Amendment No. 17 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(13)
to 1994 Annual Report on Form 10-K).
(14) Amendment No. 18 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(14)
to 1995 Annual Report on Form 10-K).
(15) Amendment No. 19 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(15)
to 1995 Annual Report on Form 10-K).
(16) Amendment No. 20 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(16)
to 1995 Annual Report on Form 10-K).
(17) Amendment No. 21 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(17)
to 1996 Annual Report on Form 10-K).
(18) Amendment No. 22 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(18)
to 1997 Annual Report on Form 10-K).
(19) Amendment No. 23 to the UPS Retirement Plan
(incorporated by reference to Exhibit 10(b)(19)
to 1998 Annual Report on Form 10-K).
10.3 UPS Managers Incentive Plan (as amended) (incorporated by
reference to Definitive Proxy Statement for 1992 Special Meeting
of Shareholders).
10.4 Indemnification Contracts or Arrangements (incorporated by
reference to Item 8 of Form 10, as filed April 29, 1970).

II-6

<PAGE>

Exhibit
No. Description
--- -----------

10.5 Agreement of Sale between Delaware County Industrial Development
Authority and Penallen Corporation, dated as of December 1, 1985;
Remarketing Agreement, dated as of December 1, 1985, among United
Parcel Service of America, Inc., Penallen Corporation and Salomon
Brothers Inc; Guarantee Agreement, dated as of December 1, 1985,
between United Parcel Service of America, Inc. and Irving Trust
Company; Guarantee by United Parcel Service of America, Inc. to
Delaware County Industrial Development Authority, dated as of
December 1, 1985 (incorporated by reference to Exhibit 10(m) to
1985 Annual Report on Form 10-K).
10.6 Receivables Purchase and Sale Agreement, dated as of November 24,
1987, among United Parcel Service, Inc., an Ohio corporation,
United Parcel Service, Inc., a New York corporation, United
Parcel Service of America, Inc., Cooperative Receivables
Corporation and Citicorp North America, Inc. (incorporated by
reference to Exhibit 10(l) to 1987 Annual Report on Form 10-K).
10.7 Receivables Purchase and Sale Agreement, dated as of November 24,
1987, among United Parcel Service, Inc., an Ohio corporation,
United Parcel Service, Inc., a New York corporation, United
Parcel Service of America, Inc., Citibank, N.A., and Citicorp
North America, Inc. (incorporated by reference to Exhibit 10(m)
to 1987 Annual Report on Form 10-K).
10.8 Membership Agreement, dated as of November 24, 1987, by and
between Cooperative Receivables Corporation and United Parcel
Service of America, Inc. (incorporated by reference to Exhibit
10(n) to 1987 Annual Report on Form 10-K).
10.9 Amended and Restated Facility Lease Agreement, dated as of
November 6,1990, among Overseas Partners Leasing, Inc., United
Parcel Service General Services Co. and United Parcel Service of
America, Inc. (incorporated by reference to Exhibit 10(r) to 1990
Annual Report on Form 10-K).
10.10 Amended and Restated Facility Lease Agreement, dated as of
November 6, 1990, among Overseas Partners Leasing, Inc., United
Parcel Service Co. and United Parcel Service of America, Inc.
(incorporated by reference to Exhibit 10(s) to 1990 Annual Report
on Form 10-K).
10.11 Agreement of Sale, dated as of December 28, 1989, between Edison
Corporation and Overseas Partners Leasing, Inc. (incorporated by
reference to Exhibit 10(t) to 1989 Annual Report on Form 10-K).
10.12 Assignment and Assumption Agreement, dated as of December 28,
1989, between and among Edison Corporation, Overseas Partners
Leasing, Inc., McBride Enterprises, Inc. and Ramapo Ridge-McBride
Office Park (incorporated by reference to Exhibit 10(u) to 1989
Annual Report on Form 10-K).

II-7

<PAGE>

Exhibit
No. Description
--- -----------

10.13 UPS Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10(v) to 1990 Annual Report
on Form 10-K).
10.14 UPS Retirement Plan for Outside Directors (incorporated by
reference to Exhibit 10(w) to 1990 Annual Report on Form 10-K).
10.15 UPS Savings Plan, as Amended and Restated, including Amendment
Nos. 1-5 (incorporated by reference to Exhibit 10(x) to 1990
Annual Report on Form 10-K).
(1) Amendment No. 6 to the UPS Savings Plan (incorporated by
reference to Exhibit 10(x)(1) to 1990 Annual Report on
Form 10-K).
(2) Amendment No. 7 to the UPS Savings Plan (incorporated by
reference to Exhibit 10(x)(2) to 1991 Annual Report on
Form 10-K).
(3) Amendment No. 8 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(3)
to 1992 Annual Report on Form 10-K).
(4) Amendment No. 9 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(4)
to 1992 Annual Report on Form 10-K).
(5) Amendment No. 10 to the UPS Savings Plan
(Incorporated by Reference to Exhibit 10(x)(5)
to 1992 Annual Report on Form 10-K).
(6) Amendment No. 11 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(6)
to 1994 Annual Report on Form 10-K).
(7) Amendment No. 12 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(7)
to 1994 Annual Report on Form 10-K).
(8) Amendment No. 13 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(8)
to 1994 Annual Report on Form 10-K).
(9) Amendment No. 14 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(9)
to 1994 Annual Report on Form 10-K).
(10) Amendment No. 15 to the UPS Savings Plan
(incorporated by reference to Exhibit 10(x)(10)
to 1994 Annual Report on Form 10-K).
(11) Restatement Amendment No. 1 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(x)(11) to 1996 Annual Report on Form 10-K).
(12) Restatement Amendment No. 2 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(x)(12) to 1995 Annual Report on Form 10-K).

II-8

<PAGE>

Exhibit
No. Description
--- -----------

(13) Restatement Amendment No. 3 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(o)(13) to 1996 Annual Report on Form 10-K).
(14) Restatement Amendment No. 4 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(o)(14) to 1996 Annual Report on Form 10-K).
(15) Restatement Amendment No. 5 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(o)(15) to 1996 Annual Report on Form 10-K).
(16) Restatement Amendment No. 6 to the UPS Savings
Plan (incorporated by reference to Exhibit
10(o)(16) to 1997 Annual Report on Form 10-K).
10.16 Credit Agreement (364-Day Facility) dated April 30, 1998 among
United Parcel Service of America, Inc., the initial lenders named
therein, CitiCorp Securities, Inc. as Co-Arranger and BancAmerica
Robertson as Co-Arranger and Bank of America NT & SA., as Agent,
and Citibank, N.A., as Agent (incorporated by reference to
Exhibit 10(a) to Quarterly Report on Form 10-Q for the Quarter
Ended March 30, 1998).
10.17 Credit Agreement (Five-Year Facility) dated April 30, 1998 among
United Parcel Service of America, Inc., the initial lenders named
therein, Citicorp Securities, Inc. as Co-Arranger and BancAmerica
Robertson as Co-Arranger and Bank of America NT & SA as Agent and
Citibank, N.A., as Agent. (incorporated by reference to Exhibit
10(b) to the Quarterly Report on Form 10-Q for the Quarter Ended
March 30, 1998).
10.18 UPS 1991 Stock Option Plan (Amended and Restated as of February
20, 1992) (incorporated by reference to Appendix A to Definitive
Proxy Statement for 1995 Annual Meeting of Shareholders).
10.19 UPS Excess Coordinating Benefit Plan to 1997 Annual Report on
Form 10-K (incorporated by reference to Exhibit 10(s) to 1997
Annual Report on Form 10-K).
10.20 UPS 1997 Employees Stock Purchase Plan (incorporated by reference
to Exhibit 99 to the Form S-8 Registration Statement No.
333-23971, as filed on March 26, 1997).
10.21 UPS 1997 Managers Stock Purchase Plan (incorporated by reference
to Exhibit 99 to the Form S-8 Registration Statement No.
333-23971, as filed on March 26, 1997).
(1) First Amendment to the UPS 1997 Managers Stock Purchase
Plan (incorporated by reference to Exhibit 10(u)(1) to 1998
Annual Report on Form 10-K).
10.22 UPS 1996 Stock Option Plan, as amended and restated (incorporated
by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1997).

II-9

<PAGE>

Exhibit
No. Description
--- -----------

10.23 UPS Qualified Stock Ownership Plan and Trust Agreement
(incorporated by reference to Exhibit 4.1 to Registration
Statement No. 333-67479, filed November 18, 1998).
21 Subsidiaries of the Registrant.*
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
filed as Exhibit 5.1 hereto).
23.3 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
filed as Exhibit 8.1 hereto).
24.1 Powers of Attorney (included on the signature pages hereto).
27 Financial Data Schedule.
99.1 Proxy cards and voting instructions.*

- ---------
* To be filed by amendment.

(b) Financial Statement Schedules

Schedules are omitted because of the absence of conditions under
which they are required under the pertinent portion of the instructions for
Form S-4.

None.

Item 22. Undertakings.

(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.

(2) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.

(3) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(4) the undersigned registrant hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by and person or
pary who is deemed to be an underwriter within the meaning of Rule 145(c),
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who

II-10

<PAGE>

may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.

(5) The registrant undertakes that every prospectus (I) that is filed
pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-11

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fulton, State of Georgia, on July
20, 1999.

UNITED PARCEL SERVICE, INC.

By: /s/ James P. Kelly
----------------------------------
James P. Kelly
Chairman of the Board and
Chief Executive Officer

POWERS OF ATTORNEY

Each person whose signature appears below constitutes and appoints
James P. Kelly and Joseph R. Moderow, and each of them, as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign any or all further amendments (including
post-effective amendments) to this Registration Statement (and any additional
Registration Statement related hereto permitted by Rule 462(b) promulgated
under the Securities Act of 1933 (and all further amendments, including
post-effective amendments, thereto)), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

II-12

<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
Signature Title Date
<S> <C> <C>
/s/ John W. Alden Vice Chairman of the Board, Senior July 20, 1999
- ------------------------------- Vice President and Director
John W. Alden

/s/ William H. Brown III Director July 20, 1999
- -------------------------------
William H. Brown III

/s/ Robert J. Clanin Senior Vice President, Chief July 20, 1999
- ------------------------------- Financial Officer, Treasurer and
Robert J. Clanin Director (Principal Financial and
Accounting Officer)

/s/ Michael L. Eskew Senior Vice President and Director July 20, 1999
- -------------------------------
Michael L. Eskew

/s/ James P. Kelly Chairman of the Board, Chief July 20, 1999
- ------------------------------- Executive Officer and Director
James P. Kelly (Principal Executive Officer)

/s/ Ann M. Livermore Director July 20, 1999
- -------------------------------
Ann M. Livermore

/s/ Gary E. MacDougal Director July 20, 1999
- -------------------------------
Gary E. MacDougal

/s/ Joseph R. Moderow Senior Vice President, July 20, 1999
- ------------------------------- Secretary and Director
Joseph R. Moderow

/s/ Kent C. Nelson Director July 20, 1999
- -------------------------------
Kent C. Nelson

/s/ Victor A. Pelson Director July 20, 1999
- -------------------------------
Victor A. Pelson

/s/ John W. Rogers Director July 20, 1999
- -------------------------------
John W. Rogers

/s/ Charles L. Schaffer Senior Vice President and July 20, 1999
- ------------------------------- Director
Charles L. Schaffer

II-13

<PAGE>

/s/ Lea N. Soupata Senior Vice President and Director July 20, 1999
- -------------------------------
Lea N. Soupata

/s/ Robert M. Teeter Director July 20, 1999
- -------------------------------
Robert M. Teeter

/s/ Thomas H. Weidemeyer Senior Vice President and Director July 20, 1999
- -------------------------------
Thomas H. Weidemeyer

</TABLE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of United Parcel
Service, Inc. on Form S-4 of our report dated February 8, 1999 (relating to the
consolidated financial statements of United Parcel Service of America, Inc.),
appearing in the proxy statement/prospectus, which is part of this
Registration Statement.

We also consent to the reference to us under the heading "Experts" in the
proxy statement/prospectus, which is part of this Registration Statement.

/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP

Atlanta, Georgia
July 20, 1999

<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of United Parcel
Service, Inc. on Form S-4 of our report dated July 20, 1999, appearing in the
proxy statement/prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in the
proxy statement/prospectus, which is part of this Registration Statement.

/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP

Atlanta, Georgia
July 20, 1999

<ARTICLE> 5
<CIK> 0001090727
<NAME> United Parcel Service, Inc.
<MULTIPLIER> 1
<CURRENCY> US$

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Jul-19-1999
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 100
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00

</TABLE>