1. DESCRIPTION OF PLAN

The following description of the United Airlines Ground Employee 401(k) Plan (the "Plan") is for general information purposes only. Participants should refer to the Plan Document for more complete information.

General and Plan Participants -The Plan is a defined contribution plan covering all employees of United Air Lines, Inc. ("United" or the "Company") who are represented by the International Association of Machinists and Aerospace Workers ("IAM"). Effective June 30, 2001, the public contact employees moved from the Management and Administrative 401(k) Plan to the Plan. Employees are eligible to become participants on their date of hire. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").

Effective January 1, 2002, the name of the plan changed to United Airlines Ground Employee 401(k) Plan from the United Air Lines, Inc. Ground Employees' 401(k) Retirement Savings Plan.

Bankruptcy of Plan Sponsor - The accompanying financial statements have been prepared assuming that the Plan will continue as a going concern. On December 9, 2002, United Air Lines, Inc. (the "Plan Sponsor" or the "Debtor") filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division.

The Debtor continues to operate its business as a "debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders. In general, as a debtor-in-possession, the Debtor is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.

Should the Plan be terminated, the Plan would be liquidated subject to the terms of ERISA (see Note 5, Plan Termination). The Plan assets are not subject to creditor claims.

Contributions - Eligible employees may elect to contribute to the Plan, in multiples of 1%, any percentage of their covered pretax earnings, up to 30% (15% prior to April 1, 2002), subject to a maximum of $11,000 in 2002. Lower limits may apply to certain highly compensated participants if the Plan does not pass certain nondiscrimination tests required by law. Section 415(c) of the Internal Revenue Code limits the total amount of contributions from all qualified defined contribution retirement plans to the lesser of 100% of annual taxable earnings or $40,000. The Plan does not provide for Company contributions. Contributions refundable on the statement of net assets is related to contributions payable to participants that reached the Section 415(c) limit.

Contributions include $429,955 for the year ended December 31, 2002 which were transferred from other qualified plans as rollovers under the Internal Revenue Code Sections 402(c) and 408(d).

Participant Accounts - Individual accounts are maintained for each Plan participant. Each participant's account is credited with the participant's contribution and Plan earnings, and charged with withdrawals and an allocation of Plan losses and administrative expenses. Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.

Investments - Participants may elect to invest in one or a combination of the investment funds offered by the Plan. Additionally, they may subsequently change their contribution rate, redesignate the allocation of contributions or transfer existing balances among investment funds, subject to the limits set forth in the Plan. Investment options offered by the Plan during the year were Fidelity Magellan Fund; Fidelity Equity-Income Fund; Fidelity Growth Company Fund; Fidelity Government Securities Income Fund; Fidelity OTC Portfolio; Fidelity Overseas Fund; Fidelity Balanced Fund; Fidelity Asset Manager; Fidelity Asset Manager: Growth; Fidelity Asset Manager: Income; Fidelity Retirement Money Market Portfolio; Fidelity U.S. Bond Index Portfolio Fund; Fidelity U.S. Equity Index PortfolioCommingled Pool; and the Blended Income Fundand the UAL Stock Fund. These funds are managed by Fidelity or Fidelity Investments (manager of Fidelity Mutual Funds).

Until September 27, 2002, participants had the option to also invest in the UAL Stock Fund, which invested in UAL Corporation stock. Effective September 27, 2002, Aon Fiduciary Counselors, Inc. ("Aon") was appointed by United to act as a named fiduciary of the UAL Stock Fund. Effective December 5, 2002, assets of the UAL Stock Fund were frozen to incoming contributions and exchanges. Aon directed the sale of all units of the UAL Stock Fund, and at December 31, 2002, the balance shown in the UAL Stock Fund represents funds invested in money market funds.

Vesting - Participants are vested immediately in their contributions plus actual earnings thereon, and the balance of a participant's account is nonforfeitable at all times.

Participant Loans - Participants may borrow from their fund accounts up to a maximum of $50,000, or 50 percent of their account balance, whichever is less. The minimum that may be borrowed is $1,000. Loans are charged against each investment fund in the ratio of the value of the participant's interest in each fund to the total value of the participant's interest in all funds and are held in the Loan Fund. The loan is secured by the participant's account balance and is repaid through payroll deductions on an after-tax basis for the term of the loan, which is a minimum of six months to a maximum of sixty months and is subject to a reasonable rate of interest (interest rates ranged from 5.25% to 10.00% at December 31, 2002). Effective October 2, 2002, if the participant takes out a loan for the purchase of the participant's primary residence, the maximum term of the loan is 15 years. The amount repaid is reinvested in the participant's account based on the investment allocations at the time of repayment. Prepayment of the full balance of the loan is allowed after six months from the date of origination without penalty. Participants are able to take out another loan after 12 months from the date the old loan is retired. Effective September 2, 2002, participants may have up to 2 loans outstanding at one time. Upon the employee's termination of employment, a loan not paid in full within 60 days becomes a taxable distribution. Loans in default may be declared due and payable in full immediately, and the Plan administrator may charge the participant's account balances at any time thereafter for the amount of the default. An initial fee of $35 and a quarterly maintenance fee of $2.50 are charged to each participant taking a loan and are automatically deducted from the participant's account.

Payment of Benefits - Withdrawals from the Plan may be made as follows, as applicable to the participant's eligibility, amount requested and existing balances:
 

Generally, withdrawals are allocated pro rata to the balances of each of the investment funds in the participant's account. Distributions from UAL Stock Fund may be made in cash, or in whole shares of UAL Corporation common stock, with fractional shares distributed in cash

Trustee and Record Keeper - Fidelity Management Trust Company ("Fidelity") is the Plan trustee and Fidelity Institutional Retirement Services Company is the record keeper of the Plan.

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting - The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Going Concern - The accompanying financial statements have been prepared assuming that the Plan will continue as a going concern. On December 9, 2002, United, the Plan Sponsor, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code as described in Note 1.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates. The Plan utilizes various investment instruments, including mutual funds and investment contracts. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.

Investment Valuation and Income Recognition - The Plan's investments are held in the United Air Lines, Inc. 401(k) Plans Master Trust (the "Trust"), a master trust that was established for the investment of assets of the Plan and several other plans sponsored by United and administered by the Trustee.

The Trust's investments are stated at fair value except for the Blended Income Fund. The Blended Income Fund includes investment contracts and may also include other income-oriented investments. The contracts held by the Blended Income Fund are fully benefit responsive and, accordingly, have been included in the financial statements at contract value. The fair value of the investment contracts in the Trust at December 31, 2002 and 2001 were $605,670 and $531,011 (in thousands), respectively. The average yield for the year ended December 31, 2002 was approximately 5.69%. The crediting interest rate as of December 31, 2002 and 2001 was approximately 5.16% and 5.79%, respectively.

Quoted market prices are used to value investments. Shares of mutual funds are valued at the net asset value of shares held by the Trust at year-end.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Net Appreciation (Depreciation) in Value of Investments - Net appreciation (depreciation) in value of investments includes realized and unrealized gains and losses. Realized and unrealized gains and losses are calculated as the difference between fair value at January 1, or date of purchase if subsequent to January 1, and fair value at date of sale or the current year-end. The unrealized gain or loss on investments represents the Plan's allocable share of the difference between fair value at January 1, or date of purchase, and the fair value at the date of sale or the current year-end plus, where applicable, the change in the exchange rate between the U.S. dollar and the foreign currency in which the assets are denominated from January 1, or the date of purchase, to the date of sale or the current year-end.

Administrative Expenses - Administrative expenses, which are paid by the Plan, represent administrative and investment manager fees charged by Fidelity, accountant fees, and recordkeeping fees charged by Fidelity Institutional Retirement Services Co. Brokerage and other investment fees are included as a reduction of net appreciation (depreciation) in fair value for such investments. United performs certain reporting and supervisory functions for the Plan without charge.

Payment of Benefits - Benefit payments to participants are recorded upon distribution. There were no amounts allocated to accounts of persons who have elected to withdraw from the plan but had not yet been paid at December 31, 2002.

Transfers Between Plans - Transfers between plans reflect the change in employee coverage and transfer of any related balances between this Plan and other defined contribution plans sponsored by United, including the United Airlines Management and Administrative Employee 401(k) Plan and the United Airlines Flight Attendant 401(k) Plan.

3. INVESTMENT IN MASTER TRUST

Assets of the Plan are commingled with the assets of the participating United plans consisting of the Management and Administrative 401(k) Plan, the Ground Employee 401(k) Plan, the Flight Attendant 401(k) Plan, and the Mileage Plus Inc. Investment Plus Plan (for the Blended Income Fund). Although assets of the plans are commingled in the Trust, the Trustee maintains separate records for each of the plans.
 
 

Effective February 1, 2003, the UAL Stock Fund was eliminated as an investment option to participants.

Effective June 30, 2003, flight dispatchers will move from the Ground Employees 401(k) Plan to the Management and Administrative 401(k) Plan.