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

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

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As filed with the Securities and Exchange Commission on July 21, 1999

Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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

UNITED PARCEL SERVICE, INC.
(Exact name of registrant as specified in its charter)

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

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:

<TABLE>
<S> <C> <C>
Jeffrey Small, Esq.
John F. Olson, Esq. Jeffrey L. Schulte, Esq. Richard J. Sandler, Esq.
Gibson, Dunn & Crutcher LLP Morris Manning & Martin LLP Davis Polk & Wardwell
1050 Connecticut Avenue, N.W. 3343 Peachtree Road, N.E., Suite 1600 450 Lexington Avenue
Washington, DC 20036 Atlanta, GA 30326 New York, NY 10017
(202) 955-8500 (404) 233-7000 (212) 450-4000

----------------------
</TABLE>

Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration statement becomes
effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

<TABLE>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
Title of each class of Proposed maximum
Securities to be registered aggregate offering price(1) Amount of registration fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class B common stock, $.10 par value per
share..................................... $100,000,000 $27,800
==========================================================================================================

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
</TABLE>

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>

The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Issued July 21, 1999

[Logo]

UNITED PARCEL SERVICE, INC.

CLASS B COMMON STOCK

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

We are offering shares of our class B common stock. This is our initial
public offering and no public market exists for our shares. We anticipate that
the initial public offering price will be between $ and $ per share.

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

We will apply for the listing of our class B common stock on the New York Stock
Exchange under the trading symbol "UPS."

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

Investing in our class B common stock involves risks. See "Risk Factors"
beginning on page .

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

PRICE $ A SHARE

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

<TABLE>
Underwriting
Price to Discounts and Proceeds to
Public Commissions United Parcel Service, Inc.
------ ----------- ---------------------------
<S> <C> <C> <C>
Per Share................... $ $ $
Total....................... $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.

----------------------
MORGAN STANLEY DEAN WITTER

, 1999

<PAGE>

TABLE OF CONTENTS

Page
----

Special Note About Forward-Looking Statements.........4
Prospectus Summary....................................5
Risk Factors.........................................11
Use of Proceeds......................................16
Dividend Policy......................................16
Capitalization.......................................17
Selected Consolidated Financial and Operating Data...18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................20
Industry Overview....................................33
Business.............................................36
Management and Stock Ownership Information...........54
The Merger and the Tender Offer......................68
Description of Capital Stock, Certificate of
Incorporation and Bylaws...........................70
Market for Old UPS's Common Equity...................76
Relationships with Overseas Partners Ltd.............78
Shares Eligible for Future Sale......................81
Material Federal Income Tax Consequences to
Non-United States Shareowners......................82
Underwriters.........................................85
Legal Matters........................................87
Experts..............................................88
Where You Can Find More Information..................88
Index to Financial Statements.......................F-1

In this prospectus, we use the terms "UPS," "we," "us" and "our" to refer
to United Parcel Service, Inc. or United Parcel Service of America, Inc. when
the distinction between the two companies is not important. When the distinction
between the two companies is important to the discussion, we use the term "Old
UPS" to refer to United Parcel Service of America, Inc. and "New UPS" to refer
to United Parcel Service, Inc. On , 1999, the shareowners of Old UPS
approved a merger of Old UPS into its wholly owned subsidiary, __________.
That merger will close immediately before this offering closes. After the
merger, Old UPS will be a wholly owned subsidiary of New UPS. Unless we
indicate otherwise, the information in this prospectus assumes that we
complete the merger.

Old UPS files reports and other information with the SEC, but its common
stock, which is subject to various restrictions, is not publicly traded. You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from the information
contained in this prospectus. We are offering to sell, and seeking offers to
buy, the class B common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of when this prospectus is delivered or
when any sale of our class B common stock occurs.

3
<PAGE>

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this prospectus, 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, this 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 prospectus.

You should understand that many important factors, in addition to those
discussed elsewhere in this 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.

4
<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information in this prospectus, but it may
not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering
and related transactions, you should read this entire prospectus carefully,
including the "Risk Factors" section and the consolidated financial statements
and the notes to those statements, which are included elsewhere in this
prospectus.

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.

5
<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.

6
<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 limit the rate of expense growth and employ technology-driven
efficiencies to increase operating profit. Our core business is 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. This 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.

7
<PAGE>

THE OFFERING

Class B common stock offered............................ shares

Common stock to be outstanding immediately after the
offering:

Class A-1 common stock............................. shares
Class A-2 common stock............................. shares
Class A-3 common stock............................. shares
Class B common stock............................... shares
Total......................................... shares

Voting Rights:

Class A-1, A-2 and A-3 common stock................ Ten votes per share
Class B common stock............................... One vote per share

Use of Proceeds......................................... Net proceeds from this
offering will be about
$ . We will use
the net proceeds to
fund a cash tender
offer for some of the
class A-1 common
stock. See "Use of
Proceeds."

Dividends............................................... Our board of
directors' policy is
to declare dividends
each year out of
current earnings. The
declaration of future
dividends is, however,
subject to the
discretion of our
board of directors in
light of all relevant
facts, including
earnings, general
business conditions
and working capital
requirements.
Historically, we have
paid dividends
semi-annually.

Proposed NYSE symbol.................................... UPS

Our class A-1, A-2 and A-3 common stock are identical except for the
transfer restrictions applicable to those shares. Because of this, we refer to
them collectively as the class A common stock. See "Description of Capital
Stock, Certificate of Incorporation and Bylaws."

Unless we specifically state otherwise, the information in this prospectus
does not take into account our issuance of up to shares of class B common stock
that the U.S. underwriters have the option to purchase solely to cover
over-allotments. If the U.S. underwriters exercise their over-allotment option
in full, shares of class B common stock will be outstanding after this offering.

8
<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 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 prospectus. The remaining financial data are derived
from consolidated financial statements that are not contained in this
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
------ ------ ------ ------ ------ ------ ------
(financial data in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
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

9
<PAGE>

Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
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>

10
<PAGE>

RISK FACTORS

Risks Relating to Our Certificate of Incorporation and Bylaw Provisions and the
Public Offering

Class B common stock will have insignificant voting power

Our class A common stock entitles its holders to ten votes for each share.
Upon completion of this offering, class A common stock will constitute about 90%
of our total outstanding common stock and about 99% of our total voting power
and thus will be able to exercise a controlling influence over our business. The
class B common stock entitles its holders to only one vote per share. Upon
completion of this offering, class B common stock will constitute about 10% of
our total outstanding common stock and about 1% of our total voting power.

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.

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 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 25% 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.

In addition, our capital structure may deter a potential change in our
control, because our voting power will be concentrated in our class A common
stock. Upon any transfer to someone who is not a "permitted transferee," these
shares 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.

11
<PAGE>

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

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

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 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.

12
<PAGE>

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 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

13
<PAGE>

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

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.

14
<PAGE>

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."

15
<PAGE>

USE OF PROCEEDS

We will receive net proceeds from this offering of about $_________, or
$___________ if the U.S. underwriters exercise their over-allotment option in
full. Within several months after the offering, we intend to use the net
proceeds of this offering to fund a cash tender offer for some of our class A-1
common stock. During the period between this offering and the tender offer, the
net proceeds will be invested in investment-grade short-term securities.

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 this
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.

16
<PAGE>

CAPITALIZATION

The following table sets forth:

o the actual capitalization of Old UPS as of March 31, 1999

o that capitalization as adjusted for the merger and this offering

o that adjusted capitalization, pro forma for the tender offer

We have assumed that we will use the entire net proceeds to purchase some
of our class A common stock in the tender offer at $ per share.

You should read this table in conjunction with the consolidated financial
statements and the notes to those statements which are included elsewhere in
this prospectus.

<TABLE>
March 31, 1999
----------------------------------------------------
As Adjusted,
Actual As Adjusted Pro Forma
---------------- ---------------- ----------------
<S> <C> <C> <C>
Debt: (in millions, except share data)
Current maturities of long-term debt....................... $ 376 $ $
Long-term debt............................................. 2,142
---------- ---------- ----------
Total debt................................... 2,518
========== ========== ==========

Shareowners' Equity:
Preferred stock: no par value; 200,000,000
shares authorized; no shares issued................ - - -
Common stock: $.10 par value; 900,000,000
shares authorized; 559,000,000, 0 and 0
shares issued...................................... 56 - -
Class A-1 common stock: $ .10 par value;
shares authorized; 0, and
shares issued.............................. -
Class A-2 common stock: $ .10 par value;
shares authorized; 0, and
shares issued.............................. -
Class A-3 common stock: $ .10 par value;
shares authorized; 0, and
shares issued.............................. -
Class B common stock: $ .10 par value;
shares authorized; 0, and
shares issued.............................. -
Additional paid-in capital............................ 168
Retained earnings..................................... 7,779
Accumulated other comprehensive income................ (125)
Treasury stock at cost; 745,911 shares................ (32)
---------- ---------- ----------
Total shareowners' equity.................... 7,846
Total capitalization....................................... $ 10,364 $ $

========== ========== ==========
</TABLE>

17
<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 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 prospectus. The remaining financial data are derived
from consolidated financial statements that are not contained in this
prospectus. The consolidated financial data as of and for the three months ended
March 31, 1998 and 1999 have been derived from our unaudited consolidated
financial statements, which are included in this prospectus and which, in our
opinion, reflect all adjustments, consisting only of adjustments of a normal and
recurring nature, necessary to 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
------ ------ ------ ------ ------ ------ ------
(financial data in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
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

18
<PAGE>

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

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>

19
<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.

20
<PAGE>

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

<TABLE>
Three Months Ended
Year Ended December 31, March 31,
------------------------------ ------------------
Operating Segment 1996 1997 1998 1998 1999
- ----------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== =====
</TABLE>

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:

<TABLE>
Three Months Ended
Year Ended December 31, March 31,
------------------------------ ------------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== =====

</TABLE>

21
<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:

<TABLE>

Three Months Ended
March 31, Change
----------------------- -----------------------
Operating Segment 1998 1999 $ %
----------------- -------- -------- -------- --------
(dollars in millions, unaudited)
<S> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>

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.

22
<PAGE>

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

<TABLE>

Three Months Ended
March 31, Change
----------------------- -----------------------
Operating Segment 1998 1999 $ %
----------------- -------- -------- -------- --------
(dollars in millions, unaudited)
<S> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>

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:

<TABLE>
Year Ended December 31, Change
----------------------- -----------------------
Operating Segment 1997 1998 $ %
----------------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>

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.

23
<PAGE>

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 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:

<TABLE>
Year Ended
December 31, Change
----------------------- -----------------------
Operating Segment 1997 1998 $ %
----------------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>

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.

24
<PAGE>

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

<TABLE>
Year Ended
December 31, Change
----------------------- -----------------------
Operating Segment 1996 1997 $ %
----------------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>

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:

<TABLE>
Year Ended
December 31, Change
----------------------- -----------------------
Operating Segment 1996 1997 $ %
----------------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
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)
======== ======== =======
</TABLE>

25
<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 June 30, Sept. Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March
31, 1997 1997 30, 1997 1997 1998 1998 1998 1998 31, 1999
-------- -------- -------- -------- --------- -------- --------- -------- --------
Revenue: (in millions, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 40 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.

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

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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.

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.

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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.

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

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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).

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

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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 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

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<PAGE>

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 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.

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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 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.

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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.

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

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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.

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

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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.

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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.

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.

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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 this offering, 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:

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 intense 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 in the 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.

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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.

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

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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.

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

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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 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

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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 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.

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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 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.

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

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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.

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.

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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.

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.

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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.

o UPS 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.

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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 web site 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.

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 14 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.

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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.

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

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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.

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.

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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.

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.

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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.

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'

51
<PAGE>

jurisdiction with respect to the regulation of safety, insurance and hazardous
materials. We are subject to similar regulation in many foreign jurisdictions.

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 insurers. The tax
deficiency sought by the IRS relating to package insurance is based on a

52
<PAGE>

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.

53
<PAGE>

MAMAGEMENT 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.

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

<PAGE>
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. 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

55
<PAGE>

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 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.

56
<PAGE>

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 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

57
<PAGE>

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 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.

58
<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.

(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

59
<PAGE>

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;

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

<PAGE>

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.

61
<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:

SUMMARY COMPENSATION TABLE

<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 ---
</TABLE>

- ------------------------------
(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.

62
<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
</TABLE>

- ----------------------
(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.

<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
</TABLE>

- ----------------------
(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.

<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.

65
<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 members of the Compensation
Committee or other directors of UPS requiring disclosure in this prospectus.

66
<PAGE>

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.

<PAGE>

THE MERGER AND THE TENDER OFFER

We are offering shares of our class B common stock pursuant to this
prospectus. We have granted the underwriters the right to purchase up to an
additional _________ shares of class B common stock to cover over-allotments.
Our net proceeds from this offering will be about $ . Within several months
after this offering, we will use the net proceeds of this offering to fund a
cash tender offer for some of our class A-1 common stock. See "Use of Proceeds."
This offering is conditioned upon completion of the merger, which is described
below.

The Merger

Before this offering, New UPS will be a wholly owned subsidiary of Old UPS.
Immediately before this offering, a wholly owned subsidiary of New UPS will
merge with and into Old UPS. When this merger occurs:

o all of Old UPS's outstanding common stock will convert automatically
into shares of New UPS's class A common stock. Of each shareowner's
Old UPS shares:

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 this common stock will be identical. Shares of class
A-1, A-2, or A-3 common stock will not be transferable or
convertible into class B shares, until the relevant restricted
period expires. This restricted period will expire:

o six months after this offering for class A-1 shares

o 12 months after this offering for class A-2 shares

o 18 months after this offering for class A-3 shares

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

After the merger and the offering:

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

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

We will not complete this offering unless we complete the merger. We will
complete the merger only if each of the following conditions is satisfied or
waived:

o A majority of the outstanding shares of Old UPS common stock approve
the merger agreement

68
<PAGE>

o Certain Old UPS's employee benefits 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 in the
merger is not a "prohibited transaction" under ERISA

The Tender Offer

After the offering, we intend to use the net proceeds of the offering to
fund a cash tender offer for some of the class A common stock, series A-1. See
"Use of Proceeds." We will purchase shares in the tender offer pursuant to an
offer to purchase and related materials, which we will distribute when we
commence the tender offer. We will also file a Schedule 13E-4 with the SEC in
connection with the tender offer.

<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 this 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 this offering.

Description of Our Certificate of Incorporation

This section describes other key provisions of our certificate of
incorporation.

o Scaled Voting. Our certificate of incorporation provides that any
person or group that owns more than 25% of our total voting power
will be entitled to only 1/100th of a vote for each share it owns in
excess of 25% of our voting power.

o No Shareowner Action by Written Consent. Our certificate of
incorporation prohibits shareowner action by written consent.

o No Shareowner Ability to Call a Special Meeting. Our certificate of
incorporation provides that special meetings of our shareowners may
be called only by our board of directors or the chairman of our
board of directors.

o Limitation of Director Liability. Our certificate of incorporation
provides 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;

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.

o Indemnification of Directors and Officers. Our certificate of
incorporation does not provide for indemnification of our directors
and officers, but our 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.

o No Classified Board of Directors. Our certificate of incorporation
does not provide for a classified board of directors.

o No Cumulative Voting. Our certificate of incorporation provides that
our shareowners are not entitled to cumulative voting in the election
of our directors.

<PAGE>

o No Preemptive Rights. Our certificate of incorporation provides that
our shareowners are not entitled to preemptive rights to subscribe to
any class of our stock.

Comparison of Our Class A Common Stock and Class B Common Stock

The following table compares our class A common stock and class B common
stock.

<TABLE>

Class A Shares Class B Shares
<S> <C> <C>

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

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

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

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

Transfer Class A-1 shares may not be None.
Restrictions 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.

Class A shares that are
transferred to someone who is
not a "permitted transferee"
automatically will convert
into class B shares.

71
<PAGE>

Class A Shares 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 Class A shares that are Not convertible.
transferred to someone who is
not a "permitted transferee"
automatically will convert into
class B shares.

Rights upon 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 our 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.

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

Preferred Stock

Our 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

72
<PAGE>

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.

Anti-Takeover Effects of Various Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws

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

Delaware Anti-Takeover Statute

We are 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 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, 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.

<PAGE>

No Cumulative Voting

Our certificate of incorporation expressly denies 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 prohibits shareowner action by written
consent. It also provides 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 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 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 damages for breaches of directors' fiduciary duties.
Our certificate of incorporation includes 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 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

<PAGE>

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

Our 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.

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 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 reduction in voting power of shares held by beneficial owners of
more than 25% 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

Transfer Agent and Registrar

First Union is the Transfer Agent and Registrar for our class A common
stock and class B common stock.

<PAGE>

MARKET FOR OLD UPS'S COMMON EQUITY

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

Old UPS has the right, within 30 days after receipt of the notice, to
purchase all or a part of its shares at the price and on the terms offered. If
Old UPS fails 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 Old UPS 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 Old UPS
at the price and on the terms and conditions bid by the purchaser at the
foreclosure.

Old UPS has been the principal purchaser of its common stock, which it 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 its
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. Old UPS notified its shareowners
periodically of its willingness to purchase a limited number of shares at
specified prices determined by its board of directors.

In determining the share price, the Old UPS board has considered a variety
of factors, including past and current earnings, earnings estimates, the ratio
of its common stock to debt, other factors affecting its 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 its stock, the Old UPS
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 Old UPS's long-range prospects rather than what it considers to
be short-range trends relating to Old UPS 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 Old UPS offered to purchase its shares.
But its 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. The Old UPS board of directors has not given significant weight to
supply-demand considerations in determining the prices to be paid by it for its
shares. In the past, Old UPS needed some of the shares that it was able to
acquire for purposes of awards under the plans mentioned above, and eligible
employees have purchased some of the other available shares.

<PAGE>

After this offering is completed, New UPS intends to discontinue the
general practice of purchasing shares when offered by shareowners.

The prices at which old UPS published notices of its 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.

<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 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

<PAGE>

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 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

<PAGE>

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.

80
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

General

The class B shares sold in this offering, or ____ shares if the U.S.
underwriters exercise their over-allotment option in full, will be freely
tradable without restriction under the Securities Act except for any such shares
acquired by an "affiliate" of UPS as that term is defined in Rule 144 under the
Securities Act, which shares will remain subject to the resale limitations of
Rule 144.

Because the class A shares are being issued pursuant to a registration
statement on Form S-4, they will be freely tradable without restriction under
the Securities Act following the expiration of the transfer restriction periods
described in "The Merger and the Tender Offer," except for any such shares
acquired by an affiliate, which shares will remain subject to the resale
limitations of Rule 144.

Generally, Rule 144 provides that an affiliate who has beneficially owned
shares for at least one year may sell on the open market in brokers'
transactions within any three month period a number of shares that does not
exceed the greater of:

o 1% of the then outstanding shares of common stock; and

o the average weekly trading volume in the common stock on the open
market during the four calendar weeks preceding the sale.

Sales under Rule 144 will also be subject to post-sale notice requirements
and the availability of current public information about New UPS.

Shares properly sold in reliance upon Rule 144 to persons who are not
affiliates are freely tradable without restriction after the sale.

Sales of substantial amounts of our common stock in the open market, or the
availability of shares for sale, could adversely affect the price of our class B
common stock.

We have agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the underwriters, we will not, during the period
ending 180 days after the date of this prospectus, sell or otherwise dispose of
any shares of our common stock, subject to certain exceptions. See
"Underwriters."

<PAGE>

MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TO NON-UNITED STATES SHAREOWNERS

This is a general summary of certain United States federal income and
estate tax considerations with respect to your acquisition, ownership and
disposition of class B common stock if you are a holder other than:

o a citizen or resident of the United States;

o a corporation, partnership or other entity created or organized in,
or under the laws of, the United States or of any political
subdivision of the United States;

o an estate, the income of which is subject to United States federal
income taxation regardless of its source; or

o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust.

This summary does not address all of the United States federal income and
estate tax considerations that may be relevant to you in light of your
particular circumstances or if you are a holder subject to special treatment
under United States income tax laws (such as insurance companies, tax-exempt
organizations, financial institutions, brokers, dealers in securities, and
certain U.S. expatriates). This summary does not discuss any aspects of state,
local or non-United States taxation. This summary is based on current provisions
of the Internal Revenue Code, Treasury regulations, judicial opinions, published
positions of the IRS, and all other applicable authorities, all of which are
subject to change, possibly with retroactive effect.

We urge prospective non-United States investors to consult their tax
advisors regarding the United States federal, state, local, and non-United
States income and other tax considerations of acquiring, holding and disposing
of shares of our class B common stock.

Dividends

Any dividends, we pay to you generally will be subject to United States
withholding tax at a rate of 30% (or a lower rate prescribed by an applicable
income tax treaty) of the gross amount of the dividends unless the dividends are
effectively connected with your conduct of a trade or business within the United
States (or, if certain tax treaties apply, are attributable to a United States
permanent establishment maintained by you) and you file the appropriate
documentation with us. Dividends effectively connected with a United States
trade or business generally will be subject to United States federal income tax
on a net income basis, in the same manner as generally applied to United States
persons. If you are a corporation, effectively connected income may also be
subject to the branch profits tax at a rate of 30% (or a lower rate as may be
specified by an applicable income tax treaty) on the repatriation from the
United States of your "effectively connected earnings and profits," subject to
adjustments. You should consult any applicable income tax treaties that may
provide for a lower rate of tax or other rules different from those described
above. You may be required to satisfy certification requirements in order to
claim treaty

<PAGE>

benefits or otherwise claim a reduction of, or exemption from, withholding
under these rules.

Sale or Other Disposition of the Class B Common Stock

You generally will not be subject to United States federal income tax on
any gain realized upon the sale or other disposition of your shares of the
class B common stock unless:

o the gain is effectively connected with the conduct of a trade or
business within the United States (or, if some tax treaties apply,
is attributable to a United States permanent establishment you
maintain);

o you are an individual, and you hold shares of class B common stock as
a capital asset, you are present in the United States for 183 days or
more in the taxable year of disposition and you meet other
requirements;

o you are subject to tax pursuant to the provisions of the Internal
Revenue Code regarding the taxation of some U.S. expatriates; or

o we are or have been a "United States real property holding
corporation" for United States federal income tax purposes (which we
do not believe that we are or will become) and you hold or have
held, directly or indirectly, at any time within the shorter of the
five-year period preceding disposition or your holding period for
the shares of the class B common stock, more than 5% of the class B
common stock.

Gain that is effectively connected with your conduct of a trade or business
within the United States generally will be subject to United States federal
income tax on a net income basis, in the same manner as generally applied to
United States persons (and if you are a corporation, the branch profits tax may
also apply in some circumstances), but you will not be subject to withholding.
If you are described in the second bullet point above, you generally will be
subject to tax at a rate of 30% on the gain realized, although the gain may be
offset by some United States capital losses. You should consult any applicable
income tax treaties that may provide for a lower rate of tax or other rules
different from those described above.

Information Reporting and Backup Withholding

We must report annually to the IRS and to you the amount of dividends we
pay to you, and any tax we withheld. These reporting requirements apply
regardless of whether withholding was reduced by an applicable income tax
treaty. Pursuant to applicable tax treaties or other agreements, this
information also may be made available to the tax authorities in the country in
which you reside or are established.

Under current Treasury regulations, United States information reporting
requirements and backup withholding tax at a rate of 31% will generally apply to
dividends paid to you on the class B common stock at an address inside the
United States and to payments to you of the proceeds of a sale of the class B
common stock by a United States office of a broker unless you certify, under
penalties of perjury, that you are not a U.S. holder or otherwise establish an
exemption. Information reporting (but not backup withholding) generally will
also apply to payments of the proceeds of sales of the class B common stock

<PAGE>

by foreign offices of United States brokers, or foreign brokers with some types
of relationships with the United States, unless the broker has documentary
evidence in its records that you are not a U.S. holder and some other
conditions are met, or you otherwise establish an exemption.

The IRS has issued Treasury regulations generally effective for payments
made after December 31, 2000 that will affect the procedures to be followed by
you in establishing that you are not a U.S. holder for purposes of the backup
withholding and information reporting requirements. Among other things, if you
are not currently required to furnish certification of foreign status, you may
be required to furnish certification of foreign status in the future. You should
consult your tax advisor concerning the effect of this regulation on an
investment in the class B common stock.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to you can be refunded or credited
against your United States federal income tax liability, if any, if the required
information is furnished to the IRS.

Estate Tax

Class B common stock owned or treated as owned by an individual who is not
a citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of his or her death will be includible in the
individual's gross estate for United States federal estate tax purposes (unless
an applicable estate tax treaty provides otherwise) and therefore may be subject
to United States federal estate tax.

<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U.S. underwriters named below,
for whom Morgan Stanley & Co. Incorporated, and
are acting as U.S. representatives, and the international underwriters named
below, for whom Morgan Stanley & Co. International Limited, and
are acting as international representatives, have severally agreed to purchase,
and we have agreed to sell to them, severally, the number of shares indicated
below:

Number of
Name Shares
---- ---------
U.S. underwriters:
Morgan Stanley & Co. Incorporated...........................

---------
Subtotal..........................................
=========

International underwriters:
Morgan Stanley & Co. International Limited..................

---------
Subtotal..........................................
---------
Total.........................................
=========

The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of class B common stock subject to their
acceptance of the shares from UPS and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of class B common stock offered by this
prospectus are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and pay
for all of the shares of class B common stock offered by this prospectus if any
such shares are taken. However, the underwriters are not required to take or pay
for the shares covered by the underwriters' over-allotment option described
below.

In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares sold by the
underwriters be the public offering price listed on the cover page of this
prospectus, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers described below.

<PAGE>

The underwriters initially propose to offer part of the shares of class B
common stock directly to the public at the public offering price listed on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public offering
price. Any underwriter may allow, and such dealers may reallow, a concession not
in excess of $ a share to other underwriters or to certain dealers. After the
initial offering of the shares of class B common stock, the offering price and
other selling terms may from time to time be varied by the representatives.

UPS has granted to the U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
U.S. underwriters may exercise this option solely for the purpose of covering
overallotments, if any, made in connection with the offering of the shares of
class B common stock offered by this prospectus. To the extent the option is
exercised, each U.S. underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the additional shares of
class B common stock as the number listed next to the U.S. underwriter's name in
the preceding table bears to the total number of shares of class B common stock
listed next to the names of all U.S. underwriters in the preceding table. If the
U.S. underwriters' option is exercised in full, the total price to the public
would be $ , the total underwriters' discounts and commissions would be
$ and total proceeds to UPS would be $ .

The underwriters have informed UPS that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
class B common stock offered by them.

We will apply for the listing of our class B common stock on the New York
Stock Exchange under the trading symbol "UPS." The underwriters intend to sell
shares of the class B common stock to a minimum of 2,000 beneficial owners in
lots of 100 or more shares so as to meet the distribution requirements of this
listing.

UPS has agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the underwriters, it will not, during the period
ending 180 days after the date of this prospectus:

o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of class B common stock or any
securities convertible into or exercisable or exchangeable for class B
common stock; or

o enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership
of the class B common stock,

whether any transaction described above is to be settled by delivery of class B
common stock or such other securities, in cash or otherwise.

The restrictions described in this paragraph do not apply to:

o the sale of shares to the underwriters; or

<PAGE>

o the issuance by UPS of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing.

In addition, all shares of class A-1, A-2 and A-3 common stock are subject to
restrictions on transfer for a period varying from 6 months to 18 months
following the date of this prospectus. During the relevant period, each share of
class A-1, A-2 and A-3 common stock may not be sold or transferred. See "The
Merger and the Tender Offer."

In order to facilitate the offering of the class B common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the class B common stock. Specifically, the underwriters may
agree to sell, or allot, more shares than the shares of class B common stock
UPS has agreed to sell to them. This over-allotment would create a short
position in the class B common stock for the underwriters' account. To cover
any over-allotments or to stabilize the price of the class B common stock, the
underwriters may bid for, and purchase, shares of class B common stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the class B common stock
in the offering, if the syndicate repurchases previously distributed class B
common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the class B common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, investment banking services to UPS. Morgan Stanley & Co.
Incorporated and Tanner & Co., Inc. are acting as financial advisers to UPS in
connection with the merger and the related transactions.

UPS and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

Pricing of the Offering

Prior to this offering, there has been no public market for the class B
common stock. The initial public offering price will be determined by
negotiations between UPS and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of UPS and its industry in general, sales, earnings and certain other
financial operating information of UPS in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
UPS. The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.

LEGAL MATTERS

The validity of the shares of our class B common stock offered by this
prospectus will be passed upon for us by Gibson, Dunn & Crutcher LLP,
Washington, D.C. Certain legal matters relating to this offering will be passed
upon for us by our special counsel, Morris

<PAGE>

Manning & Martin LLP, Atlanta, Georgia. Certain legal matters relating to this
offering will be passed upon for the underwriters by Davis Polk & Wardwell, New
York, New York.

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 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 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.

WHERE YOU CAN FIND MORE INFORMATION

Old UPS files, and after the 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 filed document 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-1 with the SEC. This
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 have also filed a
registration statement on Form S-4 relating to the proposed merger of Old UPS
with its wholly owned subsidiary, ________.

<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>

Part II - Information not required in Prospectus

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the SEC registration fee, the NASD registration fee and the NYSE listing
fee.

Item Amount
- ---- ---------

SEC registration fee.............................................. $27,800
NASD registration fee............................................. $10,500
NYSE listing fee *
Blue Sky qualification fees and expenses.......................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Transfer agent and registrar fees................................. *
Printing and engraving expenses................................... *
Miscellaneous expenses............................................ *
--------
Total............................................... *
========
- --------------------
* To be completed by amendment.

Item 14. 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.

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

II-1
<PAGE>

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, 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 15. Recent Sales of Unregistered Securities.

None.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

Unless otherwise noted, documents filed with the Commission referred to
below were filed by United Parcel Service of America, Inc.

Exhibit No. Description
----------- -----------
1.1 Form of Underwriting Agreement.*

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.
(incorporated by reference to United Parcel Service, Inc.'s
registration statement on Form S-4, filed on July 21, 1999).

II-2

<PAGE>

Exhibit No. Description
----------- ----------

3.2 Bylaws of United Parcel Service, Inc.*

4.1 Form of Class B Common Stock Certificate.*

4.2 Form of Class A 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).

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).

II-3

<PAGE>

Exhibit No. Description
----------- ----------

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.*

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).

(3) Amendment No. 5 to the UPS Thrift Plan
(incorporated by reference to Exhibit 19(b) to
1983 Annual Report on Form 10-K).

II-4

<PAGE>

Exhibit No. Description
----------- ----------

(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).

(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).

II-5
<PAGE>

Exhibit No. Description
----------- ----------
(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).

(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).

II-6

<PAGE>

Exhibit No. Description
----------- ----------
(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).

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).

II-7
<PAGE>

Exhibit No. Description
----------- ----------
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).

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).

II-8
<PAGE>

Exhibit No. Description
----------- ----------
(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).

(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).

II-9
<PAGE>

Exhibit No. Description
----------- ----------
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).

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.

II-10
<PAGE>

Exhibit No. Description
---------- -----------

23.2 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
filed as Exhibit 5.1 hereto).

24.1 Powers of Attorney (included on the signature pages hereto).

27 Fianncial Data Schedule

------------
* To be filed by amendment.

(b) Financial Statement Schedules

Schedules are omitted because of the absence of conditions under which they
are required.

Item 17. Undertakings.

(1) The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.

(2) 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

(3) The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of
1933 shall be deemed to be part of this registration statement as of the
time it was declared effective.

(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be

II-11

<PAGE>

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.

(4) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the U.S. Underwriting Agreement and the
International Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

II-12

<PAGE>

Signatures

Pursuant to the requirements of the Securities Act of 1933, the registrant
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
attorneys-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-13

<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, Secretary and July 20, 1999
- ----------------------------------- 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 Director July 20, 1999
- -----------------------------------
Charles L. Schaffer

/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>

II-14

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of United Parcel
Service, Inc. on Form S-1 of our report dated February 8, 1999 (relating to the
consolidated financial statements of United Parcel Service of America, Inc.),
appearing in the prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in the
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-1 of our report dated July 20, 1999, appearing in the
prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in the
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>
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0
0
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</TABLE>