<PAGE>
 
     
  As filed with the Securities and Exchange Commission on July 28, 1999     
                                                   
                                                Registration No. 333-83347     
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
                                
                             AMENDMENT NO. 1     
                                       
                                    TO     
                                   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           (Primary Standard          (I.R.S. Employer
     jurisdiction of              Industrial             Identification No.)
    Incorporation or          Classification Code
      organization)                 Number)
 
                           55 Glenlake Parkway, N.E.
                               Atlanta, GA 30328
                                (404) 828-6000
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
 
                               ----------------
 
                            Joseph R. Moderow, Esq.
                      Senior Vice President and Secretary
                          United Parcel Service, Inc.
                           55 Glenlake Parkway, N.E.
                               Atlanta, GA 30328
                                (404) 828-6000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
 
                               ----------------
 
                                  Copies to:
 
   John F. Olson, Esq.     Jeffrey L. Schulte, Esq.      Jeffrey Small, Esq.
 Gibson, Dunn & Crutcher    Morris Manning & Martin   Richard J. Sandler, Esq.
  LLP 1050 Connecticut     LLP 3343 Peachtree Road,     Davis Polk & Wardwell
Avenue, N.W. Washington,       N.E., Suite 1600       450 Lexington Avenue New
 DC 20036 (202) 955-8500    Atlanta, GA 30326 (404)     York, NY 10017 (212)
                                   233-7000                   450-4000
 
                               ----------------
 
   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. [_]
 
                               ----------------
 

                        CALCULATION OF REGISTRATION FEE

<TABLE>   
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
                                         Proposed Maximum
        Title of each Class of          Aggregate Offering      Amount of
      Securities to be Registered            Price(1)      Registration Fee(2)
------------------------------------------------------------------------------
<S>                                     <C>                <C>
Class B common stock, $.10 par value
 per share............................    $3,000,000,000        $834,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
    
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
   
(2) $27,800 previously paid.     
 
   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 28, 1999     
 
                                                  Shares
 
                                     [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>
<CAPTION>

                                       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
 

<TABLE>   
<CAPTION>
                                     Page
                                     ----
<S>                                  <C>
Special Note About Forward-Looking
 Statements........................    4
Prospectus Summary.................    5
Risk Factors.......................   10
Use of Proceeds....................   14
Dividend Policy....................   14
Capitalization.....................   15
Selected Consolidated Financial and
 Operating Data....................   16
Management's Discussion and
 Analysis of Financial Condition
 and Results of Operations.........   18
Industry Overview..................   29
Business...........................   31
</TABLE>
    

<TABLE>   
<CAPTION>
                                    Page
                                    ----
Management and Stock Ownership
 Information.......................   45
<S>                                 <C>
The Merger and the Tender Offer....  55
Description of Capital Stock,
 Certificate of Incorporation and
 Bylaws............................  56
Market for Old UPS's Common Equi-
 ty................................  61
Relationships with Overseas Part-
 ners Ltd..........................  63
Shares Eligible for Future Sale....  65
Material Federal Income Tax
 Consequences to Non-United States
 Shareowners.......................  66
Underwriters.......................  68
Legal Matters......................  70
Experts............................  70
Where You Can Find More Informa-
 tion..............................  70
Index to Financial Statements...... F-1
</TABLE>
    
 
                               ----------------
 
   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:
     
  .  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.
            
  .  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.     
     
  .  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.     
     
  .  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.     
     
  .  Customer Relationships. We focus on building and maintaining long-term
     customer relationships. We serve all of the Fortune 1000 companies.     
     
  .  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.     
     
  .  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.     
     
  .  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.     
 
                                       5

<PAGE>
 
 
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:
     
  .  globalization     
     
  .  increased need for time-definite services     
     
  .  significant advances in technology     
     
  .  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.
 
Our Growth Strategy
 
   The principal components of our growth strategy are as follows:
     
  .  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.     
     
  .  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.     
     
  .  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.     
     
  .  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.     
     
  .  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.     
 
                                       6

<PAGE>
 
                                  THE OFFERING
 

<TABLE>   
<S>                                          <C>
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
</TABLE>
    
 
   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.
 
 
                                       7

<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>   
<CAPTION>
                                                                       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 ex-
 penses.................   18,020   19,251   20,339   20,760   21,698      5,219      5,465
Operating profit (loss):
 U.S. domestic package..    1,835    1,960    2,181    1,654    2,899        594        765
 International package..     (404)    (273)    (281)     (67)      56         11         44
 Non-package............      125      107      129      111      135         35         25
 Corporate..............       --       --       --       --       --         --         32
                          -------  -------  -------  -------  -------  ---------  ---------
Total operating profit..    1,556    1,794    2,029    1,698    3,090        640        866
Other income (expense):
 Investment income......       13       26       39       70       84         14         31
 Interest expense.......      (29)     (77)     (95)    (187)    (227)       (58)       (49)
 Miscellaneous, net.....       35      (35)     (63)     (28)     (45)         5        (16)
                          -------  -------  -------  -------  -------  ---------  ---------
Income before income
 taxes..................    1,575    1,708    1,910    1,553    2,902        601        832
Income taxes............      632      665      764      644    1,161        249        333
                          -------  -------  -------  -------  -------  ---------  ---------
Net income..............  $   943  $ 1,043  $ 1,146  $   909  $ 1,741  $     352  $     499
                          =======  =======  =======  =======  =======  =========  =========
Net income as a
 percentage of revenue..      4.8%     5.0%     5.1%     4.0%     7.0%       6.0%       7.9%
Per share amounts:
 Basic earnings per
  share.................  $  1.68  $  1.87  $  2.06  $  1.65  $  3.18  $     .64  $     .90
 Diluted earnings per
  share.................     1.66     1.84     2.03     1.63     3.14        .64        .88
 Dividends declared per
  share.................      .55      .64      .68      .70      .85        n/a        n/a
</TABLE>
    
 
                                       8

<PAGE>
 
 

<TABLE>   
<CAPTION>
                                                                       Three Months Ended
                                    Year Ended December 31,                 March 31,
                          -------------------------------------------- -------------------
                            1994     1995     1996     1997     1998     1998      1999
                          -------- -------- -------- -------- -------- -------------------
                                            (financial data in millions)
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>
Balance Sheet Data
 (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>
    
 
                                       9

<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.
 
   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:
     
  .  changes in earnings estimates by financial analysts     
     
  .  our failure to meet financial analysts' performance expectations     
     
  .  changes in market valuations of other transportation and logistics
     companies     
     
  .  the expiration of any of the three restricted periods on class A common
     stock     
     
  .  general market and economic conditions     
 
                                       10

<PAGE>
 
   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.
 
   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
 
                                      11

<PAGE>
 
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 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
 
   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. Our business is increasingly reliant on sophisticated
computer systems, and we would suffer material adverse consequences if our
systems malfunctioned due to year 2000 issues. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of the
Year 2000 Issue."
 
   Economic and other conditions in the international markets in which we
   operate can affect demand for our services and our results of operations
 
   A key component of our business, and a major target for our future growth,
is our operations outside of the United States. If we are unable to compete
successfully in these markets, our results of operations will be adversely
affected.
 
                                      12

<PAGE>
 
   In many countries, we face vigorous competition from government-owned or
sponsored postal services that are able to price their services extremely
competitively due to their ability to obtain government subsidies or to
subsidize operating costs through profits from their monopoly operations.
 
   Operations in international markets also present currency exchange and
inflation risks. In some countries where we operate, economic and monetary
conditions could affect our ability to convert our earnings to United States
dollars or to remove funds from those countries. We may experience adverse tax
consequences as we attempt to repatriate funds to the United States from other
countries.
 
   Increases in aviation and motor fuel prices can negatively affect our
   results of operations
 
   Our aircraft and delivery vehicles consume significant quantities of
gasoline, diesel fuel and jet fuel in the ordinary course of our business. We
therefore are exposed to commodity price risk associated with variations in
the market price for petroleum products. Competitive and other pressures may
prevent us from passing these costs on to our customers. We cannot assure you
that our supply of these products will continue uninterrupted, that rationing
will not be imposed or that the prices of, or taxes on, these products will
not increase significantly in the future. Increases in prices that we are
unable to pass on to our customers will adversely affect our results of
operations.
 
   Our operating results are subject to cyclical and seasonal fluctuations
 
   We serve numerous industries and customers that experience significant
fluctuations in demand based on economic conditions and other factors beyond
our control. Demand for our services could be materially adversely affected by
downturns in the businesses of our customers.
 
   Historically, we have experienced our best operating results in the second
and fourth quarters of each year. Shipping activity is generally lowest during
the first quarter and weather conditions also can adversely affect first
quarter operating results. Shipping activity is generally highest in the
fourth quarter as a result of the holiday season. Our European operations
experience lower volumes in the third quarter due to the general slowdown in
business activity in August. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
 
                                      13

<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:
 

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        ------------------------
                                                        1994 1995 1996 1997 1998
                                                        ---- ---- ---- ---- ----
   <S>                                                  <C>  <C>  <C>  <C>  <C>
   Dividends per share................................. $.55 $.64 $.68 $.70 $.85
</TABLE>

   
   In addition, in May 1999, we declared a cash dividend of $.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.     
 
                                      14

<PAGE>
 

                                 CAPITALIZATION
 
   The following table sets forth:
     
  .  the actual capitalization of Old UPS as of March 31, 1999     
     
  .  that capitalization as adjusted for the merger and this offering     
     
  .  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>   
<CAPTION>
                                                       March 31, 1999
                                              ---------------------------------
                                                                   As Adjusted,
                                              Actual   As Adjusted  Pro Forma
                                              -------  ----------- ------------
                                              (in millions, except share data)
<S>                                           <C>      <C>         <C>
Debt:
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>
    
 
                                       15

<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.
 
   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>   
<CAPTION>
                                                                             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
</TABLE>
    
 
 
                                      16

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                       Three Months
                                                                           Ended
                                    Year Ended December 31,              March 31,
                          -------------------------------------------- -------------
                            1994     1995     1996     1997     1998   1998   1999
                          -------- -------- -------- -------- -------- ----- -------
                                         (financial data in millions)
<S>                       <C>      <C>      <C>      <C>      <C>      <C>   <C>
Balance Sheet Data
 (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>
    
 
                                       17

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

<TABLE>
<CAPTION>
                                        Year Ended        Three Months 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.
 
                                      18

<PAGE>
 
   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>
<CAPTION>
                                         Year Ended        Three Months 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>

 
   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>
<CAPTION>
                                            Three Months Ended
                                                 March 31,          Change
                                            ------------------- ---------------
                                              1998      1999       $       %
   Operating Segment                        --------- --------- ------- -------
                                             (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.
 
                                      19

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

<TABLE>
<CAPTION>
                                                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>
<CAPTION>
                                                      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.
 
                                      20

<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>
<CAPTION>
                                                      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.
 
                                      21

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

<TABLE>
<CAPTION>
                                                      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>
<CAPTION>
                                                   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>

 
   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.
 
                                      22

<PAGE>
 
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>   
<CAPTION>
                                                           Three Months Ended
                          -------------------------------------------------------------------------------------
                          March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
                            1997      1997     1997      1997     1998      1998     1998      1998     1999
                          --------- -------- --------- -------- --------- -------- --------- -------- ---------
                                                        (in millions, unaudited)
<S>                       <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
Revenue:
 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 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.
 
                                      23

<PAGE>
 
   Following is a summary of capital expenditures:
 

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        -----------------------
                                                         1996    1997    1998
                                                        ------- ------- -------
                                                             (in millions)
   <S>                                                  <C>     <C>     <C>
   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
                                                        ======= ======= =======
</TABLE>

 
   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.
 
   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.
 
   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. We manage this risk, in part, by
purchasing commodity forward contracts on crude oil.
 
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.
 
                                      24

<PAGE>
 
   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 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:
     
  .  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.
            
  .  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).     
 
                                      25

<PAGE>
 
     
  .  The sixth phase of the year 2000 initiative is scheduled to be completed
     for substantially all of these other assets by July 31, 1999.     
 
   We have contacted suppliers who provide both critical IT assets and other
goods and services such as vehicles, fuel, packaging materials and forms to
evaluate their year 2000 compliance plans and state of readiness, and to
determine whether a year 2000-related event will impede the ability of such
suppliers to continue to provide such goods and services as the year 2000 is
approached and reached. We have received assurances from substantially all of
our suppliers of business critical IT assets controlled by the IS Group that
these assets will correctly manipulate dates and date-related data as the year
2000 is approached and reached. We have reviewed the responses received from
these vendors to evaluate the accuracy and adequacy of the disclosures made by
the vendors as to their year 2000 compliance status. Moreover, the majority of
these assets are subject to evaluation under applicable phases of our year
2000 initiative.
 
   In addition, we have sent letters to the majority of suppliers of non-IT
assets and IT assets controlled by business functions other than the IS Group.
We are reviewing these responses to evaluate the assertions from the vendors
as to their year 2000 compliance status and have elected to seek additional
information from some vendors. We are also conducting interface testing
between us and vendors who transfer data directly to us.
 
   We intend to develop contingency plans for any material supplier that does
not provide an appropriate response. As a general matter, we are vulnerable to
significant suppliers' inability to remedy their own year 2000 issues.
 
   We also rely, both domestically and internationally, upon government
agencies, particularly the Federal Aviation Administration, utility companies,
telecommunication service companies and other service providers outside of our
control. As part of the year 2000 initiative, we are involved with several
national and international associations to pursue common year 2000 objectives.
For example, we have been and remain involved, through our participation in
the International Air Transport Association and the Air Transport Association
of America, in a global and industry-wide effort to understand the year 2000
compliance status of airports, air traffic systems, customs clearance and
other U.S. and international government agencies, and common vendors and
suppliers. In addition, we continue to monitor publicly available information
describing the year 2000 compliance plans and status of our vendors. But we
cannot assure you that suppliers, governmental agencies or other third parties
will not suffer a year 2000 business disruption. Such failures could have a
material adverse affect on our financial condition, liquidity or results of
operations.
 
   We are aware that the media and other third parties have reported that year
2000 compliance activity is generally considered to be further ahead in the
United States than in other countries. We continue to monitor these reports
and to evaluate the possible impact of year 2000 events outside of the United
States on our operations. We have included contingency planning for
international operations in our overall contingency planning process.
 
   In addition, we have retained independent consultants to assess whether the
year 2000 initiative, if appropriately implemented, can result in our year
2000 readiness, and our 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:
     
  .  The initial stage--"unit testing"--consists of testing individual
     systems (units) for year 2000 readiness. Unit testing includes, for
     example, testing a particular application to ensure that it correctly
     manipulates dates and date-related data and properly operates in a year
     2000 ready environment. Following successful completion of unit testing,
     a system will move into stage two.     
 
                                      26

<PAGE>
 
     
  .  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.     
     
  .  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.
 
   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
 
                                      27

<PAGE>
 
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.
 
                                      28

<PAGE>
 
                               INDUSTRY OVERVIEW
 
   The package delivery business has evolved rapidly over the last two
decades, driven by the integration of world markets, the rationalization of
corporate supply chains and the implementation of enterprise software and
Internet-based information technology solutions. The ability to provide time-
definite delivery options and process and transfer information increasingly
determines success. Customer demands for real-time information processing and
worldwide distribution and logistics capabilities favor large, global
companies with integrated services. These trends are driving increased
consolidation in the industry.
 
   Customers increasingly focus on the timing and predictability of deliveries
rather than the mode of transportation. As customers re-engineer the total
distribution process, which includes order processing, administration,
warehousing, transportation and inventory management, they are attempting to
reduce the most expensive and fastest growing component--inventory carrying
costs. Time-definite transportation, which is no longer limited to air
express, has become a critical part of just-in-time inventory management and
improving overall distribution efficiency.
 
   Technology advances have made it easier for companies to analyze and
compare distribution options. Rapid advances in technology have also helped
move the traditional business model where manufacturers "pushed" products into
the supply chain, often based on incomplete information, toward a model where
end-user demand "pulls" products into the supply chain. This evolution has
placed greater demands on transportation systems for visibility of information
at all stages of the order/delivery process, because time-to-market is
becoming a key component of financial and operating success.
 
   As a result of these changes, individual shipments are generally smaller
but more frequent, and a greater proportion of products is being delivered
directly to end-users. Customers expect high performance levels and broad
product offerings as they seek to optimize supply chain solutions. We believe
that these trends will benefit companies like UPS, with global reach, diverse
product portfolios, extensive residential delivery capabilities and
sophisticated tracking and information technology.
 
Time-Definite Package Delivery
 
   Delivery of packages to a specific destination at a guaranteed time has
been the growth engine for the package delivery industry over the past decade.
Time-definite service has grown from 4% of the U.S. parcel delivery market in
1977 to over 60% today. Time-definite service has grown from just under 10
billion revenue ton miles in 1989 to over 14 billion revenue ton miles in
1997, for a compound annual growth rate of 4.3%, while charter, scheduled mail
and scheduled freight have remained relatively flat during that period.
Internationally, however, time-definite service represents only 6% of the
parcel delivery market, demonstrating the potential for substantial growth.
 
Logistics, Supply Chain Management and Integrated Services
 
   Many businesses have decided to outsource the management of all or part of
their supply chain. As a result, third-party logistics providers, such as UPS,
have become extensively involved in the full range of customer supply chain
functions. Third-party services include order fulfillment, freight bill
auditing and payment, cross-docking, product marking, labeling and packaging,
inventory and warehouse management, parts return and repair and the actual
physical movement of goods. The domestic third-party logistics market was
estimated to be between $18 billion and $20 billion in 1998, or about 4% of an
estimated $450 billion in contractible logistics dollars. We believe the
third-party portion of this market will continue to grow significantly over
the next several years. Finally, we believe that the third-party logistics
market is highly fragmented and likely to experience consolidation.
 
Industry Trends
 
   The key industry trends are:
 
 
                                      29

<PAGE>
 
   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 of consolidation in the package delivery industry has increased on a
global scale, particularly in Europe, due to the following factors:
     
  .  the need for global distribution networks, large vehicle fleets, global
     information technology systems and the resources necessary for their
     development or acquisition     
     
  .  customers' desire for integrated services     
     
  .  high growth in the international and cross-border delivery segments     
     
  .  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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<PAGE>
 

 
                                  BUSINESS
 
Overview
 
   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 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.
 
   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.
 
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<PAGE>
 
   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:
     
  .  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.     
     
  .  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.
            
  .  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.
            
  .  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.     
     
  .  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.     
     
  .  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
 
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<PAGE>
 
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:
     
  .  friendly, professional delivery employees and familiar brown delivery
     vehicles     
     
  .  long history of service reliability     
     
  .  comprehensive service portfolio     
     
  .  state-of-the-art technology     
     
  .  history of innovation and industry firsts     
     
  .  competitive pricing     
     
  .  consistent advertising and communications to customers and the public
     about our evolving capabilities     
     
  .  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.
 
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<PAGE>
 
   We place significant importance on the quality of our customer
relationships and conduct comprehensive market research to monitor customer
service. Since 1992, we have conducted telephone interviews with shipping
decision makers virtually every business day to determine their satisfaction
with delivery providers and perception of performance on key service factors.
We use the telephone interview data to develop a statistical model that
identifies those service factors that have the greatest impact on improving
customer satisfaction, leading to enhanced profitability. The Customer
Satisfaction Index allows us to continuously monitor satisfaction levels and
helps us to focus our sales and advertising efforts and new service
development. The 1998 CSI showed that our customer satisfaction level for
domestic service exceeded that of any of our competitors.
 
   In 1996, we initiated a branded Preferred Customer loyalty program for our
top 120,000 accounts. This program provides customer recognition, special
communication programs, free trials of new products and services and a
designated Preferred Customer associate to help resolve daily issues.
 
   Our customer focus is exemplified by the fact that we received the 1998
Platinum Pentastar, the most prestigious award that DaimlerChrysler presents
to its suppliers. This was the third time that we have been named "best in
class" for Chrysler's, and now DaimlerChrysler's, entire supplier base.
 
   Technology Systems. We have expanded our reputation as a leading package
distribution company by developing an equally strong capability as a mover of
electronic information. As a result, we are more efficient and price
competitive, and we provide better customer solutions.
 
   We have made significant investments in technology over the past decade.
CIO magazine ranked us 35th in the U.S. for our corporate information systems,
and we have 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:
     
  .  We built and maintain the world's largest private DB2 database.     
     
  .  We incorporated into our central computer system the largest cellular
     network in the U.S., which we use to transmit delivery information.     
     
  .  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.     
     
  .  We are the only company to provide electronic capture and retrieval of
     package recipients' signatures.     
     
  .  In selected hubs, we have installed sophisticated, automated sortation
     systems to improve processing speed and operational efficiency.     
     
  .  We developed an array of UPS Online Solutions, which are proprietary
     software and hardware packages that we provide to our customers. UPS
     Online Solutions enable our customers to send, manage and track their
     shipments and provide us with electronic package-level detail to support
     these functions.     
 
   E-Commerce Capabilities. We are a leading participant in and facilitator of
e-commerce. We have teamed with other e-commerce leaders to offer fully
integrated Web-enabled solutions for our customers. We have integrated our
systems with software produced by leading manufacturers of enterprise resource
planning (ERP), Internet transactions, e-procurement and systems integration
solutions. Our e-commerce alliance partners include AT&T, Harbinger, IBM,
Oracle and PeopleSoft. According to Zona Research, we command 55% of the
market for the distribution of goods purchased over the Internet.
 
   Our website strategy is to provide our customers with the convenience of
all the functions that they would otherwise perform over the phone or at one
of the shipping outlets. The site, www.ups.com, which uses technology to
strengthen ties to our customers, includes package tracking (available in 17
languages for the convenience of our international customers, whose business
accounted for 13.1% of our 1998 revenue), a quick-cost calculator and a drop-
off locator. The multi-language tracking at our website is an industry first.
 
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<PAGE>
 
   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.
 
   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.
 
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<PAGE>
 
   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:
     
  .  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.     
     
  .  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.     
     
  .  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
 
                                      36

<PAGE>
 
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:
     
  .  complement our core business     
     
  .  build our global brand     
     
  .  enhance our technological capabilities or service offerings     
     
  .  lower our costs     
     
  .  expand our geographic presence and managerial expertise     
 
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.
     
  .  UPS 2nd Day Air A.M.(R) provides guaranteed delivery of packages and
     documents to commercial addresses by noon of the second business day.
            
  .  UPS 2nd Day Air(R) provides guaranteed delivery of packages and
     documents in two business days.     
 
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<PAGE>
 
     
  .  UPS 3 Day Select(R) provides guaranteed delivery in three business days.
     3 Day Select is priced between traditional ground and air-express
     services.     
 
   In 1998, we introduced the first reusable Next Day Air letter container,
which features a resealable flap and is made from 100% recycled material. We
also expanded our On-Call Air Pickup services to 94% of all businesses.
 
   International Delivery Services
 
   We deliver international shipments to more than 200 countries and
territories worldwide, and we provide guaranteed overnight delivery to many of
the world's most important business centers. Throughout 1998, we continued to
develop our global delivery and logistics network. We offer a complete
portfolio of services that are designed to provide a uniform service offering
across major countries. This portfolio includes guaranteed 8:30 a.m. and 10:30
a.m. next business day delivery to major cities, as well as scheduled day-
definite ground service. We offer complete customs clearance service for any
mode of transportation, regardless of carrier, at all UPS Customhouse
Brokerage sites in the U.S. and Canada.
 
   UPS Worldwide Express SM provides door-to-door, customs-cleared delivery to
over 200 countries and territories. This service includes guaranteed overnight
delivery of documents from major U.S. cities to many international business
centers. For package delivery, UPS Worldwide Express provides guaranteed
overnight delivery to major cities in Mexico and Canada and guaranteed second
business day delivery for packages to over 290 cities in Europe. Shipments to
other destinations via UPS Worldwide Express are generally delivered in two
business days.
 
   UPS Worldwide Express Plus SM complements our regular express service by
providing guaranteed early morning delivery options from international
locations to major cities around the world and guaranteed early morning second
business day delivery from the United States to over 150 cities in Europe. In
February 1998, we introduced two new shipment pricing options for UPS
Worldwide Express and UPS Worldwide Express Plus: the UPS 10KG Box(TM) and the
UPS 25KG Box(TM). These new options offer a simple, convenient, door-to-door
fixed-rate shipping solution for express shipments up to 10 kilograms and 25
kilograms. Customers using this packaging option receive flat rates based on
destination.
 
   We also offer UPS Worldwide Expedited SM service, which is designed to meet
customers' requirements for routine shipments that do not require overnight or
express delivery. From the United States, shipments to Mexico and Canada are
delivered in three business days, and shipments to most major destinations in
Europe and Asia are generally delivered in four business days. Both UPS
Worldwide Express and UPS Worldwide Expedited services are offered between
many international locations and from international locations to the United
States, providing guaranteed service from international locations that vary
from country to country.
 
   UPS International Standard SM service provides scheduled delivery of
shipments within and between the European Union countries, within Canada and
Mexico and between the United States and Canada. This service includes day-
specific delivery of less-than-urgent package shipments. The service offers
delivery typically between one and three days, depending on the distance.
 
   We operate a European air hub in Cologne, Germany and an Asia Pacific air
hub in Taipei, Taiwan.
 
   Non-Package Operations
 
   We provide other services that are distinct from our package operations, a
component of which is UPS Logistics Group, Inc., discussed below. We formed
UPS Logistics Group, Inc. in early 1996. It is the parent company for a number
of operating subsidiaries.
 
   UPS Worldwide Logistics(R), Inc., a subsidiary of UPS Logistics Group,
Inc., provides third-party supply chain management solutions for a number of
industries, including high-tech, telecommunications, apparel,
 
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<PAGE>
 
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:
     
  .  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.     
     
  .  Roadnet(R) Technologies, Inc., a route scheduling software developer.
            
  .  Diversified Trimodal, Inc., also known as Martrac(R), which transports
     produce and other commodities in temperature-controlled trailers over
     railroads.     
     
  .  Worldwide Dedicated Services, Inc., which provides dedicated contract
     fleet management services.     
     
  .  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. 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.
 
                                      39

<PAGE>
 
   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.
 
   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.
 
                                      40

<PAGE>
 
Properties and Facilities
 
   We own our headquarters, which are located in Atlanta, Georgia and consist
of about 735,000 square feet of office space on an office campus.
 
   We also own our 29 principal U.S. package operating facilities, which have
floor spaces that range from about 354,000 to 693,000 square feet. In
addition, we have a 1.9 million square foot operating facility near Chicago,
Illinois, which is designed to streamline shipments between East coast and
West coast destinations.
 
   We also own about 730, and lease about 873, smaller operating facilities,
throughout the United States for our package operations. The smaller of these
facilities have vehicles and drivers stationed for the pickup of packages and
facilities for the sorting, transfer and delivery of packages. The larger of
these facilities have additional facilities for servicing our vehicles and
equipment and employ specialized mechanical installations for the sorting and
handling of packages. We also own or lease other facilities that support our
international package and non-package operations. We believe our facilities
are adequate to support our current operations.
 
   Our aircraft are operated in a hub and spokes pattern in the United States.
Our principal air hub in the United States is located in Louisville, Kentucky,
with regional air hubs in Columbia, South Carolina, Dallas, Texas, Hartford,
Connecticut, Ontario, California, Philadelphia, Pennsylvania, and Rockford,
Illinois. These hubs house facilities for the sorting, transfer and delivery
of packages. Our Louisville, Kentucky hub handles the largest volume of
packages for air delivery in the United States. Our European air hub is
located in Cologne, Germany, and our Asia-Pacific air hub is in Taipei,
Taiwan. Regional air hubs in Canada include facilities in Hamilton, Ontario
and Montreal, Quebec. Our new automated sorting facility, "Hub 2000," is
currently under construction in Louisville, Kentucky, and we expect it to
commence partial operations in 2000. We expect this new facility to increase
our hub capacity by over 40% in Louisville.
 
   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>   
<CAPTION>
                                    Number Number Leased  Number
       Description                  Owned   from Others  on Order Under Option
       -----------                  ------ ------------- -------- ------------
   <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>
    
 
 
                                      41

<PAGE>
 
   We maintain an inventory of spare engines and parts for each aircraft.
 
   All of the aircraft we own meet Stage III federal noise regulations, and
can operate at airports that have aircraft noise restrictions. We became the
first major airline to successfully operate a 100% Stage III fleet more than
three years in advance of the date required by federal regulations.
 
   During 1998, we took delivery of two Boeing 747-200, three Boeing 757-200
and five Boeing 767-300 aircraft. We also exercised options to purchase ten
Boeing 757-200 aircraft that we previously accounted for under operating
leases. We have firm commitments to take delivery of two Boeing 757-200 and
three Boeing 767-300 aircraft in 1999. We also have firm commitments to
purchase four Airbus A300-600 aircraft during 2000 and 26 Airbus A300-600
aircraft between 2001 and 2005, and we have options to purchase 30 Airbus
A300-600 aircraft between 2002 and 2009.
 
   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:
     
  .  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.     
     
  .  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.     
     
  .  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.
            
  .  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.     
     
  .  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.
 
                                      42

<PAGE>
 
Competition
 
   We are the largest package distribution company in the world, in terms of
both revenue and volume. We offer a broad array of services in the package
delivery industry and therefore compete with many different companies and
services on a local, regional, national and international basis. These
competitors include the postal services of the United States and other
nations, various motor carriers, express companies, freight forwarders, air
couriers and others. Our major competitors include Federal Express, the United
States Postal Service, RPS, Inc., Airborne Express and DHL Worldwide Express.
 
   Competition is increasingly based on a carrier's ability to integrate its
distribution and information systems with its customers' systems to provide
unique transportation solutions at competitive prices. We rely on our vast
infrastructure and service portfolio to attract and maintain customers. As we
move into the logistics and other non-package areas, we compete with a number
of participants in the logistics, financial services and information
technology industries.
 
Government Regulation
 
   Both the Department of Transportation and the Federal Aviation
Administration regulate air transportation services.
 
   The DOT's authority relates primarily to economic aspects of air
transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations or cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international
routes, fares, rates and practices, and is authorized to investigate and take
action against discriminatory treatment of United States air carriers abroad.
The FAA's authority relates primarily to safety aspects of air transportation,
including aircraft standards and maintenance, personnel and ground facilities.
In 1988, the FAA granted us an operating certificate, which remains in effect
so long as we meet the operational requirements of federal aviation
regulations.
 
   The FAA has issued rules mandating repairs on all Boeing Company and
McDonnell-Douglas Corporation aircraft that have completed a specified number
of flights, and has also issued rules requiring a corrosion control program
for Boeing Company aircraft. Our total expenditures under these programs for
1998 were about $16.4 million. The future cost of repairs pursuant to these
programs may fluctuate. All mandated repairs have been completed or are
scheduled to be completed within the timeframes specified by the FAA.
 
   Our ground transportation of packages in the United States is subject to
the DOT's jurisdiction with respect to the regulation of routes, and both the
DOT's and the states' jurisdiction with respect to the regulation of safety,
insurance and hazardous materials. We are subject to similar regulation in
many foreign jurisdictions.
 
   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.
 
                                      43

<PAGE>
 
   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
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.
 
                                      44

<PAGE>
 
                  MANAGEMENT AND STOCK OWNERSHIP INFORMATION
 
Directors and Executive Officers
 
   John W. Alden, Age 57. Director since 1988. UPS Vice Chairman of the Board,
   Senior Vice President and Business Development Group Manager
 
   In 1986, John joined the Management Committee and was elected Senior Vice
President of Business Development. He has served on the board of directors
since 1988 and in November 1996 became Vice Chairman of the Board. He
currently oversees marketing, sales, advertising, public relations and the UPS
Logistics Group and its subsidiaries. John, who majored in history while
attending Boston University, started with UPS as an operations report clerk in
Watertown, Massachusetts in 1965. Two years later, he was promoted into
supervision. After several staff and hub assignments, he became the East New
England District Customer Service Office Manager in 1971. The following year,
John was named to manage the Customer Service function for the district. In
1977, John was promoted to Midwest Region Customer Service Manager, and in
1978 he joined the UPS corporate office as Customer Development Manager. John
is also a director of Browning-Ferris Industries, Inc. and serves on its
compensation committee.
      
   William H. Brown, III, Age 71. Director since 1983. Partner in the law firm
   of Schnader Harrison Segal & Lewis LLP in Philadelphia, Pennsylvania     
 
   Bill received a bachelor's degree from Temple University in 1952 and
graduated from the University of Pennsylvania School of Law in 1955. From 1955
to 1968, Bill practiced in a small law firm from which four of seven partners
became federal judges, and three others became state judges. In 1968, he
became a Deputy District Attorney in Philadelphia. Bill was appointed to the
U.S. Equal Employment Opportunity Commission by President Johnson in 1968 and
was selected as its Chairman by President Nixon in 1969. While with the EEOC,
he won nationwide attention for his work in negotiating a consent decree in
the EEOC complaint against AT&T. Bill joined his current firm after leaving
his EEOC post in 1973. Since then, his broad experience in litigation and
other matters includes handling a number of legal matters on behalf of UPS.
 
   Robert J. Clanin, Age 55. Director since 1996. UPS Senior Vice President,
   Treasurer and Chief Financial Officer
 
   Bob joined UPS in 1971 as a part-time accounting clerk in the Metro Chicago
District. Two years later he was promoted to Accounting Manager. In 1979 he
was named Wisconsin District Controller and worked in Corporate Finance and
Accounting before accepting the position of Southwest Region Controller in
1987. Bob returned to corporate in 1989 as Treasury Manager and then Finance
Manager prior to assuming responsibilities for his current position. Bob
received a bachelor's degree from Bradley University in Business
Administration. Bob is also a director of the Georgia Council on Economic
Education and Overseas Partners Ltd.
 
   Michael L. Eskew, Age 49. Director since 1998. UPS Senior Vice President
   and Group Manager of Engineering and Corporate Development
 
   Mike joined UPS in 1972, after he received a Bachelor of Science Degree in
Industrial Engineering from Purdue University. He also attended graduate
school at Butler University and completed the Advanced Management Program at
the Wharton School of the University of Pennsylvania. Mike was responsible for
all industrial engineering activities in Germany when the Company began its
international expansion into Germany. In 1982, he was named Industrial
Engineering ("I.E.") Manager of our Northwest Region. He was in charge of I.E.
for the Air Group from 1984 to 1991. Mike was a District Manager in the
Central Jersey District from 1991 to 1993, and was promoted to Corporate I.E.
Manager in 1993. He became Manager of our Engineering Group in 1996. Mike
serves on the Georgia Institute of Technology's Advisory Board and is a member
of the University of Michigan Trucking Industry Program.
 
 
                                      45

<PAGE>
 
   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 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.
 
                                      46

<PAGE>
 
   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. 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.
 
                                      47

<PAGE>
 
   Lea N. Soupata, Age 48. Director since 1998. UPS Senior Vice President and
   Human Resources Group Manager
 
   A native of New York City, Lea joined UPS in 1969 and is now responsible
for the human resources function for approximately 330,000 employees
worldwide. Following several assignments with UPS in Human Resources, Sales
and Operations, Lea became the Human Resources Manager in our North New
England and Metro New York Districts. Lea also served as Regional Human
Resources Manager for the East and East Central Regions. In 1990, Lea became
the District Manager of the Central New York District. She was transferred in
1994 to the Company's corporate office as Vice President of Human Resources
prior to being named to her current position. Lea serves as chair of The UPS
Foundation, our charitable arm, and has been active in a number of community
services programs, including United Way. She also is a trustee of the Annie E.
Casey Foundation, the world's largest philanthropic foundation dedicated to
helping disadvantaged children.
 
   Robert M. Teeter, Age 60. Director since 1990. President of Coldwater
   Corporation
 
   Bob is a graduate of Albion College and holds a master's degree from
Michigan State University. He is president of Coldwater Corporation, a
Michigan consulting and research firm that specializes in the areas of
strategic planning, policy development and public opinion analysis. For more
than 20 years he held several management positions, including President of
Market Opinion Research Company, one of the nation's largest marketing
research firms. Bob is also a director of Browning-Ferris Industries, Inc.,
Optical Imaging Systems and Durakon Industries.
 
   Thomas H. Weidemeyer, Age 51. Director since 1998. UPS Senior Vice
   President and Transportation Group Manager
 
   Tom joined UPS in 1972 in National Personnel after receiving his Law Degree
from the University of North Carolina Law School and his Bachelor's Degree
from Colgate University. In 1974, he moved to the Metro Detroit District and
worked in various operations assignments. In 1978, he joined our Legal
Department. In 1986, he was promoted to District Manager of Arkansas and later
helped set up our Northwest Ohio District. Tom became Manager of the Americas
Region in 1989, and in that capacity established the 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.
 
                                      48

<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>   
<CAPTION>
                            Number of Shares as to    Additional Shares in which
                          which the Beneficial Owner  the Beneficial Owner has or  Total Shares and
                           Exercises Sole Voting or  Participates in the Voting or    Percent of
Name of Beneficial Owner       Investment Power           Investment Power(4)          Class(6)
------------------------  -------------------------- ----------------------------- --------------------
<S>                       <C>                        <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.
 
                                      49

<PAGE>
 
   These holdings are reported in accordance with the SEC's regulations
requiring disclosure of shares as to which directors and "Named Executive
Officers" hold voting or dispositive power, notwithstanding that they are held
in a fiduciary rather than a personal capacity, and that such power is shared
among a number of fiduciaries including, in several cases, corporate trustees,
directors or other persons who are neither executive officers nor directors of
UPS.
 
Meetings of the Board of Directors
 
   The UPS board of directors held four meetings during 1998. During 1998,
each director of UPS attended at least 75% of the total number of meetings of
the board and any committees of which he or she was a member.
 
Committees of the Board of Directors
 
   The UPS board of directors has an Executive Committee, an Audit Committee,
an Officer Compensation Committee, a Salary Committee and a Nominating
Committee.
 
   Messrs. Alden, Clanin, Kelly, Moderow and Schaffer served as members of the
Executive Committee throughout 1998. Calvin Tyler, a former director and
officer, served as a member of the Executive Committee until his retirement on
January 15, 1998, and Messrs. Eskew and Weidemeyer and Ms. Soupata have served
as members of the Committee since their appointments in May 1998. This
Committee may exercise all powers of the board of directors in the management
of the business and affairs of UPS except for those powers expressly reserved
to the board under Delaware law, such as amendment of the certificate of
incorporation or bylaws, declaration of dividends, issuance of stock, mergers,
consolidations, a sale of substantially all of the assets of UPS and a
dissolution. In 1998, this Committee held 13 meetings.
 
   Mr. Brown served as a member of the Audit Committee throughout 1998, Carl
Kaysen, a former director, served as a member of the Committee until he
retired from the board in April 1998 and Ms. Livermore has served as a member
of the Committee since her appointment in February 1998. The primary
responsibilities of the Audit Committee are to:
     
  .  recommend annually the independent public accountants for appointment by
     the board as auditors for UPS and its subsidiaries;     
     
  .  review the scope of the audit to be made by the accountants;     
     
  .  review the audit reports submitted by the accountants;     
     
  .  review the annual program for the internal audit of records and
     procedures;     
     
  .  review audit reports submitted by the internal auditing staff; conduct
     such other reviews as the Audit Committee deems appropriate and make
     reports and recommendations to the board within the scope of its
     functions.     
 
   In 1998, this Committee held three meetings.
 
   Messrs. Pelson, MacDougal and Rogers served as members of the Officer
Compensation Committee throughout 1998. The primary responsibility of this
Committee is to set the proper and appropriate compensation of the Chairman
and Chief Executive Officer and to set the proper and appropriate compensation
of executive officers based upon the recommendation of the Chief Executive
Officer. The Committee also is responsible for making awards to the executive
officers under the UPS 1996 Stock Option Plan and the UPS Managers Incentive
Plan. The UPS 1996 Stock Option Plan also provides for grants of options to
non-employee directors. In 1998, the Officer Compensation Committee held two
meetings. See "--Compensation of Executive Officers and Other Information--
Compensation of Directors."
 
   Messrs. Clanin and Kelly served as members of the Salary Committee
throughout 1998, and Ms. Soupata served as administrator of the Committee
until April 1998 and has since served as a member of the Committee.
 
                                      50

<PAGE>
 
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.
 
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>
<CAPTION>
                                                     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.............
 Vice Chairman, Senior
 Vice President             1998  588,000  252,480    38,493          4,800
 and Business Development   1997  550,500  134,726    19,321             --
 Group Manager              1996  470,000  148,748    17,737             --
 
Robert J. Clanin..........
 Senior Vice President,
 Treasurer                  1998  450,500  194,620    29,084          4,800
 and Chief Financial        1997  409,000  102,629    13,801             --
 Officer                    1996  363,000  120,635    13,683             --
 
Joseph R. Moderow.........
 Senior Vice President,
 Secretary and Legal &      1998  442,000  189,360    29,084          4,800
 Public Affairs Group Man-  1997  417,000  110,160    14,721             --
 ager                       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.
 
                                      51

<PAGE>
 
Stock Option Grants
 
   The following table sets forth information concerning option grants to the
Named Executive Officers in 1998.

<TABLE>   
<CAPTION>
                                                                       Potential Realized Value at
                                                                         Assumed Annual Rates of
                                                                      Stock Price Appreciation for
                                                                               Option Term
                                                                      -----------------------------
                         Number of   % of Total
                         Securities   Options
                         Underlying  Granted to  Exercise
                          Options   Employees in Price per Expiration
      Name                Granted       1998     Share(1)   Date(2)         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.
 
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>   
<CAPTION>
                                                                        Value of
                                               Number of Securities   Unexercised
                                              Underlying Unexercised  In-the-Money
                                                Options at End of      Options at
                           Shares                    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/137,533      n/a/$1,669,478
John W. Alden...........   18,254     241,866      None/110,545       n/a/1,349,485
Robert J. Clanin........    3,895      51,609       None/71,233         n/a/801,050
Joseph R. Moderow.......   17,159     227,357       None/91,274       n/a/1,146,574
Charles L. Schaffer.....   15,333     203,162       None/91,139       n/a/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.
 
                                      52

<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>
<CAPTION>
      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.
 
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.
 
                                      53

<PAGE>
 
   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.
 
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.
 
                                      54

<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:
     
  .  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:     
       
    ^  one-third will be converted into class A-1 common stock     
       
    ^  one-third will be converted into class A-2 common stock     
       
    ^  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:
       
    ^  six months after this offering for class A-1 shares     
       
    ^  12 months after this offering for class A-2 shares     
       
    ^  18 months after this offering for class A-3 shares     
     
  .  New UPS will own all of Old UPS's common stock     
 
   After the merger and the offering:
     
  .  shares of class A common stock will constitute about 90% of our total
     outstanding common stock and about 99% of our total voting power     
     
  .  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:
     
  .  A majority of the outstanding shares of Old UPS common stock approve the
     merger agreement     
     
  .  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.
 
                                      55

<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.
     
  .  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.     
     
  .  No Shareowner Action by Written Consent. Our certificate of
     incorporation prohibits shareowner action by written consent.     
     
  .  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.     
     
  .  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:
            
    ^  for breach of duty of loyalty;     
 
    ^  for acts or omissions not in good faith or involving intentional
       misconduct or knowing violation of law;
       
    ^  under Section 174 of the Delaware General Corporation Law (unlawful
       dividends); and     
       
    ^  for transactions from which the director derived improper personal
       benefit.     
     
  .  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.     
     
  .  No Classified Board of Directors. Our certificate of incorporation does
     not provide for a classified board of directors.     
     
  .  No Cumulative Voting. Our certificate of incorporation provides that our
     shareowners are not entitled to cumulative voting in the election of our
     directors.     
     
  .  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.
 
 
                                      56

<PAGE>
 

<TABLE>   
<CAPTION>
                               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 Restrictions  Class A-1 shares may not be     None.
                       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.
                       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 Merger,    In the event that we            In the event that we
 Consolidation         reorganize, merge or            reorganize, merge or
 or Reorganization     consolidate with one or more    consolidate with one or more
                       other corporations, holders of  other corporations, holders of
                       class A shares will be entitled class B shares will be entitled
                       to receive the same kind and    to receive the same kind and
                       amount of securities or         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.
 
 
                                      57

<PAGE>
 
   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 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:
     
  .  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;
            
  .  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     
     
  .  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.
 
                                      58

<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:
     
  .  for breach of duty of loyalty     
     
  .  for acts or omissions not in good faith or involving intentional
     misconduct or knowing violation of law     
     
  .  under Section 174 of the Delaware General Corporation Law (unlawful
     dividends)     
     
  .  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 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
 
                                      59

<PAGE>
 
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:
     
  .  the reduction in voting power of shares held by beneficial owners of
     more than 25% of our stock     
     
  .  the prohibition on shareowner action by written consent     
     
  .  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.
 
                                      60

<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.
 
   After this offering is completed, New UPS intends to discontinue the
general practice of purchasing shares when offered by shareowners.
 
                                      61

<PAGE>
 
   The prices at which old UPS published notices of its willingness to
purchase shares since January 1997 are as follows:
 

<TABLE>
   <S>                                                                    <C>
   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
</TABLE>

 
   In each case, the price was applicable until the date of the next published
notice.
 
                                      62

<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
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.
 
                                      63

<PAGE>
 
   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 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.
 
                                      64

<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:
     
  .  1% of the then outstanding shares of common stock; and     
     
  .  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."
 
                                      65

<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:
     
  .  a citizen or resident of the United States;     
     
  .  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;     
     
  .  an estate, the income of which is subject to United States federal
     income taxation regardless of its source; or     
     
  .  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 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:
     
  .  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);
            
  .  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;     
 
                                      66

<PAGE>
 
     
  .  you are subject to tax pursuant to the provisions of the Internal
     Revenue Code regarding the taxation of some U.S. expatriates; or     
     
  .  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 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.
 
                                      67

<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:
 

<TABLE>
<CAPTION>
                                                                       Number of
Name                                                                    Shares
----                                                                   ---------
<S>                                                                    <C>
U.S. underwriters:
  Morgan Stanley & Co. Incorporated...................................
                                                                         ----
    Subtotal..........................................................
                                                                         ====
International underwriters:
  Morgan Stanley & Co. International Limited..........................
                                                                         ----
    Subtotal..........................................................
                                                                         ----
      Total...........................................................
                                                                         ====
</TABLE>

 
   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.
 
   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
 
                                      68

<PAGE>
 
   
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:
     
  .  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     
     
  .  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:
     
  .  the sale of shares to the underwriters; or     
     
  .  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.     
 
 
                                      69

<PAGE>
 
   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 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,     .
 
                                      70

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 

                         INDEX TO FINANCIAL STATEMENTS
 

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
<S>                                                                      <C>
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-21
  Statements of Consolidated Income for the Three Months Ended March 31,
   1998 and 1999........................................................  F-22
  Statement of Consolidated Shareowners' Equity for the Three Months
   Ended March 31, 1999.................................................  F-23
  Statements of Consolidated Cash Flows for the Three Months Ended March
   31, 1998 and 1999....................................................  F-24
  Notes to Unaudited Consolidated Financial Statements..................  F-25
 
                          UNITED PARCEL SERVICE, INC.
 
                          INDEX TO FINANCIAL STATEMENT
 
Audited Financial Statement
  Independent Auditors' Report..........................................  F-27
  Balance Sheet as of July 19, 1999.....................................  F-28
  Notes to Balance Sheet................................................  F-28
</TABLE>

 
                                      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>
<CAPTION>
                                                               December 31,
                                                              ----------------
                                                               1997     1998
                                                              -------  -------
<S>                                                           <C>      <C>
                           ASSETS
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
                                                              =======  =======
</TABLE>

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

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

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

 
            See notes to audited consolidated financial statements.
 
 
                                      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.
 
   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.
 
 
                                      F-7

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   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.
 
   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
 
                                      F-8

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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.
 
   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>
<CAPTION>
                                                                 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
 
                                      F-9

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   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.
(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):
 

<TABLE>
<CAPTION>
                                                                     1997  1998
                                                                     ----  ----
   <S>                                                               <C>   <C>
   Aircraft......................................................... $614  $614
   Accumulated amortization.........................................  (16)  (38)
                                                                     ----  ----
                                                                     $598  $576
                                                                     ====  ====
</TABLE>

 
   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):
 

<TABLE>
<CAPTION>
                                                          Capitalized Operating
   Year                                                     Leases     Leases
   ----                                                   ----------- ---------
   <S>                                                    <C>         <C>
   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
                                                             =====
</TABLE>

 
   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.
 
   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.
 
                                     F-10

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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>
<CAPTION>
                                                            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.
 
   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.
 
                                     F-11

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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.
 
   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.
 
                                     F-12

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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>
<CAPTION>
                                                            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>

 
   Net periodic benefit cost for the years ended December 31 included the
following components (in millions):
 

<TABLE>
<CAPTION>
                                                             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>

 
                                     F-13

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   The significant assumptions used in the measurement of the Company's
benefit obligations are as follows:
 

<TABLE>
<CAPTION>
                                                             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 pen-
    sion 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>
<CAPTION>
                                                      1% Increase 1% Decrease
                                                      ----------- -----------
   <S>                                                <C>         <C>
   Effect on total of service and interest cost com-
    ponents..........................................     $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.
 
   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
 
                                     F-14

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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>
<CAPTION>
                                                             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>

 
   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:
 

<TABLE>
<CAPTION>
                                                            1996   1997   1998
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   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
</TABLE>

 
   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:
 

<TABLE>
<CAPTION>
                                                                    Number of
                                                 Weighted Average     Shares
                                                  Exercise Price  (in thousands)
                                                 ---------------- --------------
   <S>                                           <C>              <C>
   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
                                                                      ======
</TABLE>

 
                                     F-15

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   No options were exercisable at December 31, 1996, 1997 or 1998. The
following table summarizes information about stock options outstanding at
December 31, 1998:
 

<TABLE>
<CAPTION>
               Number of             Weighted Average
                 Shares               Remaining Life                Weighted Average
             (in thousands)             (in years)                   Exercise Price
             --------------          ----------------               ----------------
             <S>                     <C>                            <C>
                  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
                 ======
</TABLE>

 
7. INCOME TAXES
 
   The provision for income taxes for the years ended December 31 consists of
the following (in millions):
 

<TABLE>
<CAPTION>
                                                                1996 1997  1998
                                                                ---- ---- ------
   <S>                                                          <C>  <C>  <C>
   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
                                                                ==== ==== ======
</TABLE>

 
   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:
 

<TABLE>
<CAPTION>
                                                               1996  1997  1998
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   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%
                                                               ====  ====  ====
</TABLE>

 
                                     F-16

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   Deferred tax liabilities and assets are comprised of the following at
December 31 (in millions):
 

<TABLE>
<CAPTION>
                                                                  1997    1998
                                                                 ------  ------
   <S>                                                           <C>     <C>
   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
                                                                 ======  ======
</TABLE>

 
   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):
 

<TABLE>
<CAPTION>
                                                                   1997   1998
                                                                  ------ ------
   <S>                                                            <C>    <C>
   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
                                                                  ====== ======
</TABLE>

 
                                     F-17

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
9. OTHER OPERATING EXPENSES
 
   The major components of other operating expenses for the years ended
December 31 are as follows (in millions):
 

<TABLE>
<CAPTION>
                                                            1996   1997   1998
                                                            ----- ------ ------
<S>                                                         <C>   <C>    <C>
  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
                                                            ===== ====== ======
</TABLE>

 
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.
 
   Segment information as of, and for the years ended December 31, is as
follows (in millions):
 

<TABLE>
<CAPTION>
                                                       1996     1997     1998
                                                      -------  -------  -------
   <S>                                                <C>      <C>      <C>
   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
</TABLE>

 
                                     F-18

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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):
 

<TABLE>
<CAPTION>
                                                          1996    1997    1998
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Letters and packages................................. $21,870 $21,802 $23,887
   Other................................................     498     656     901
                                                         ------- ------- -------
                                                         $22,368 $22,458 $24,788
                                                         ======= ======= =======
 
   Geographic information as of, and for the years ended December 31, is as
follows (in millions):
 
<CAPTION>
                                                          1996    1997    1998
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   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
</TABLE>

 
   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>
<CAPTION>
                                                  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-19

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
        NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   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.
 

<TABLE>
<CAPTION>
                                                                      Estimated
                                                                 Cost Fair Value
                                                                 ---- ----------
   <S>                                                           <C>  <C>
   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
                                                                 ====    ====
</TABLE>

 
                                     F-20

<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>
<CAPTION>
                                                               1998     1999
                                                              -------  -------
<S>                                                           <C>      <C>
                           ASSETS
Current Assets:
  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
                                                              =======  =======
</TABLE>

 
           See notes to unaudited consolidated financial statements.
 
                                      F-21

<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)
 

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                March 31,
                                                           --------------------
                                                             1998       1999
                                                           ---------  ---------
<S>                                                        <C>        <C>
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
                                                           =========  =========
</TABLE>

 
 
           See notes to unaudited consolidated financial statements.
 
                                      F-22

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
                 STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
                       Three Months Ended March 31, 1999
                                 (In millions)
                                  (unaudited)
 

<TABLE>   
<CAPTION>
                                                             Accumulated  Treasury Stock,
                          Common Stock  Additional              Other         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
                           ===    ===     =====     ======      =====      ======   ========      ======
</TABLE>
    
 
                                      F-23

<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>   
<CAPTION>
                                                                 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
                                                                 =====  ======
</TABLE>
    
 
           See notes to unaudited consolidated financial statements.
 
                                      F-24

<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>
<CAPTION>
                                                                    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.
 
   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
 
                                     F-25

<PAGE>
 
            UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 $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. 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.
 
   5. Segment information for the three months ended March 31, is as follows
(in millions):
 

<TABLE>
<CAPTION>
                                                                    1998   1999
                                                                   ------ ------
   <S>                                                             <C>    <C>
   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
</TABLE>

 
   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-26

<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-27

<PAGE>
 
                          UNITED PARCEL SERVICE, INC.
 
                                 BALANCE SHEET
                                 July 19, 1999
 

<TABLE>
<S>                                                                        <C>
ASSETS--Cash.............................................................. $100
                                                                           ====
SHAREOWNER'S EQUITY--Common stock subscribed.............................. $100
                                                                           ====
</TABLE>

 
                            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-28

<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.
 

<TABLE>   
<CAPTION>
        Item                                                            Amount
        ----                                                           --------
   <S>                                                                 <C>
   SEC registration fee............................................... $834,000
   NASD registration fee.............................................. $ 30,500
   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............................................................        *
                                                                       ========
</TABLE>
    
--------
*  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 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
 
                                     II-1

<PAGE>
 
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.
 

<TABLE>
<CAPTION>
 Exhibit No.   Description
 -----------   -----------
 <C>         <C>     <S>
     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).
 
     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).
</TABLE>

 
 
                                     II-2

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No.                            Description
 -----------                            -----------
 <C>         <C> <S>
     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).
 
     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).
             (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).
</TABLE>

 
                                      II-3

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No.                            Description
 -----------                            -----------
 <C>         <C>  <S>
             (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).
             (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).
</TABLE>

 
                                      II-4

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No.                            Description
 -----------                            -----------
 <C>         <C>  <S>
             (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).
             (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).
 
    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).
</TABLE>

 
 
                                      II-5

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No.                            Description
 -----------                            -----------
 <C>         <C>  <S>
    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).
             (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).
</TABLE>

 
                                      II-6

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <C>  <S>
             (15) Restatement Amendment No. 5 to the UPS Savings Plan
                  (incorporated by reference to Exhibit 10(o)(15) to 1996
                  Annual Report on Form 10-K).
             (16) Restatement Amendment No. 6 to the UPS Savings Plan
                  (incorporated by reference to Exhibit 10(o)(16) to 1997
                  Annual Report on Form 10-K).
 
    10.16    Credit Agreement (364-Day Facility) dated April 30, 1998 among
             United Parcel Service of America, Inc., the initial lenders named
             therein, CitiCorp Securities, Inc. as Co-Arranger and BancAmerica
             Robertson as Co-Arranger and Bank of America NT & SA., as Agent,
             and Citibank, N.A., as Agent (incorporated by reference to Exhibit
             10(a) to Quarterly Report on Form 10-Q for the Quarter Ended March
             30, 1998).
 
    10.17    Credit Agreement (Five-Year Facility) dated April 30, 1998 among
             United Parcel Service of America, Inc., the initial lenders named
             therein, Citicorp Securities, Inc. as Co-Arranger and BancAmerica
             Robertson as Co-Arranger and Bank of America NT & SA as Agent and
             Citibank, N.A., as Agent. (incorporated by reference to Exhibit
             10(b) to the Quarterly Report on Form 10-Q for the Quarter Ended
             March 30, 1998).
 
    10.18    UPS 1991 Stock Option Plan (Amended and Restated as of February 20,
             1992) (incorporated by reference to Appendix A to Definitive Proxy
             Statement for 1995 Annual Meeting of Shareholders).
 
    10.19    UPS Excess Coordinating Benefit Plan to 1997 Annual Report on Form
             10-K (incorporated by reference to Exhibit 10(s) to 1997 Annual
             Report on Form 10-K).
 
    10.20    UPS 1997 Employees Stock Purchase Plan (incorporated by reference
             to Exhibit 99 to the Form S-8 Registration Statement No. 333-23971,
             as filed on March 26, 1997).
 
    10.21    UPS 1997 Managers Stock Purchase Plan (incorporated by reference to
             Exhibit 99 to the Form S-8 Registration Statement No. 333-23971, as
             filed on March 26, 1997).
             (1)  First Amendment to the UPS 1997 Managers Stock Purchase Plan
                  (incorporated by reference to Exhibit 10(u)(1) to 1998 Annual
                  Report on Form 10-K).
 
    10.22    UPS 1996 Stock Option Plan, as amended and restated (incorporated
             by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for
             the Quarter ended September 30, 1997).
 
    10.23    UPS Qualified Stock Ownership Plan and Trust Agreement
             (incorporated by reference to Exhibit 4.1 to Registration Statement
             No. 333-67479, filed November 18, 1998).
 
    21       Subsidiaries of the Registrant.*
 
    23.1     Consents of Deloitte & Touche LLP.
 
    23.2     Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
             filed as Exhibit 5.1 hereto).
 
    24.1     Powers of Attorney (included on the signature pages hereto).
 
    27       Financial Data Schedule.
</TABLE>

--------
*  To be filed by amendment.
 
   (b) Financial Statement Schedules
 
   Schedules are omitted because of the absence of conditions under which they
are required.
 
                                      II-7

<PAGE>
 

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 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-8

<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 28, 1999.     
 
                                          United Parcel Service, Inc.
                                                   
                                                /s/ James P. Kelly*         
                                          By: _________________________________
                                                       James P. Kelly
                                                 Chairman of the Board and
                                                  Chief Executive Officer
       
       
   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>   
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----
 
<S>                                    <C>                        <C>
        /s/ John W. Alden*             Vice Chairman of the          July 28, 1999
______________________________________  Board, Senior Vice
            John W. Alden               President and Director
 
    /s/ William H. Brown III*          Director                      July 28, 1999
______________________________________
         William H. Brown III
 
      /s/ Robert J. Clanin*            Senior Vice President,        July 28, 1999
______________________________________  Chief Financial Officer,
           Robert J. Clanin             Treasurer and Director
                                        (Principal Financial and
                                        Accounting Officer)
 
      /s/ Michael L. Eskew*            Senior Vice President and     July 28, 1999
______________________________________  Director
           Michael L. Eskew
</TABLE>
    
 
 
                                      II-9

<PAGE>
 

<TABLE>   
<CAPTION>
                Signature                           Title                   Date
                ---------                           -----                   ----
<S>                                       <C>                        <C>
       /s/ James P. Kelly*                Chairman of the Board,        July 28, 1999
______________________________________     Chief Executive Officer
            James P. Kelly                 and Director (Principal
                                           Executive Officer)
 
      /s/ Ann M. Livermore*               Director                      July 28, 1999
______________________________________
           Ann M. Livermore
 
     /s/ Gary E. MacDougal*               Director                      July 28, 1999
______________________________________
          Gary E. MacDougal
 
      /s/ Joseph R. Moderow               Senior Vice President,        July 28, 1999
______________________________________     Secretary and Director
          Joseph R. Moderow
 
       /s/ Kent C. Nelson*                Director                      July 28, 1999
______________________________________
            Kent C. Nelson
 
      /s/ Victor A. Pelson*               Director                      July 28, 1999
______________________________________
           Victor A. Pelson
 
       /s/ John W. Rogers*                Director                      July 28, 1999
______________________________________
            John W. Rogers
 
     /s/ Charles L. Schaffer*             Senior Vice President and     July 28, 1999
______________________________________     Director
         Charles L. Schaffer
 
       /s/ Lea N. Soupata*                Senior Vice President and     July 28, 1999
______________________________________     Director
            Lea N. Soupata
 
      /s/ Robert M. Teeter*               Director                      July 28, 1999
______________________________________
           Robert M. Teeter
 
    /s/ Thomas H. Weidemeyer*             Senior Vice President and     July 28, 1999
______________________________________     Director
         Thomas H. Weidemeyer
 
          /s/ Joseph R. Moderow
   *By: _________________________________
             Joseph R. Moderow
              Attorney-in-fact
</TABLE>
    
 
                                     II-10





<PAGE>
 
                                                                 
                                                              EXHIBIT 23.1     
                         
                      INDEPENDENT AUDITORS' CONSENT     
   
   We consent to the use in this Amendment No. 1 to Registration Statement No.
333-83347 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 28, 1999     

<PAGE>
 
                         
                      INDEPENDENT AUDITORS' CONSENT     
   
   We consent to the use in this Amendment No. 1 to Registration Statement No.
333-83347 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 28, 1999