UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Exchange Act of 1934

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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

55 Glenlake Parkway, N.E., Atlanta, Georgia 30328

Notice of Annual Meeting of Shareowners

May 4, 2006

To our Shareowners:

      United Parcel Service, Inc.’s annual meeting of shareowners will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801, on May 4, 2006, at 8:00 a.m. The purposes of the meeting are:

      Our board of directors has fixed the close of business on March 9, 2006 as the record date for determining holders of our common stock entitled to notice of, and to vote at, the annual meeting.

Atlanta, Georgia

March 20, 2006

      Your vote is important. Please vote by using the Internet, by telephone or by signing and returning the enclosed proxy card as soon as possible to ensure your representation at the annual meeting. Your proxy card contains instructions for each of these voting options.

TABLE OF CONTENTS

55 Glenlake Parkway, N.E., Atlanta, Georgia 30328

PROXY STATEMENT

FOR THE

2006 ANNUAL MEETING OF SHAREOWNERS

      This proxy statement and proxy card are furnished in connection with the solicitation of proxies to be voted at our annual meeting of shareowners, which will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801, on May 4, 2006, at 8:00 a.m. The proxy is solicited by our board of directors. This proxy statement and proxy card are being sent to our shareowners on or about March 20, 2006.

      You are receiving this proxy statement and proxy card because you own shares of United Parcel Service, Inc. common stock. This proxy statement describes issues on which we would like you to vote at our annual meeting of shareowners. It also gives you information on these issues so that you can make an informed decision.

      When you vote by using the Internet, by telephone or by signing and returning the proxy card, you appoint Michael L. Eskew and Teri P. McClure as your representatives at the annual meeting. They will vote your shares at the annual meeting as you have instructed them (or, if an issue that is not on the proxy card comes up for vote, in accordance with their best judgment). This way, your shares will be voted whether or not you attend the annual meeting. Even if you plan to attend the annual meeting, we encourage you to vote by using the Internet, by telephone or by signing and returning your proxy card in advance.

      Holders of our class A common stock and our class B common stock at the close of business on March 9, 2006 are entitled to vote. March 9, 2006 is referred to as the record date.

      In accordance with Delaware law, a list of shareowners entitled to vote at the meeting will be available in electronic form at the place of the annual meeting on May 4, 2006 and will be accessible in electronic form for ten days prior to the meeting at our principal place of business, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328, and at the offices of Morris, Nichols, Arsht & Tunnell, 1201 North Market Street, Wilmington, Delaware 19899, between the hours of 9:00 a.m. and 5:00 p.m.

      Holders of class A common stock are entitled to ten votes per share. Holders of class B common stock are entitled to one vote per share. On the record date, there were 442,308,745 shares of our class A common stock and 648,326,173 shares of our class B common stock outstanding and entitled to vote.

      The voting rights of any shareowner or shareowners as a group, other than any of our employee benefit plans, who beneficially own shares representing more than 25% of our voting power are limited so that the shareowner or group may cast only one one-hundredth of a vote with respect to each vote in excess of 25% of the outstanding voting power.

      Shareowners of record may vote by using the Internet, by telephone or by mail as described below. Shareowners also may attend the meeting and vote in person. If you hold class B shares through a bank or broker, please refer to your proxy card or the information forwarded by your bank or broker to see which options are available to you.

      The method you use to vote will not limit your right to vote at the annual meeting if you decide to attend in person. Written ballots will be passed out to anyone who wants to vote at the annual meeting. If you hold your shares in “street name”, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the annual meeting.

      The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast at the annual meeting will constitute a quorum. If a quorum is present, we can hold the annual meeting and conduct business.

      You may revoke your proxy and change your vote at any time before the polls close at the annual meeting. You may do this by:

      Attendance at the meeting will not by itself revoke a proxy.

      You are being asked to vote on two items:

      No cumulative voting rights are authorized, and dissenters’ rights are not applicable to these matters.

      With respect to the election of nominees for director, you may:

      The twelve nominees receiving the highest number of affirmative votes will be elected as directors. This number is called a plurality.

      If a nominee is unable to stand for election, the board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. If the board designates a substitute nominee, shares represented by proxies voted for the nominee who is unable to stand for election will be voted for the substitute nominee.

      With respect to the proposal to ratify the appointment of our independent registered public accountants, you may:

      The ratification of the appointment of our independent registered public accountants must receive the affirmative vote of a majority of the votes that could be cast at the annual meeting by the holders who are present in person or by proxy to pass. If you abstain from voting on the proposal, it will have the same effect as a vote against the proposal.

      The board recommends a vote FOR all twelve director nominees and FOR the ratification of the appointment of our independent registered public accountants.

      If you return a signed card but do not provide voting instructions, your shares will be voted FOR all twelve director nominees and FOR the ratification of the appointment of our independent registered public accountants.

      If you own class A shares and you do not vote by using the Internet, by telephone or by signing and returning your proxy card, then your class A shares will not be voted and will not count in deciding the matters presented for shareowner consideration in this proxy statement. If your class A shares are held pursuant to the UPS Qualified Stock Ownership Plan and Trust and you do not vote by using the Internet, by telephone or by signing and returning your proxy card, the trustee will vote your shares for each proposal in the same proportion as the shares held pursuant to that plan for which voting instructions were received.

      If your class B shares are held in street name through a bank or broker, your bank or broker may vote your class B shares under certain circumstances if you do not provide voting instructions before the annual meeting, in accordance with New York Stock Exchange rules that govern the banks and brokers. These circumstances include “routine matters”, such as the election of directors and ratification of the appointment of our independent registered public accountants described in this proxy statement. With respect to these matters, therefore, if you do not vote your shares, your bank or broker may vote your shares on your behalf or leave your shares unvoted.

      Yes. This proxy statement and the 2005 Annual Report to Shareowners are available on the investor relations page of our website located at www.shareholder.com/ups. Instead of receiving paper copies in the mail, shareowners can elect to receive an e-mail that provides a link to our future annual reports and proxy materials on the Internet. Opting to receive your proxy materials on-line will save us the cost of producing and mailing documents to your home or business, and will give you an automatic link to the proxy voting site.

      If you are a shareowner of record and wish to enroll in the electronic proxy delivery service, you may do so by going to www.icsdelivery.com/ups and following the prompts.

ELECTION OF DIRECTORS

(Proposal No. 1)

      There are twelve nominees to our board of directors this year. Nine of the nominees have served as directors since our last annual meeting. Michael Burns and Stuart Eizenstat were appointed to our board in August 2005. These directors were recommended to our Nominating and Corporate Governance Committee by one of our non-management directors. In addition, Scott Davis was appointed to our board in February 2006. All directors are elected annually to serve until the next annual meeting and until their respective successors are elected.

      Lea Soupata retired from our board on January 1, 2006. We thank Lea for her many years of dedicated service to the board and to UPS.

The board of directors recommends a vote FOR the election

to the board of each of the following nominees.

      Our board has delegated to the Nominating and Corporate Governance Committee the responsibility for reviewing and recommending nominees for membership on the board. Board candidates are evaluated based upon various factors, such as personal character, values and disciplines, ethical standards, diversity, professional background and skills, all in the context of an assessment of the needs of the board at that time. In addition, each director is expected to ensure that other existing and planned future commitments do not materially interfere with his or her responsibilities as a director.

      Accordingly, the Nominating and Corporate Governance Committee’s objective is to maintain a board of individuals of the highest personal character, integrity and ethical standards, and that reflects a range of professional backgrounds and skills relevant to our business. The Committee identifies new director candidates through a variety of sources.

      The Nominating and Corporate Governance Committee will consider director candidates proposed by shareowners on the same basis as recommendations from other sources. Any shareowner who wishes to recommend a prospective candidate for the board of directors for consideration by the Nominating and Corporate Governance Committee may do so by submitting the name and qualifications of the prospective candidate in writing to the following address: Corporate Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328.

Meetings of the Board of Directors and Attendance at the Annual Meeting

      Our board of directors held five meetings during 2005. Each of our directors attended at least 75% of the total number of meetings of the board and any committees of which he or she was a member. It is the board’s policy that our directors attend the annual meeting. All of the directors other than John Thompson who were serving at our 2005 annual meeting of shareowners attended the annual meeting.

Director Independence

      Our Corporate Governance Guidelines include categorical standards adopted by the board to determine director independence that meet the listing standards set forth by the NYSE. The portion of our Corporate Governance Guidelines addressing director independence is attached to this proxy statement as Annex I.

      Pursuant to the Corporate Governance Guidelines, the board undertook its annual review of director independence in February 2006. During this review, the Board considered whether there were any transactions or relationships between each director or any member of his or her immediate family and UPS. The board also examined whether there were any transactions or relationships between an organization of which a director is a partner, shareholder or officer and UPS. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that a director is independent. The board also evaluated the categorical standards that form a part of our Corporate Governance Guidelines.

      As a result of this review, the board affirmatively determined that the following directors nominated for election at the annual meeting are independent directors: Michael Burns, Stuart Eizenstat, Jim Kelly, Ann Livermore, Gary MacDougal, Vic Pelson, John Thompson, Carol Tomé and Ben Verwaayen. The other directors nominated for election at the annual meeting, Mike Eskew, John Beystehner and Scott Davis, are not independent directors because they are employed by UPS.

Other Information Regarding Directors

      Michael Burns is the Chairman, Chief Executive Officer and President of Dana Corporation. Dana Corporation filed a voluntary petition under Chapter 11 of the federal bankruptcy laws on March 3, 2006.

Executive Sessions of our Non-Management Directors

      Our non-management directors meet without management present as frequently as they deem appropriate, and at least two times each year. The non-management directors select the presiding director for these meetings.

Corporate Governance

      Our Corporate Governance Guidelines are available on the governance section of the investor relations page of our website (www.shareholder.com/ups). In addition, the charters that have been adopted for each of the Audit, Compensation and Nominating and Corporate Governance Committees are available on the governance section of the investor relations page of our website.

      We have a long-standing commitment to conduct our business in accordance with the highest ethical principles. Our Code of Business Conduct is applicable to all the representatives of our enterprise, including our executive officers and all other employees and agents of our company and our subsidiary companies, as well as to our directors. A copy of our code is available on the governance section of the investor relations page of our website.

      A copy of our Corporate Governance Guidelines, committee charters and Code of Business Conduct may also be obtained without charge upon written request to: Corporate Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328.

      Any shareowner who wishes to communicate directly with our board of directors, with our non-management directors as a group or with the presiding director of our non-management directors may do so by writing to Corporate Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328. Please specify to whom your letter should be directed. Once the communication is received by the corporate secretary, the corporate secretary reviews the communication. Communications that comprise advertisements, solicitations for business, requests for employment, requests for contributions or other inappropriate material will not be forwarded to our directors. Other communications are promptly forwarded to the addressee.

Committees of the Board of Directors

      Our board of directors has four committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Executive Committee. The following table shows the current members of each committee.

X = current committee member; * = chair

      Audit Committee. The primary responsibilities of our Audit Committee include:

      In 2005, the Audit Committee held eight meetings. Each member of our Audit Committee meets the independence requirements of the NYSE and SEC rules and regulations, and each is financially literate. Our board has determined that Carol Tomé is an audit committee financial expert as defined by the SEC.

      Compensation Committee. The primary responsibilities of our Compensation Committee include:

      In 2005, the Compensation Committee held four meetings. Each member of our Compensation Committee meets the independence requirements of the NYSE and is an outside director under Section 162(m) of the Internal Revenue Code.

      Nominating and Corporate Governance Committee. The primary responsibilities of our Nominating and Corporate Governance Committee include:

      In 2005, the Nominating and Corporate Governance Committee held four meetings. Each member of our Nominating and Corporate Governance Committee meets the independence requirements of the NYSE and SEC rules and regulations.

      Executive Committee. The Executive Committee may exercise all powers of the board of directors in the management of our business and affairs, except for those powers expressly reserved to the board under Delaware law. In 2005, the Executive Committee held no meetings.

BENEFICIAL OWNERSHIP OF COMMON STOCK

      The following table describes the beneficial ownership of our common stock as of February 1, 2006 by

Additional Ownership

      In addition to the beneficial ownership of our common stock discussed above, our directors and executive officers also hold different instruments that are not reported in the beneficial ownership table but represent additional financial interests that are subject to the same market risk as ownership of our common stock. The number of shares of stock to which these stock units are equivalent as of February 1, 2006 is as follows.

      Restricted stock units are bookkeeping units, the value of each of which corresponds to one share of UPS common stock. Restricted stock units vest in twenty percent increments on each October 15th during the five year vesting period if the grantee remains an employee of UPS or one of its subsidiaries. In addition, restricted stock units will vest if the grantee’s employment terminates by reason of death. In the event of termination due

to disability or retirement as defined by the plan, restricted stock units will vest immediately, but will continue to be paid out in twenty percent increments each year until the end of the five-year cycle. The awards are eligible for dividend equivalents, which are deemed to be automatically reinvested into additional restricted stock units. At each October vesting event during the five-year vesting period, the individual receives shares of UPS class A common stock.

      Phantom stock units are bookkeeping units, the value of each of which corresponds to one share of UPS common stock. Dividends paid on UPS common stock automatically are deemed to be reinvested in additional phantom stock units. Upon termination of the individual’s service as a director, amounts represented by phantom stock units will be distributed in cash.

      Restricted performance units are bookkeeping units, the value of each of which corresponds to one share of UPS common stock. Restricted performance units vest on the fifth anniversary date of their grant if the grantee remains an employee or director of UPS or one of its subsidiaries. In addition, the restricted performance units will vest if the grantee’s employment terminates by reason of death, disability or retirement. Dividends paid on UPS common stock automatically are deemed to be reinvested in additional restricted performance units. The number of restricted performance units granted to each individual will increase by 10% if we attain certain performance measures for the years ending December 31, 2007, 2008 and 2009. Upon vesting of restricted performance units, the individual receives shares of UPS class A common stock.

      Stock option deferral shares are shares held for the individual in a rabbi trust within the UPS Deferred Compensation Plan. Each individual elected to defer the receipt of these shares rather than acquiring them directly upon the exercise of a stock option.

      Other Deferred Compensation Plan balances are (i) amounts our board of directors allocated to certain directors to satisfy obligations accrued under a previous retirement plan which were transferred to the UPS Deferred Compensation Plan during 2003 and (ii) other amounts within the UPS Deferred Compensation Plan allocated to UPS common stock.

Stock Ownership Guidelines

      We have stock ownership guidelines for our management and board of directors. The guidelines are based on our expectation that each member of our management team maintains a significant level of investment in our company.

      Our stock ownership guidelines extend to all levels of management and to members of our board of directors. For our senior executive officers and directors, they are as follows:

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

      The following table shows the compensation paid or to be paid by us or any of our subsidiaries and other compensation paid or accrued during the last three fiscal years to our Chief Executive Officer and our other four highest paid executive officers who were serving as executive officers at the end of 2005. We refer to these executive officers as our “named executive officers.”

     

Stock Option Grants

      The following table shows grants of stock options to the named executive officers during 2005. All are options to purchase shares of our class A common stock.

Stock Option Exercises and Holdings

      The following table sets forth information about the exercise of stock appreciation rights and stock options during 2005 by our named executive officers and the value of their unexercised stock appreciation rights and options as of December 31, 2005.

Retirement Plans

      The following table shows the estimated annual retirement benefit payable on a single-life-only annuity basis to participating employees, including our named executive officers, under the UPS Retirement Plan and UPS Excess Coordinating Benefit Plan upon retirement, assumed to occur at age 65. Participating employees also will be entitled to receive the maximum then currently payable in primary Social Security benefits. Participants who elect forms of payment with survivor options will receive lesser amounts than those shown in this table.

      The compensation upon which the benefits are summarized in the table above includes salary and management incentive awards granted under the United Parcel Service, Inc. Incentive Compensation 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.

      Benefits payable under the UPS Retirement Plan are subject to the maximum compensation limits and the annual benefit limits for a tax qualified defined benefit plan as prescribed and adjusted from time to time by the Internal Revenue Service. Amounts exceeding these limits will be paid pursuant to the UPS Excess Coordinating Benefit Plan. Under this plan, participants may choose to receive the benefit in the form of a life annuity or in combination of a life annuity and cash lump sum.

      As of December 31, 2005 estimated or actual credited years of service under the plans to our named executive officers were as follows: Mike Eskew — 34, David Abney — 32; John Beystehner — 35; Scott Davis — 21 and Lea Soupata — 36.

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

REPORT OF THE COMPENSATION COMMITTEE

      The Compensation Committee of the board of directors (the “Committee”) is comprised solely of non-employee directors that meet the independence requirements of the NYSE and who qualify as outside directors under Section 162(m) of the Internal Revenue Code. The Committee is responsible for establishing corporate goals and objectives relevant to the compensation for our Chairman and Chief Executive Officer, evaluating the Chief Executive Officer’s performance in light of these goals and objectives, and establishing the compensation for the Chief Executive Officer based on this evaluation. The Committee is also responsible for reviewing and approving the compensation of the other executive officers based on a recommendation from the CEO.

      The Committee also determines the eligibility and levels of participation of executive officers under the United Parcel Service, Inc. Incentive Compensation Plan and equity-based compensation programs. The Committee is responsible for providing oversight and guidance in the development of compensation and benefit programs for all employees of the Company, including recommendations to the board of directors with respect to incentive compensation and equity-based plans.

      The Committee has sole authority to engage and terminate outside advisors or consulting firms to assist the committee in carrying out its responsibilities. The Committee has directly worked with the Company’s Human Resources group and independent compensation consultants to assist the Committee with its benchmarking and evaluation of the Company’s compensation programs.

Compensation Philosophy

      The compensation philosophy is designed to drive company performance and create long-term value for our shareowners. The Company’s compensation program is centered on a pay-for-performance philosophy designed to attract, retain and motivate key talent. To this end, the following principles guide the design and administration of the Company’s compensation program:

      Throughout its history, UPS has been owned by its employees and managed by its owners. To achieve this objective, compensation plans such as the UPS Managers Incentive Plan, the UPS 1996 Stock Option Plan, the UPS Qualified Stock Ownership Plan, the UPS Discounted Employee Stock Purchase Plan and the United Parcel Service, Inc. Incentive Compensation Plan have facilitated stock ownership by management employees.

      This policy has significantly reduced, relative to other companies, the need to externally hire managers and executive officers. To a high degree, employees who have spent virtually their entire careers with UPS comprise the overall management organization. The named executive officers are long-term employees, each with significant years of service.

      An employee’s compensation is linked to individual employee performance, experience, and qualifications as well as overall Company and team performance against financial and non-financial objectives. Our compensation programs provide employees with a pay opportunity that is reasonable and competitive with the external market. The Committee believes that when either the Company’s performance or individual achievements exceeds the objectives set for the performance period, employees should be paid more, and when the performance does not meet expectations, overall pay will reflect actual performance.

      Because plans are designed to foster stock ownership by managers, each executive officer has accumulated a meaningful number of shares of UPS common stock. As a result, the interests of shareowners and our executive officers are closely aligned, and the executive officers have strong incentives to provide for our effective management. Additionally, executive officers and directors are expected to acquire and hold a significant amount of UPS stock as outlined under the heading “Stock Ownership Guidelines” on page 15.

      The proportion of an executive’s compensation package that varies based on individual and corporate performance objectives increases as the level of the individual’s responsibilities increases. In the case of the named executive officers, annual appreciation derived from stock ownership, dividends, stock options and management incentive awards granted in the form of restricted stock units and UPS stock constitutes a significant component of total compensation. Of the forms of compensation in use, management incentive awards granted in the form of restricted stock units and UPS stock are keyed to corporate performance. A significant portion of total compensation that could be earned by all other officers of the Company is at risk and payable based on annual and long-term performance goals.

      We review compensation survey data from several independent sources to ensure UPS’s compensation programs are competitive. With respect to cash compensation, the Committee reviews data received directly from consultants concerning compensation for comparable positions at companies that have similar revenues and other characteristics. The companies used for executive compensation comparisons are not limited to the companies that comprise the S&P 500 Index and the Dow Jones Transport Average used in the shareowner return performance graph contained in our proxy statement. The Company annually monitors its compensation plan design and evaluates the competitiveness of our programs.

Elements of the UPS Compensation Program

      The four primary components of the UPS executive compensation program are: Base Salary, Annual Incentives, Long-Term Incentives, and other Benefits and Perquisites.

      Base salaries for compensation of each executive officer, including that of the Chief Executive Officer, are generally less than median compensation levels at similarly sized companies. The Company participates in surveys annually and the salaries of those at more senior levels are generally adjusted annually. A significant factor in determining annual salary increases is the Committee’s strong desire to keep the salary levels of executive officers reasonable in comparison with the salaries of other executives with similar responsibilities at comparable companies and when compared to the salaries of other UPS management positions.

      We design the annual component of incentive compensation to align pay with the annual performance of the Company and individual achievements. The Committee exercises its judgment on the level of incentive payments based on considerations including overall responsibilities and the importance of these responsibilities to UPS’s success. The senior executive’s individual performance is evaluated at the end of the year. Criteria for evaluation include financial targets and other important goals such as customer satisfaction, employee engagement, operational performance and shareowner value creation. In addition, we assess each executive in terms of leadership, managerial skills and talent, business knowledge and execution of UPS’s overall business strategy, and adherence to our values.

      In past years, annual incentive grants issued under the United Parcel Service, Inc. Incentive Compensation Plan’s management incentive award program were made in shares of class A common stock. In 2005, we amended the management incentive award program to provide that one-half of the grant be made in cash and one-half of the grant be made in restricted stock units that vest over five years, as described further under “Long-term incentives” below. The level of participation for the Chief Executive Officer and other executive officers is the same as for approximately 11,000 participating employees at or above the center manager level. Over the past five years, the grants to the top five executives have totaled less than 5 percent of the grants issued to all employees.

      The long-term incentive component of UPS’s executive compensation program comprises three elements: stock option grants, restricted performance units and restricted stock units. Stock options are issued to eligible employees, including senior leaders, once a year. These options are issued at fair market value on the date of grant, vest five years from the date of grant and expire ten years from the date of grant.

      Beginning in 2003, employees in key leadership positions were also entitled to receive awards of restricted performance units. Restricted performance units are bookkeeping units, and the value of each unit corresponds to one share of UPS common stock. Restricted performance units vest on the fifth anniversary date of their grant if the grantee remains an employee or director of UPS or one of its subsidiaries. In addition, the restricted performance units will vest if the grantee’s employment terminates by reason of death, disability or retirement. The awards are eligible for dividend equivalents, which are deemed to be automatically reinvested into additional restricted performance units. At the end of the five-year restriction period, the number of restricted performance units granted to each individual can increase by 10 percent if certain Company performance measures are attained. Upon vesting of restricted performance units, the individual receives distribution in the form of shares of UPS class A common stock.

      In 2005, pursuant to an amendment to our management incentive award program, employees in key leadership positions were entitled to receive awards of restricted stock units. Restricted stock units are bookkeeping units, with the value of each unit corresponding to one share of UPS common stock. Restricted stock units vest in twenty percent increments on each October 15th if the grantee remains an employee of UPS or one of its subsidiaries. In addition, the restricted stock units will vest if the grantee’s employment terminates by reason of death, disability or retirement. The awards are eligible for dividend equivalents, which are deemed to be automatically reinvested into additional restricted stock units. At the end of each annual vesting period, the individual receives shares of UPS class A common stock.

      For 2006, the Committee has adopted a long-term incentive award program under the United Parcel Service, Inc. Incentive Compensation Plan. Under the program, restricted stock units representing shares of class A common stock were awarded to executive officers, officers and certain other eligible managers. Target restricted stock unit award grants range from 50%-250% of annual salary. For executive officers, the range is from 225% to 250% of annual salary.

      The award, if earned, will vest on January 31, 2009, provided the participant has been continuously employed through the vesting date. Special vesting rules apply to terminations by reason of death, disability or retirement. A participant’s earned restricted stock units account will be adjusted quarterly for dividends paid on UPS class A common stock. The restricted stock unit awards that vest will be distributed in the form of UPS class A shares.

      To remain competitive in the market, UPS also provides certain benefits to its executive officers, including the CEO, such as matching contributions to the UPS Qualified Stock Ownership Plan that are paid in shares of class A common stock, life insurance premiums paid by UPS on behalf of these executive officers, the Discounted Employee Stock Purchase Plan, and financial counseling services. For additional information on these benefits made available during fiscal 2005, please see the summary compensation table under the section “Compensation of Executive Officers and Directors” beginning on page 16. Overall, these benefits represent less than 2 percent of the senior executives’ compensation for the year.

Review of CEO Compensation

      The performance of each executive officer, including the CEO, is reviewed by the Committee on an annual basis. In regards to the CEO, the Committee is responsible for reviewing the achievement of individual goals and objectives, evaluating the CEO’s performance, and setting CEO compensation based on this evaluation. The Committee uses specified criteria to help assess the performance of the CEO in addition to the financial results of the Company and performance against his annual objectives. Among other things, the Committee evaluates his strategic vision and leadership, UPS’s business and operational results, his ability to make long-term decisions that create competitive advantage and position UPS as the premier enabler of global commerce, and his overall effectiveness as a leader and role model.

      Fiscal 2005 was a year of outstanding progress and strong accomplishments across a number of critical areas for UPS. Under Mike Eskew’s leadership, UPS made strategic acquisitions to grow our Supply Chain and Freight businesses; experienced strong growth in global markets, and achieved significant business and financial results.

      Mike’s strong strategic vision for the Company provides a clear path to the future for all UPSers. The Committee did not assign particular weights to these factors.

      The Committee recommended and the board approved a base salary increase during 2005 for Mike Eskew of $48,000 or approximately 5.3 percent of salary. The average increase provided to other senior executives was 7 percent.

      The Committee approved, and recommended that the board approve, a 5 percent base salary increase during 2006 for Mike Eskew that reflected Mike’s performance, strategic vision and leadership, UPS’s business and operational results, and Mike’s ability to maintain UPS’s position as the premier enabler of global commerce.

      Additionally, Mike received an option to purchase 34,993 shares of class A common stock on May 9, 2005 at an exercise price of $72.07 a share, the fair market value of UPS stock on the date of grant. Like the option grants provided to other employees, his options will vest after five years and have a ten-year term. Mike was also awarded a grant of 14,226 restricted performance units which will vest on May 9, 2010 and 3,147 restricted stock units which will vest at 20 percent per year for five years, completing vesting on October 15, 2010, as shown in the summary compensation table beginning on page 16 and more fully described on page 14 under the caption “Additional Ownership”.

Section 162(m) of the Internal Revenue Code

      Section 162(m) of the Internal Revenue Code makes compensation paid to certain executives in amounts in excess of $1 million not deductible unless the compensation is paid under a predetermined objective performance plan meeting certain requirements, or satisfies one of various other exemptions. The Committee has not adopted a policy that all compensation be deductible under Section 162(m) in order to preserve the Committee’s flexibility to compensate executive officers.

      The Committee, through benchmarking provided by the Company’s Human Resources group and independent advice from our outside consultants, has reviewed all components of our executive compensation programs, including benefits and perquisites. The Committee believes that our programs are reasonable and based on sound corporate governance principles. Additionally, we believe our programs foster a competitive total rewards package designed to promote our manager-owner concept which aligns with the long-term interests of our shareowners.

      In 2005, our non-employee directors received an annual retainer of $75,000, and committee chairs received an additional annual retainer of $10,000. Retainers are paid on a quarterly basis. Non-employee directors received an annual restricted stock grant of class A common stock in the amount of $85,000. In addition, upon joining the board, new non-employee directors received a restricted stock grant of class A common stock in the amount of $25,000. Directors are reimbursed for their expenses related to board membership. Non-employee directors will be compensated on the same basis in 2006.

      The following table shows the amounts paid to each director in 2005.

      Non-employee directors have the option of deferring some or all of the fees and/or retainer payable in connection with their services on our board. Deferred amounts track the performance of investments selected by each non-employee director, although no funds are set aside or invested. At the time a participating non-employee director ceases to be a director, the total value of the non-employee director’s account will be

payable to him or her, or his or her designated beneficiary, at his or her election, in a lump sum, or in payments over three, five, seven or ten years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      Stuart Eizenstat (beginning in August 2005), Gary MacDougal (until August 2005), Vic Pelson and John Thompson were members of the Compensation Committee of our board of directors during 2005. None of these directors are employees or former employees of UPS. None of the members of the Compensation Committee has any direct or indirect material interest in or relationship with us outside of his position as a non-employee director. None of our executive officers serves as a member of a board of directors or compensation committee of any entity that has one or more executive officers who serves on our board of directors or Compensation Committee.

SHAREOWNER RETURN PERFORMANCE GRAPH

      The following graph shows a five-year comparison, prepared in accordance with the rules of the Securities and Exchange Commission, of cumulative total shareowners’ returns for our common stock, the S&P 500 Index and the Dow Jones Transport Average. The comparison of the total cumulative return on investment, which is the change in the quarterly stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2000 in the S&P 500 Index, the Dow Jones Transport Average and the class B common stock of United Parcel Service, Inc.

REPORT OF THE AUDIT COMMITTEE

      The Audit Committee of our board of directors is responsible for, among other things, reviewing with Deloitte & Touche LLP, our independent registered public accountants, the scope and results of their audit engagement. In connection with the 2005 audit, the Audit Committee has:

      Based on the review and the discussions described in the preceding bullet points, the Audit Committee recommended to the board of directors that the audited financial statements and management’s report on internal controls over financial reporting be included in our Annual Report on Form 10-K for the year ended December 31, 2005 for filing with the Securities and Exchange Commission.

      The Audit Committee has adopted a charter and a process for pre-approving services to be provided by Deloitte & Touche.

      The members of the Audit Committee have been determined to be independent in accordance with the requirements of Section 303.01 (B)(2)(a) and (3) of the New York Stock Exchange listing standards.

RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTANTS

(Proposal No. 2)

      Our Audit Committee has appointed Deloitte & Touche LLP, independent registered public accountants, to audit our consolidated financial statements for the year ending December 31, 2006 and to prepare a report on this audit, subject to ratification by our shareowners. A representative of Deloitte & Touche will be present at the annual meeting of shareowners, will have the opportunity to make a statement and will be available to respond to appropriate questions by shareowners.

The board of directors recommends that shareowners vote FOR the ratification

of the appointment of Deloitte & Touche LLP as our independent registered public accountants.

Principal Accounting Firm Fees

      Aggregate fees billed to us for the fiscal years ended December 31, 2005 and 2004 by our independent registered public accountants, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates were:

      The Audit Committee has considered whether the provision of audit-related and other non-audit services by Deloitte & Touche is compatible with maintaining Deloitte & Touche’s independence.

      Our Audit Committee has established a policy requiring the pre-approval of all audit and non-audit services provided to us by Deloitte & Touche. The policy provides for pre-approval of audit, audit-related and tax services specifically described by the Audit Committee. The Audit Committee has delegated to its chair authority to pre-approve permitted services between the Committee’s regularly scheduled meetings, and the chair must report any pre-approval decisions to the Committee at its next scheduled meeting for review by the Committee. The policy prohibits the Audit Committee from delegating to management the Committee’s responsibility to pre-approve permitted services of our independent registered public accountants.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own beneficially more than 10% of either our class A or class B common stock to file reports of ownership and changes in ownership of such stock with the Securities and Exchange Commission. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file with the SEC. To our knowledge, each of our directors and executive officers complied during 2005 with all applicable Section 16(a) filing requirements except for Jim Kelly, who was late in reporting a sale and certain gifts of class B common stock due to administrative error.

EQUITY COMPENSATION PLANS

      The following table provides information as of December 31, 2005, concerning shares of our class A common stock authorized for issuance under our existing equity compensation plans.

SOLICITATION OF PROXIES

      We will pay our costs of soliciting proxies. Directors, officers and other employees may solicit proxies by mail, in person or by telephone. We will reimburse brokers, fiduciaries, custodians and other nominees for out-of-pocket expenses incurred in sending our proxy materials to, and obtaining instructions relating to the proxy materials from, beneficial owners.

HOUSEHOLDING

      In 2001, we adopted a procedure approved by the SEC called “householding.” Under this procedure, multiple shareowners who share the same last name and address and do not participate in electronic delivery will receive only one copy of the annual proxy materials, although each shareowner will receive his or her own proxy card. We have undertaken householding to reduce our printing costs and postage fees.

      If you wish to opt out of householding and continue to receive multiple copies of the proxy materials at the same address, you may do so at any time prior to thirty days before the mailing of proxy materials, which typically are mailed in March of each year, by notifying us in writing or by telephone at: UPS Investor Relations, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328, (404) 828-6059. You also may request additional copies of the proxy materials by notifying us in writing or by telephone at the same address or telephone number.

      If you share an address with another shareowner and currently are receiving multiple copies of the proxy materials, you may request householding by notifying us at the above-referenced address or telephone number.

OTHER BUSINESS

      Our board of directors is not aware of any business to be conducted at the annual meeting of shareowners other than the proposals described in this proxy statement. Should any other matter requiring a vote of the shareowners arise, the persons named in the accompanying proxy card will vote in accordance with their best judgment.

      Under our bylaws and SEC regulations, any shareowner proposals or director nominations for the 2007 annual meeting of shareowners must be received by our Corporate Secretary at 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328, no later than November 20, 2006 to be eligible for inclusion in the proxy statement for next year’s meeting.

      Pursuant to Rule 14a-4 under the Exchange Act, if a shareowner notifies us after February 3, 2007 of an intent to present a proposal at our 2007 annual meeting of shareowners, our proxy holders will have the right to exercise discretionary voting authority with respect to the proposal, without including information regarding the proposal in our proxy materials.

      A copy of our 2005 annual report on Form 10-K, including financial statements, as filed with the SEC, may be obtained without charge upon written request to: Corporate Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328. It is also available on our investor relations website at www.shareholder.com/ups.

Annex I

Excerpt from the UPS Corporate Governance Guidelines

Relating to Director Independence Standards

      An “independent” director is a director whom the Board has determined has no material relationship, other than as a director of the Company, with the Company or any of its consolidated subsidiaries, either directly, or as a partner, shareholder or officer of an organization that has a relationship with the Company. In addition, when determining whether a director is independent, the Board applies the categorical standards set forth below.

      Under no circumstances is a director independent if:

      An “immediate family” member includes a director’s spouse, parents, children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares the director’s home.