<PAGE>
--------------------------------------------------
--------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

 (Mark One)
    /X/                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                              THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
                                        OR
    / /               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                              THE SECURITIES EXCHANGE ACT OF 1934

                         For the transition period from
                                      to
                         COMMISSION FILE NUMBER 1-8607
                            ------------------------

                             BELLSOUTH CORPORATION

<TABLE>
<S>                                      <C>
               A GEORGIA                             I.R.S. EMPLOYER
              CORPORATION                            NO. 58-1533433
            1155 Peachtree Street, N.E., Atlanta, Georgia 30309-3610
                         Telephone number 404 249-2000
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                  NAME OF EACH EXCHANGE
          TITLE OF EACH CLASS                      ON WHICH REGISTERED
---------------------------------------  ---------------------------------------
             Common Stock                      New York, Boston, Chicago,
       (par value $1 per share)                 Pacific and Philadelphia
                  and                                Stock Exchanges
    Preferred Stock Purchase Rights

      9 1/4% Notes due 1/15/98 of                New York Stock Exchange
 BellSouth Capital Funding Corporation
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                     None.

    At February 1, 1996,  993,902,959 shares of Common Stock and Preferred Stock
Purchase Rights were outstanding.

    At  February 1, 1996, the aggregate market value of the voting stock held by
non-affiliates was $42,613,589,367.

    Indicate by check mark if disclosure  of delinquent filers pursuant to  Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of registrant's knowledge,  in definitive proxy  or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [  ]

    Indicate by check  mark whether  the registrant  (1) has  filed all  reports
required  to be filed by  Section 13 or 15(d) of  the Securities Exchange Act of
1934 during  the  preceding 12  months  (or for  such  shorter period  that  the
registrant  was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of  the registrant's  definitive proxy  statement dated  March  11,
1996,  issued in connection  with the 1996 annual  meeting of shareholders (Part
III).

--------------------------------------------------
--------------------------------------------------
<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
  ITEM                                                                                                             PAGE
---------                                                                                                        ---------
<C>        <S>                                                                                                   <C>
                                                          PART I
       1.  Business............................................................................................          1
           General.............................................................................................          1
           Modification of Final Judgment and Telecommunications Act of 1996...................................          1
           Business Operations.................................................................................          2
           Telephone Company Operations........................................................................          2
           Other Telecommunications Business Operations........................................................          8
           Competition.........................................................................................         11
           Research and Development............................................................................         15
           Licenses and Franchises.............................................................................         16
           Employees...........................................................................................         16
       2.  Properties..........................................................................................         17
           General.............................................................................................         17
           Capital Expenditures................................................................................         17
           Environmental Matters...............................................................................         18
       3.  Legal Proceedings...................................................................................         18
       4.  Submission of Matters to a Vote of Shareholders.....................................................         19
Additional Information -- Description of BellSouth Stock.......................................................         19
Executive Officers.............................................................................................         22
                                                         PART II
       5.  Market for Registrant's Common Equity and Related Stockholder Matters...............................         23
       6.  Selected Financial and Operating Data...............................................................         24
       7.  Management's Discussion and Analysis of Results of Operations and Financial Condition...............         25
           Results of Operations...............................................................................         25
           Volumes of Business.................................................................................         27
           Operating Revenues..................................................................................         28
           Operating Expenses..................................................................................         31
           Other Income Statement Items........................................................................         34
           Extraordinary Losses................................................................................         34
           Financial Condition.................................................................................         35
           Operating Environment and Trends of the Business....................................................         37
           Other Matters.......................................................................................         39
       8.  Consolidated Financial Statements and Supplementary Data............................................         40
           Report of Management................................................................................         40
           Audit Committee Chairman's Letter...................................................................         41
           Report of Independent Accountants...................................................................         42
           Consolidated Statements of Income...................................................................         43
           Consolidated Balance Sheets.........................................................................         44
           Consolidated Statements of Shareholders' Equity.....................................................         45
           Consolidated Statements of Cash Flows...............................................................         46
           Notes to Consolidated Financial Statements..........................................................         47
           Supplementary Data -- Domestic Cellular Proportionate Operating Data................................         68
       9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................         69
                                                         PART III
     *10.  Directors and Executive Officers of the Registrant..................................................         69
     *11.  Executive Compensation..............................................................................         69
     *12.  Security Ownership of Certain Beneficial Owners and Management......................................         69
     *13.  Certain Relationships and Related Transactions......................................................         69
                                                         PART IV
      14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................         69

Signatures.....................................................................................................         73
Consent of Independent Accountants.............................................................................         74
<FN>
------------------------
*Included in BellSouth Corporation's definitive proxy statement dated March 11,
1996 and incorporated herein by reference.
</TABLE>
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

                                    GENERAL

    BellSouth   Corporation   (BellSouth)   is  a   holding   company  providing
telecommunications services and communications systems and products through  two
wholly-owned   subsidiaries,   BellSouth  Telecommunications,   Inc.  (BellSouth
Telecommunications) and  BellSouth  Enterprises, Inc.  (BellSouth  Enterprises).
BellSouth    Telecommunications   provides   predominantly   tariffed   wireline
telecommunications services to  approximately two-thirds of  the population  and
one-half of the territory within Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi,  North Carolina,  South Carolina  and Tennessee.  BellSouth's other
businesses (primarily  wireless and  international communications  services  and
advertising  and  publishing  products) are  conducted  through  subsidiaries of
BellSouth Enterprises.

    BellSouth was incorporated in 1983 under  the laws of the State of  Georgia.
On December 31, 1983, pursuant to a consent decree approved by the United States
District  Court for the District of Columbia (the D. C. District Court) entitled
"Modification of Final Judgment" (the MFJ) settling antitrust litigation brought
by the United States Department of Justice (the Justice Department) in 1974  and
the  related Plan of  Reorganization, American Telephone  and Telegraph Company,
now AT&T Corp.  (AT&T), transferred  to BellSouth  its 100%  ownership of  South
Central  Bell Telephone Company (South Central Bell) and Southern Bell Telephone
and Telegraph  Company  (Southern  Bell).  On  January  1,  1984,  ownership  of
BellSouth was divested from AT&T and BellSouth became a publicly traded company.
BellSouth  Telecommunications is  the surviving  corporation from  the merger of
South Central Bell  and Southern  Bell, effective  at midnight  on December  31,
1991.  While  BellSouth  Telecommunications  continues to  use  the  names South
Central Bell and Southern Bell for  various purposes, its services were  unified
under   the   BellSouth  brand   name  in   October   1995  to   give  BellSouth
Telecommunications a clear, consistent identity in the marketplace.

    BellSouth has  its principal  executive offices  at 1155  Peachtree  Street,
N.E., Atlanta, Georgia 30309-3610 (telephone number 404-249-2000).

       MODIFICATION OF FINAL JUDGMENT AND TELECOMMUNICATIONS ACT OF 1996

    Pursuant  to the MFJ, AT&T divested  the 22 wholly-owned operating telephone
companies, including South Central  Bell and Southern  Bell, that were  formerly
part  of the Bell System. The ownership of such 22 operating telephone companies
was transferred  by AT&T  to seven  holding companies  (the Holding  Companies),
including  BellSouth. All territory  in the continental  United States served by
the operating telephone  companies was  divided into  geographical areas  termed
"Local  Access and Transport Areas" (LATAs).  These LATAs are generally centered
on a city or other identifiable community of interest.

    The MFJ limited the telecommunications-related scope of the post-divestiture
business activities of  the operating telephone  companies and their  successors
(the  Operating  Telephone Companies),  and the  D.  C. District  Court retained
jurisdiction over construction, implementation, modification and enforcement  of
the  MFJ*. Under the MFJ, the  Operating Telephone Companies could provide local
exchange,  exchange  access,  information  access  and  toll  telecommunications
services  within the LATAs.  Although prohibited from  providing service between
LATAs, the Operating Telephone Companies provided exchange access services  that
linked  a subscriber's telephone or other equipment in one of their LATAs to the
transmission facilities of carriers (the Interexchange Carriers), which provided
toll  telecommunications  services  between   different  LATAs.  The   Operating
Telephone   Companies   could   market,   but   not   design   or   manufacture,
telecommunications equipment used by  customers to originate  or receive, or  by
carriers   to   provide,   telecommunications   services.   The   MFJ   required

------------------------
*The provisions of the MFJ were also applicable to the Holding Companies.

                                       1
<PAGE>
that the Operating Telephone Companies provide, upon a bona fide request by  any
Interexchange   Carrier  or  information   service  provider,  exchange  access,
information access and exchange services for such access equal to that  provided
to AT&T in quality, type and price.

    On  February 8, 1996,  the President signed  into law the Telecommunications
Act of 1996  (the 1996 Act).  This legislation provides  for the development  of
competitive  local telecommunications markets; terminates on a prospective basis
the MFJ,  enabling  the  provision  by  the  Operating  Telephone  Companies  of
interLATA  telecommunications and  the design  and manufacture  by the Operating
Telephone Companies  of  telecommunications  equipment;  and  repeals  the  laws
prohibiting   the  Operating  Telephone  Companies  and  their  affiliates  from
providing video  services  within  their  service  areas.  The  ability  of  the
Operating  Telephone Companies to enter businesses previously proscribed to them
by the  MFJ  is,  however,  generally  subject  to  numerous  criteria  and  the
development of and compliance with newly mandated federal regulations.

                              BUSINESS OPERATIONS

    Approximately  70%, 72%  and 73% of  BellSouth's operating  revenues for the
years ended December 31, 1995, 1994  and 1993, respectively, were from  wireline
telecommunications   services  provided  by  BellSouth  Telecommunications.  The
remainder  was   principally  derived   from  wireless   operations,   directory
advertising  and  publishing,  billing  and  collection  and  other nonregulated
services. (See "Other  Telecommunications Business  Operations.") Revenues  from
services provided to AT&T, BellSouth's largest customer, comprised approximately
10%, 11% and 14% of 1995, 1994 and 1993 operating revenues, respectively.

                          TELEPHONE COMPANY OPERATIONS

    BellSouth   Telecommunications  provides,   predominantly,  local  exchange,
exchange access and intraLATA toll services within  each of the 38 LATAs in  its
combined   nine-state  wireline  operating  area.  BellSouth  Telecommunications
provided approximately 21,133,000 customer access lines at December 31, 1995, an
overall increase of  4.5% since December  31, 1994. The  increase was  primarily
attributable  to  continued  economic  growth  in  BellSouth Telecommunications'
nine-state service  region,  including  an  increase in  the  number  of  second
residential   lines.   Growth  in   second   residential  lines   accounted  for
approximately 48.0% and 24.1% of the overall increase in residence access  lines
and   total  access   lines,  respectively,   since  December   31,  1994.  (See
"Management's Discussion and  Analysis of  Results of  Operations and  Financial
Condition -- Volumes of Business.")

    At  December  31,  1995,  approximately  75%  of  access  lines  were  in 47
metropolitan areas, each having a population of 125,000 or more. Many localities
and some  sizable areas  in  the states  in which  BellSouth  Telecommunications
operates   are  served   by  non-affiliated   telephone  companies,   which  had
approximately 29% of  the network access  lines in such  states on December  31,
1995.  BellSouth Telecommunications does  not furnish local  exchange, access or
toll services in the areas served by such companies.

LOCAL AND TOLL SERVICES

    Charges for local services  for each of the  years ended December 31,  1995,
1994 and 1993 accounted for approximately 41% of BellSouth's operating revenues.
Local  services  operations provide  lines  from telephone  exchange  offices to
subscribers' premises for the origination and termination of telecommunications,
including the  following: basic  local telephone  service provided  through  the
regular  switching  network; dedicated  private  line facilities  for  voice and
special services,  such as  transport  of data,  radio  and video,  and  foreign
exchange  services;  switching services  for customers'  internal communications
through facilities  owned by  BellSouth  Telecommunications; services  for  data
transport  that include managing  and configuring special  service networks; and
dedicated low or high capacity public  or private digital networks. Other  local
services  revenue  is derived  from intercept  and directory  assistance, public
telephones and various secondary central office features.

                                       2
<PAGE>
    Secondary  central  office  features  may   be  purchased  by  access   line
subscribers  for a  charge in  addition to the  basic monthly  fee. They include
Custom Calling service (including Call  Waiting, 3-Way Calling, Call  Forwarding
and  Speed Dialing services)  and Touchtone service.  During 1995, revenues from
secondary central office features comprised  approximately 17% of local  service
revenues.

    In    addition   to    secondary   central    office   features,   BellSouth
Telecommunications  offers  certain  enhanced  services  through  its   network.
Enhanced  services  differ  from  basic services  and  secondary  central office
features in  that they  employ  computer processing  applications to  alter  the
subscriber's   transmitted  information;  provide   the  subscriber  additional,
different or restructured  information; or involve  subscriber interaction  with
stored  information. The terms  of enhanced service  offerings are not regulated
under the rules  of the  Federal Communications  Commission (FCC),  but the  FCC
prescribes  the  method by  which such  services may  be provided  (for example,
through structurally separated subsidiaries or arrangements providing access  to
competitive  providers).  Such  offerings include  voice  messaging  and storage
services, such as MemoryCall-Registered Trademark- voice messaging service.

    BellSouth Telecommunications provides  intraLATA toll  services within  (but
not  between) its 38 LATAs. Such toll services provided approximately 6%, 7% and
8% of BellSouth's operating revenues for the years ended December 31, 1995, 1994
and 1993, respectively. These services include the following: intraLATA  service
beyond the local calling area; Wide Area Telecommunications Service (WATS or 800
services)  for customers with highly  concentrated demand; and special services,
such as transport of data, radio and video.

REGULATION OF LOCAL AND TOLL SERVICES

    BellSouth Telecommunications is subject  to state regulatory authorities  in
each  state  in which  it provides  intrastate telecommunications  services with
respect  to  rates,   services  and  other   issues.  Traditionally,   BellSouth
Telecommunications'  rates were set in each state in its service areas at levels
which were  anticipated to  generate revenues  sufficient to  cover its  allowed
expenses  and to  provide an opportunity  to earn a  fair rate of  return on its
capital investment.  Such a  regulatory  structure was  satisfactory in  a  less
competitive  era; however, the regulatory processes  have changed in response to
the increasingly competitive telecommunications environment.

    Under one form of alternative  regulation, economic incentives are  provided
to  lower costs and increase productivity  through the potential availability of
"shared" earnings over a benchmark rate of return. Generally, when levels  above
targeted returns are reached, earnings are "shared" by providing refunds or rate
reductions to customers.

    Another alternative form of regulation, generally known as price regulation,
establishes  maximum prices that  can be charged  for certain telecommunications
services. While  such  a plan  limits  the amount  of  increases in  prices  for
specified  services,  it enhances  the company's  ability  to adjust  prices and
service options to more  effectively respond to  changing market conditions  and
competition and enables it to more fully benefit from productivity enhancements.
For  these reasons, BellSouth Telecommunications  is focusing its regulatory and
legislative efforts  on  establishing price  regulation.  Such plans  have  been
approved  or authorized  by the  requisite legislative  or regulatory  bodies in
Alabama, Florida (although a sharing requirement exists at least through  1996),
Georgia,  Kentucky, Mississippi, South Carolina and Tennessee, and approval of a
plan is  pending in  North Carolina.  BellSouth Telecommunications  has filed  a
proposed price regulation plan in Louisiana.

    Despite  the potential advantages offered to BellSouth Telecommunications by
sharing and price regulation plans  over traditional rate of return  regulation,
in  some  cases rate  reductions  have been  required  in connection  with their
adoption and operation.

                                       3
<PAGE>
ALABAMA

    An incentive regulation  plan in  effect in  Alabama from  December 1988  to
September  1995 provided for a return on  average total capital* in the range of
11.65% to 12.30%.

    In response to a law enacted  in 1995 permitting the Alabama Public  Service
Commission  to authorize alternative methods of regulation that are not based on
rate of return for  local exchange carriers, the  Alabama Commission approved  a
price  regulation plan,  effective September 1995.  Under this  plan, prices for
basic services, including  local exchange  services for  residence and  business
customers,  are capped  for five years,  after which  an inflation-based formula
will be used to change prices; prices for non-basic services are capped for  one
year,  after which  aggregate price increases  are limited to  10% annually; and
intrastate switched access charges are reduced below interstate switched  access
rates.  Additional  terms  of the  price  regulation plan  require  annual price
reductions aggregating $57  million through 1999  excluding intrastate  switched
access   reductions.  Reductions  related  to  intrastate  switched  access  are
estimated to be $25 million.

FLORIDA

    From 1988 through 1992, the Florida incentive regulation plan provided for a
return on equity* of  11.5% to 16%,  with earnings above 14%  to be shared  with
customers   through  rate  reductions.  In  1994,  the  Florida  Public  Service
Commission extended  the  plan  through  1997,  with  required  rate  reductions
aggregating  approximately $300 million over  a three-year period. Basic service
rates will be capped at their current levels through 1997.

    The plan  provides for  a return  on equity  sharing level  of 12%  with  an
after-sharing  cap of 14% for 1994, increasing  in 1995 to a 12.5% sharing level
with an after-sharing cap of 14.5%. Rates of return beyond 1995 will vary  based
upon  changes in  utility bond  yields but  would change  no more  than 75 basis
points from 1995 levels.

    In 1995, a law was enacted which allows qualified service providers to elect
price regulation.  Under  price regulation,  prices  for basic  services,  which
include  flat-rate residential and single-line business local exchange services,
will be capped for  five years, after which  an inflation-based formula will  be
used  to change  basic rates. Prices  for certain  non-basic services, including
multi-line business service,  will be  capped for three  years at  the rates  in
effect  in  July  1995; prices  for  other  non-basic services  may  be adjusted
annually subject to  defined limitations. The  price regulation provisions  also
provide that intrastate switched access rates will decrease by 5% annually until
such  rates are  at parity  with interstate  switched access  rates effective in
1994. In  November 1995,  BellSouth Telecommunications  filed with  the  Florida
Commission  an election for price regulation,  which became effective in January
1996.

    Although BellSouth  Telecommunications is  currently operating  under  price
regulation,  it must  comply with the  sharing provisions of  the incentive plan
described above through 1997. However, BellSouth Telecommunications can  request
the  plan be  modified to eliminate  the sharing  requirement, effective January
1997, if there are material changes in the industry.

GEORGIA

    A Georgia  incentive regulation  plan was  adopted in  1990, providing  that
BellSouth  Telecommunications would  retain all earnings  up to a  14% return on
equity*. Subject  to  the  attainment  of  service  standards  and  productivity
improvement  provisions, BellSouth Telecommunications could  retain a portion of
earnings between 14%  and 16%.  Effective in  January 1994,  the Georgia  Public
Service  Commission extended the plan for six  months and modified the return on
equity level at which sharing would occur  from 14% to 13%. In August 1994,  the
Georgia  Commission changed the sharing range  to 13.5%-15.5%. In June 1995, the
Georgia Commission ordered refunds of $9 million and rate reductions aggregating
$33 million on an annual basis.

    In April  1995, a  law was  enacted which,  effective in  July 1995,  allows
BellSouth  Telecommunications to elect the price regulation plan as described in
the legislation. In  July 1995, BellSouth  Telecommunications filed an  election
for  alternative regulation  with the  Georgia Commission;  such election became
effective in August  1995. Following implementation  of alternative  regulation,
basic

------------------------
*As defined in the plan for this state.

                                       4
<PAGE>
residence  and single-line business rates are capped for five years, after which
an inflation-based formula will  be used to change  rates. Rates for  intrastate
switched access services will be no higher than the rates charged for interstate
switched access services.

    The Georgia Commission approved an approximate $10 million rate reduction in
intrastate   switched   access  to   be  effective   in  July   1996.  BellSouth
Telecommunications plans to offset this reduction by increasing rates for  other
services.

KENTUCKY

    Effective  in  May  1991,  under  the  Kentucky  incentive  regulation plan,
BellSouth Telecommunications was authorized  to earn a  return on average  total
capital*  in the range  of 10.99% to  11.61% with sharing  of earnings exceeding
that range. BellSouth Telecommunications achieved the sharing level during  1993
and 1994.

    In  July  1995,  the Kentucky  Public  Service Commission  approved  a price
regulation  plan.  In  connection  with  approval  of  the  plan,  the  Kentucky
Commission  ordered reductions  in rates  aggregating $29  million on  an annual
basis.

    Under the plan, after giving effect to the rate reductions discussed  above,
basic   residential  rates   are  capped  for   three  years,   after  which  an
inflation-based formula will be used to change rates, intrastate switched access
rates are limited to rates in  effect for interstate switched access and  prices
for services deemed competitive under the plan will be market based.

LOUISIANA

    In  February 1992, in settlement of several years of regulatory and judicial
proceedings, BellSouth  Telecommunications  and  the  Louisiana  Public  Service
Commission  agreed to a three-year incentive regulation plan providing for a $55
million refund and a  rate reduction of  $31 million on an  annual basis and  an
authorized return on investment* in the range of 10.7% to 11.7%, with sharing of
earnings  above 11.7%.  Through 1995,  BellSouth Telecommunications  has reduced
rates by an aggregate  of $38 million, reflecting  its sharing obligation  under
the plan.

    Effective  February 1995,  the Louisiana  Commission extended  the incentive
regulation plan, reducing  the authorized return  on investment* to  a range  of
9.98% to 10.98% with sharing of earnings between 10.98% and 11.98%.

    In   April  1995,  BellSouth  Telecommunications   filed  a  proposed  price
regulation plan with the  Louisiana Commission. The  plan proposes a  three-year
cap  on residence  and business basic  local exchange services  after which rate
changes would be based on an inflation-based formula. Intrastate switched access
would also be  capped for  three years. Non-basic  service prices  would be  set
based  on market factors.  The Louisiana Commission staff  has issued a proposed
rule on  price  regulation.  In  addition to  an  inflation-based  formula,  the
Commission's proposal includes an earnings-based sharing formula.

MISSISSIPPI

    In   June  1990,  the  Mississippi   Public  Service  Commission  authorized
implementation of an incentive regulation plan with sharing of earnings  falling
outside  a return  on average  net investment* range  of 10.74%  to 11.74%. Rate
reductions totaling  $23 million  on  an annual  basis  were required  prior  to
implementation of the plan.

    Additional  rate reductions of approximately $12  million on an annual basis
related to intrastate access and area  calling plan impacts became effective  in
January  1993. In  June 1993, the  Mississippi Commission  renewed the incentive
plan for two  years and  ordered BellSouth Telecommunications  to reduce  rates,
based on a targeted 11.24% return.

    In  November  1995, the  Mississippi Commission  approved a  five-year price
regulation plan,  effective  in January  1996.  Reviews  of this  plan  will  be
conducted  by the Mississippi Commission after three years. Under the provisions
of the plan,  rates for  basic services, which  include the  provision of  local
telephone  service, are  capped for three  years after which  such basic service
revenues will be

------------------------
*As defined in the plan for this state.

                                       5
<PAGE>
reduced annually by  1% for the  duration of the  plan. In addition,  intrastate
switched  access rates are capped at the same level as interstate rates over the
life of the plan.  The terms of  the plan provide for  rate reductions over  the
life of the plan which total approximately $34 million on an annual basis.

NORTH CAROLINA

    In April 1995, a law was enacted that allows BellSouth Telecommunications to
elect  to operate under a  price regulation plan, which  must be approved by the
North   Carolina   Utilities    Commission.   In    October   1995,    BellSouth
Telecommunications  filed with  the North  Carolina Commission  a proposed price
regulation plan.  A modified  plan has  been negotiated  and stipulated  between
BellSouth  Telecommunications  and  the  Public  Staff  of  the  North  Carolina
Commission. The North Carolina  Commission has held  hearings on the  stipulated
plan and a decision is expected by the Spring of 1996.

SOUTH CAROLINA

    Prior  to  1996, BellSouth  Telecommunications'  rates were  regulated  on a
traditional rate of return  basis. In December 1994,  the South Carolina  Public
Service Commission issued an order requiring that rates be reduced prospectively
by  approximately  $26 million  on an  annual basis  and with  no change  in the
previously authorized return on  equity of 13%. Based  upon an investigation  by
the  South Carolina  Commission of BellSouth  Telecommunications' 1992 earnings,
refunds of approximately $29 million were ordered. BellSouth  Telecommunications
has  appealed  this  order.  As  a result  of  the  South  Carolina Commission's
investigation of BellSouth Telecommunications' 1994 earnings, rate reductions of
approximately $42 million  on an annual  basis were ordered  and the  authorized
return on equity was set at 12.75%.

    In  January 1996, the South Carolina  Commission approved a price regulation
plan which includes provisions that basic local exchange residence and  business
service  rates will not  increase for five years  after which an inflation-based
formula   will    be    used    to    change    rates.    Intrastate    switched
access  rates  will be  capped for  three years  after which  an inflation-based
formula will be used to change rates. The rates for non-basic services would  be
set by BellSouth Telecommunications based on market considerations, with defined
limitations on price increases.

TENNESSEE

    In   August  1993,  the  Tennessee  Public  Service  Commission  approved  a
three-year revised incentive regulation plan which lowered the sharing range  as
a   percentage   return  on   average  net   investment*  from   11.0%-12.2%  to
10.65%-11.85%.

    In June 1995, a law was enacted which allows qualified service providers  to
elect  price regulation.  BellSouth Telecommunications  elected price regulation
under which the rates for basic services are to be capped for four years,  after
which  an inflation-based formula is to be used to change the basic rates. Rates
for services  other  than  basic  services  are  to  be  adjusted  based  on  an
inflation-based formula.

    In   order  to  implement  the  price  regulation  election,  the  Tennessee
Commission  has  required  BellSouth  Telecommunications  to  reduce  rates   by
approximately  $56  million  on  an  annual basis.  Price  regulation  is  to be
effective concurrent with rate reductions  in March 1996, subject to  compliance
with  a number of other preconditions. BellSouth Telecommunications has appealed
the rate reduction.

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

    In addition to the above matters, BellSouth Telecommunications is a party to
numerous proceedings pending before state regulatory bodies which involve, among
other  things,  terms   and  conditions  of   services  provided  by   BellSouth
Telecommunications,  rates  charged  for such  services  and  relationships with
competitive service providers and  affiliates. No assurance can  be given as  to
the outcome of any such matters.

------------------------
* As defined in the plan for this state.

                                       6
<PAGE>
ACCESS SERVICES

    BellSouth  Telecommunications  provides  access services  by  connecting the
communications  networks  of  Interexchange  Carriers  with  the  equipment  and
facilities  of  subscribers. These  connections  are provided  by  linking these
carriers and  subscribers  through  the public  switched  network  of  BellSouth
Telecommunications  or through  dedicated private  lines furnished  by BellSouth
Telecommunications. Rates and  other aspects of  interstate access services  are
regulated  by the FCC,  and state regulatory  commissions have jurisdiction over
the provision of  access to  the Interexchange Carriers  to complete  intrastate
telecommunications.

    Access  charges,  which  are  payable  both  by  Interexchange  Carriers and
subscribers, provided approximately  23%, 24% and  24% of BellSouth's  operating
revenues  for the  years ended December  31, 1995, 1994  and 1993, respectively.
These charges are  designed to  recover the costs  of the  common and  dedicated
facilities  and switching  equipment used  to connect  networks of Interexchange
Carriers with the telephone company's local network. In addition, an  interstate
subscriber line access charge of $3.50 per line per month applies to single-line
business  and residential customers. The interstate subscriber access charge for
multi-line business customers varies by state  but cannot exceed $6.00 per  line
per month. The state commissions have authorized BellSouth Telecommunications to
collect  from the Interexchange Carriers and,  in several states, from customers
charges for providing intrastate access services.

    In October 1990, the  FCC authorized an alternative  to traditional rate  of
return  regulation called "price caps," which became mandatory for certain local
exchange carriers (LECs), including BellSouth Telecommunications. In contrast to
traditional rate  of return  regulation,  a price  cap  plan limits  the  prices
telephone  companies can  charge for their  services. The price  cap plan limits
aggregate  price  changes  to  the  rate  of  inflation  minus  an  LEC-selected
productivity offset, plus or minus exogenous cost changes recognized by the FCC.
Price  cap  regulation  provides  LECs  with  enhanced  incentives  to  increase
productivity and  efficiency. To  the  extent an  LEC's  actual rate  of  return
exceeds the allowed rate of return, a portion of such excess must be shared with
customers through prospective rate reductions.

    In  February 1994, the FCC  initiated its review of  the price cap plan. The
FCC identified  three  broad sets  of  issues for  examination  including  those
related  to the basic goals of price cap regulation, the operation of price caps
and the transition of local exchange services to a fully competitive market.  In
connection  with this review,  in March 1995,  the FCC adopted  an interim plan,
which became effective in August 1995. This plan established three  productivity
factor  options, which are offsets to the inflation-based increase in rates that
LECs are permitted  to make each  year. Similar to  the above plan,  two of  the
productivity  options  in  the  interim plan,  4.0%  and  4.7%,  provide defined
earnings limitations with  a sharing mechanism.  A third option  in the  interim
plan, 5.3%, removes both earnings limitations and sharing requirements.

    Consistent   with  a  pricing  strategy  that  BellSouth  Telecommunications
considered compatible with an increasingly competitive business environment,  it
selected  a 5.3%  productivity factor,  which, together  with other adjustments,
would decrease interstate access  revenues by approximately  $220 million on  an
annual  basis at 1994  access volume levels. BellSouth  continues to believe and
advocates that  a  revised  price  cap plan  should  be  structured  to  provide
increased  pricing  flexibility  for  services  as  competition  evolves  in the
telecommunications markets and that sharing be eliminated from the plan.

    The FCC is expected to consider further  the interim rules as well as  other
issues   related  to  competition,  streamlined  regulation  and  other  matters
contained in the 1996 Act. A final order is expected to be issued in 1996.

    In addition to the above matters, BellSouth Telecommunications is a party to
numerous proceedings pending before the  FCC which involve, among other  things,
terms and conditions of services provided by BellSouth Telecommunications, rates
charged for such services and relationships with affiliates. No assurance can be
given as to the outcome of any such matters.

                                       7
<PAGE>
BILLING AND COLLECTION SERVICES

    BellSouth Telecommunications provides, under contract and/or tariff, billing
and  collection services for certain long  distance services of AT&T and several
other Interexchange Carriers. The agreement  with AT&T extends through the  year
2000,  subject to the right of AT&T to assume billing and collection for certain
of its services  prior to the  expiration of the  agreement. Revenues from  such
services have been decreasing and this trend is expected to continue as AT&T and
other  carriers assume  more direct  billing for  their own  services. BellSouth
Enterprises also provides  limited billing  and collection  services in  foreign
countries.

OPERATOR SERVICES

    Directory  assistance and local  and toll operator  services are provided by
BellSouth Telecommunications  in  its  service  areas.  Toll  operator  services
include  alternate  billing arrangements,  such as  collect calls,  third number
billing, person-to-person  and calling  card calls;  dialing instructions;  pre-
billed  credit;  and  rate  information. In  addition,  directory  assistance is
provided for  some Interexchange  Carriers which  do not  directly provide  such
services for their own customers.

                  OTHER TELECOMMUNICATIONS BUSINESS OPERATIONS

DIRECTORY ADVERTISING AND PUBLISHING

    BellSouth  Enterprises owns  a group of  companies which  publish, print and
sell advertising in, and perform  related services concerning, alphabetical  and
classified  telephone directories. Directory advertising and publishing revenues
represented approximately 9% of BellSouth's total operating revenues for each of
the last  three  years. Two  of  BellSouth's directory  companies  also  provide
publishing  and  related products  and services  to other  directory publishers.
During 1995, such  BellSouth companies published  approximately 470  directories
for   BellSouth  Telecommunications   and  contracted   with  approximately  160
nonaffiliated companies to sell advertising space in approximately 450 of  their
publications.

WIRELESS COMMUNICATIONS

    BellSouth  Enterprises provides wireless communications services, which have
consisted mainly  of  cellular  telephone and  paging  services.  Revenues  from
wireless  communications comprised approximately 14%, 12% and 10% of BellSouth's
total operating revenues for the years  ended December 31, 1995, 1994 and  1993,
respectively.  In addition, BellSouth Enterprises has a noncontrolling financial
interest in a number of wireless businesses whose revenues are not reflected  in
operating  revenues  because  of  the method  of  accounting  required  for such
investments.

    DOMESTIC CELLULAR OPERATIONS

    The predominant part of the  wireless communications business operations  is
cellular  telephone service. Cellular radio  telephone systems provide customers
with high-quality  and readily  available two-way  communications services  that
interconnect with the local and long distance telephone networks. Under the MFJ,
BellSouth  and  the  other  Holding  Companies  generally  were  prohibited from
providing  interLATA   wireless  communications.   The  1996   Act  lifts   this
prohibition,   and  BellSouth  has  begun   providing  such  interLATA  wireless
communications in conjunction  with its  cellular offerings. In  areas where  it
does  not have long distance telephone  facilities, BellSouth links its cellular
communications through the networks of the Interexchange Carriers.

    The  domestic  cellular   telephone  business  has   become  a   significant
contributor  to BellSouth's operations, primarily due to the continued expansion
of the  customer base  for mobile  communications services  and as  a result  of
significant  acquisitions  of other  systems.  BellSouth maintains  and operates
cellular systems  through wholly-owned  subsidiaries and  business  arrangements
with  other entities.  Cellular service  and related  equipment are  marketed to
consumers, directly and through authorized agents, and to businesses that resell
the service. The 1996  Act allows BellSouth and  the other Holding Companies  to
market  their  wireless  services  jointly with  their  wireline  local exchange
services; before, separate  marketing was required  for cellular services.  This
change should enable the Holding Companies to more efficiently offer and provide
integrated telecommunications.

    In  August  1995,  BellSouth and  MCI  Telecommunications  Corporation (MCI)
signed an  agreement  to  allow  MCI to  resell  cellular  service  provided  by
BellSouth in all BellSouth controlled markets.

                                       8
<PAGE>
According  to the agreement,  MCI will be responsible  for all billing, customer
service, marketing  and advertising  involved in  selling such  resold  service,
while  BellSouth  will  provide  the  network  infrastructure  for  carrying the
cellular traffic.

    At December 31, 1995, businesses in  which BellSouth had an equity  interest
provided  cellular  service  to  a  total  of  approximately  3,770,000 domestic
customers in 16 states. BellSouth's proportionate share of such total customers,
based  on  its   percentage  ownership   interests  of   such  businesses,   was
approximately  2,847,000 customers. (See  "Consolidated Financial Statements and
Supplementary Data -- Domestic  Cellular Proportionate Operating Data.")  Within
its  nine-state wireline service territory, BellSouth offers cellular service in
cities including Atlanta,  Miami, New Orleans,  Memphis, Louisville,  Birmingham
and  Orlando, while  outside its wireline  service territory  it offers cellular
service in  cities  including  Los Angeles,  Houston,  Milwaukee,  Indianapolis,
Honolulu  and  Richmond,  Virginia. BellSouth's  proportionate  interest  in the
aggregate population served by its  domestic cellular systems was  approximately
39,937,000 persons at December 31, 1995.

    As  described below, BellSouth  was the successful  bidder for two broadband
personal communications  services  (PCS)  licenses in  several  areas  where  it
provides  cellular  service. Therefore,  during 1995,  as  required by  the FCC,
BellSouth disposed of its controlling  interests in cellular properties  serving
these areas.

    The rates charged by cellular carriers are not regulated by the FCC or, with
certain  exceptions discussed  below, the  states in  which BellSouth's cellular
operations are located. Pursuant to a federal statute enacted into law in  1993,
state  governments are generally preempted from  regulating the rates charged by
cellular carriers. However, states which had any regulation concerning rates  in
effect  on  June  1,  1993 could  apply  to  the FCC  for  approval  to continue
exercising authority over such rates.  Three states in which BellSouth  provides
cellular  services  --  California, Louisiana  and  Hawaii --  have  sought such
approval.

    INTERNATIONAL CELLULAR OPERATIONS

    Outside the United States, BellSouth  owns interests in consortia that  hold
licenses  for, and are building and/or  operating, cellular telephone systems in
Argentina, Australia, Denmark, Germany, India, Israel, New Zealand, Uruguay  and
Venezuela.  Through a wholly-owned  subsidiary, BellSouth holds  a license for a
cellular telephone system in Chile. At December 31, 1995, such systems  provided
cellular  service to a total of approximately 1,950,000 international customers.
BellSouth's proportionate  share  of such  customers,  based on  its  percentage
ownership  interests  in  such  systems,  was  approximately  655,000 customers.
BellSouth offers  cellular  service  under regional  licenses  to  areas  within
Argentina, India, Uruguay and Chile and offers cellular service under nationwide
licenses  in  Australia, Denmark,  Germany, Israel,  Venezuela and  New Zealand.
Service in  Australia is  also  currently being  provided by  reselling  service
obtained   from   the  government-owned   carrier.  (See   "Other  International
Operations.") During 1994, BellSouth disposed of interests in cellular telephone
businesses in  France  and Mexico.  BellSouth's  proportionate interest  in  the
aggregate   population  served   by  its  international   cellular  systems  was
approximately 52,255,000 persons at December 31, 1995.

    In  January  1996,  BSC  de   Panama,  a  consortium  headed  by   BellSouth
International,  a subsidiary  of BellSouth, won  a 20-year license  to build and
operate Panama's first cellular telephone  network. Construction of the  network
will begin immediately with service to begin by mid-1996.

    PERSONAL COMMUNICATIONS SERVICES

    Personal  communications services  (PCS) are  anticipated to  provide a wide
range of  wireless communications  services. In  March 1995,  BellSouth was  the
successful bidder for two broadband PCS licenses for certain Major Trading Areas
(MTAs)  in  the  nine-state  region served  by  BellSouth  Telecommunications. A
consortium in which BellSouth owns a  majority interest bid $71 million for  the
license  that covers most of  North and South Carolina.  BellSouth alone bid $11
million for  the adjacent  MTA that  includes primarily  eastern Tennessee.  The
systems  are  currently  being constructed,  and  the initiation  of  service is
anticipated in the second half of 1996  with initial build out completed by  the
end of 1998.

                                       9
<PAGE>
    PAGING OPERATIONS

    Through  Mobile  Communications  Corporation  of  America  (MCCA), BellSouth
provided local  and regional  paging  operations in  many areas  throughout  the
United  States and offered nationwide messaging service. Paging services provide
the ability to  contact, by  means of a  radio transmitted  signal, persons  who
carry small radio receivers. The caller uses a cellular or wireline telephone to
reach  an assigned telephone or PIN number at the service provider's facilities.
The assigned number  is automatically relayed  to the paging  terminal, and  the
call  triggers  a signal  which  is relayed  to  the terminal's  transmitter and
transmitted to the paging unit. Subscribers typically rent the paging units on a
month-to-month basis, or  purchase such units,  and pay a  flat monthly fee  for
paging  services or a per message fee after a set number of free messages. These
services are subject to regulation by the FCC.

    As of December  31, 1995,  BellSouth had approximately  1,777,000 pagers  in
service.  In January 1996,  BellSouth sold to  MobileMedia Communications, Inc.,
for $930 million, its interest in MCCA and its two-way nationwide narrowband PCS
license  in  order  to   redeploy  its  assets  in,   and  focus  its   wireless
communications  offerings primarily on, cellular and PCS. However, pursuant to a
reseller agreement,  BellSouth may  resell MobileMedia's  paging services  under
BellSouth's name.

    MOBILE DATA

    BellSouth, through its subsidiary BellSouth Mobile Data (BSMD), is an equity
investor  in six wireless data  communications networks worldwide utilizing L.M.
Ericsson's Mobitex technology. The countries  consist of the United States,  the
United  Kingdom, The Netherlands, Belgium, Germany and Singapore. These networks
enable wireless data  applications such as  computer-aided dispatch,  electronic
mail,  transaction processing and remote data entry and retrieval. They are also
well-suited for fixed applications such as credit card validation and telemetry.

    BSMD has a 49%  interest in the United  States wireless data operation,  RAM
Mobile Data L.P. (RAM US). RAM Broadcasting Corporation is the operating partner
and owns 51% of RAM US.

OTHER INTERNATIONAL OPERATIONS

    BellSouth  is a 24.5  percent participant in  Optus Communications Pty. Ltd.
(Optus), an international consortium which  has been licensed by the  Australian
government  to build and operate  Australia's second telecommunications network.
Optus offers  a full  spectrum of  local and  long-distance  telecommunications,
including  cellular, switched network, enhanced wireline services and satellite-
based services.

    Optus has completed construction  of the bulk of  its long distance  network
and  has built  basic infrastructure  for local  business services  in Canberra,
Melbourne and Sydney.  Long distance  and local service  switching centers  have
been  established in the  six mainland capital  cities, and over  3,000 miles of
optical fiber cable have been placed. More than 70% of the population  currently
has  access to the  long distance service  provided on the  Optus network. Optus
also offers a limited number of local business services, such as data  services,
via its terrestrial and satellite facilities.

    Optus  had over 902,000 cellular customers at December 31, 1995. In addition
to reselling analog cellular service  provided by the government-owned  carrier,
Optus  has installed its own digital cellular service in five capital cities and
is continuing the  construction of its  own network in  other areas. Optus  also
owns  AUSSAT,  Australia's  national  satellite  communications  carrier. AUSSAT
satellites provide  voice,  data  and  television  broadcast  communications  to
Australia  and New  Zealand, air  traffic control  communications to Australia's
Civil Aviation Authority and mobile communications to Australia's rural areas.

    In July 1994, Optus agreed to form a business (Optus Vision) with Australian
and U.S. companies to  develop a high capacity  broadband network in  Australia.
The  network  services  are  expected  to  include  cable  and  pay  television,
interactive  services   and  local   telecommunications  services.   Optus   and
Continental  Cable each own  46.5% of Optus Vision.  Two television stations now
hold 2% and 5%, respectively, and  have the option to increase their  respective
ownership interests to 15% and 20%.

                                       10
<PAGE>
    BellSouth  holds a license to operate a competing domestic and international
long distance concession in Chile. It began service in late 1994.

DOMESTIC BROADBAND SERVICES

    In August 1992, the FCC  issued an order allowing  LECs to offer video  dial
tone  for  transmitting  video  services. In  February  1995,  the  FCC approved
BellSouth Telecommunications' application to conduct a trial of video dial  tone
services.   BellSouth  Telecommunications  is  constructing  a  network  in  the
Chamblee, Georgia  area that  is  planned to  begin  service during  the  second
quarter  of  1996 and  will provide  70 analog  channels, 160  digital broadcast
channels and  480 digital  switched channels  to deliver  video programming  and
interactive  services,  which  will  be provided  by  both  affiliated  and non-
affiliated  programming  service  providers.  The  new  services  will   include
broadcast  entertainment;  interactive  video  services,  such  as  video games;
enhanced personal  computer and  communications services,  including  electronic
mail;   transactional  services,  such   as  home  shopping   and  banking;  and
customer-choice video services, such as movies on demand.

    During 1995, BellSouth secured cable  franchises covering Vestavia Hills,  a
community  of approximately 8,500 homes  near Birmingham, Alabama, Daniel Island
(South Carolina) and World  Golf Village (Florida). Daniel  Island is a  planned
community  development located on a 4,500-acre  island in Charleston harbor that
will include retail,  commercial and  residential development  for 7,000  homes.
World  Golf  Village,  located  near  Jacksonville,  Florida,  is  a  6,300 acre
development which will include extensive commercial and residential development.
Cable service for  Daniel Island  and World Golf  Village is  expected to  begin
sometime in 1996.

    The  1996  Act eliminates  the previous  prohibition on  telephone companies
providing cable television services in their service territories, although  many
federal  courts had already held  such prohibition unconstitutional. In general,
however,  local  exchange  carriers  may  not  acquire  or  joint  venture  with
established cable television providers in their wireline territories.

SELLING AND MAINTAINING EQUIPMENT

    To  a  limited  extent,  BellSouth  sells  and  maintains telecommunications
equipment, computers  and  related office  equipment  in the  nine  Southeastern
states  where BellSouth Telecommunications  provides wireline telephone service.
The Holding Companies,  AT&T and  other substantial enterprises  compete in  the
provision   of   these  services   and  products.   In  April   1994,  BellSouth
Communications  Systems,  Inc.,  a  wholly-owned  subsidiary,  disposed  of  its
equipment  sales and service operations outside  the nine-state region served by
BellSouth Telecommunications.

                                  COMPETITION

GENERAL

    BellSouth is subject to increasing competition in all areas of its business.
Regulatory, legislative and judicial actions and technological developments have
expanded the  types  of  available  services and  products  and  the  number  of
companies  that may  offer them.  Increasingly, this  competition is  from large
companies which have substantial capital, technological and marketing resources.

    A technological  convergence  is  occurring  in  the  telephone,  cable  and
broadcast   television,   computer,  entertainment   and   information  services
industries. The technologies  utilized and being  developed in these  industries
will enable companies to provide multiple and integrated forms of communications
offerings.

NETWORK AND RELATED SERVICES

    LOCAL SERVICE

    Over   the   past  several   years,  a   number   of  states   in  BellSouth
Telecommunications' wireline  territory have  passed legislation  providing  for
competition  in areas where previously it  had an exclusive operating franchise.
The state public service commissions in such jurisdictions have granted, or  are
in  the  process  of considering,  applications  for authority  to  compete with
BellSouth

                                       11
<PAGE>
Telecommunications.  Such  competitors  include  AT&T,  MCI   Telecommunications
Corporation  (MCI), U S West,  Inc. (U S West)  and other substantial companies.
The 1996  Act further  preempts all  existing state  legislative and  regulatory
barriers   to  competition  for   local  telephone  service,   subject  only  to
competitively neutral  requirements to  assure quality  service consistent  with
public  safety,  convenience and  consumer  welfare. BellSouth  expects multiple
companies   to   apply    to   public   service    commissions   in    BellSouth
Telecommunications'  territory for  the authority  to provide  competitive local
telecommunications services. Because of  the expense of constructing  facilities
to  provide these  services, many  of such carriers  may resell  the services of
BellSouth Telecommunications or jointly construct a competing network.

    An increasing number  of voice  and data  communications networks  utilizing
fiber  optic lines  have been  and are  being constructed  by competitive access
providers and other carriers in metropolitan areas, including Atlanta,  Georgia,
Charlotte,  North Carolina and  Jacksonville, Miami and  Orlando, Florida, which
offer certain high  volume users  a competitive  alternative to  the public  and
private  line offerings  of the  LECs. In addition,  the networks  of some cable
television systems will be capable of carrying two-way interactive data messages
and will be  configured to provide  voice communications. Furthermore,  wireless
services,  such as cellular telephone and paging services, and PCS services when
operational, increasingly compete with wireline communications services.

    In 1994,  AT&T  acquired McCaw  Communications,  Inc. (McCaw),  the  largest
domestic cellular communications company, which serves customers in 10 cities in
BellSouth's  local  wireline  territory  and  seven  cities  in  which BellSouth
provides cellular  communications. AT&T  will likely  be a  formidable  cellular
competitor as a result of this acquisition, which provides an integrated network
for  carrying communications traffic that otherwise would have been carried over
the public switched and private line networks of BellSouth Telecommunications.

    Alliances are also being  formed between other  Holding Companies and  large
corporations that operate cable television systems in many localities throughout
the  United States, for  example, U S West,  Inc./Time Warner Communications and
NYNEX Corporation/Viacom, Inc. As technological and regulatory developments make
it more feasible for cable television to carry data and voice communications, it
is increasingly probable that BellSouth Telecommunications will face competition
within  its  region  from  the  other  Holding  Companies  through  their  cable
television venture arrangements.

    In July 1994, U S West and Time Warner announced plans to upgrade certain of
their  cable  TV  systems  to  full-service  networks  which  would  support new
interactive and telephone services that  would compete with the incumbent  LECs.
One  of these full-service  networks is being  built in Orlando,  Florida, and a
limited trial of  services has  begun. Tele-Communications,  Inc. has  announced
plans  to offer similar services in South Florida and Louisville, Kentucky. Time
Warner and U S West have made major cable system acquisitions that are  expected
to  provide voice and video competition in BellSouth Telecommunications' service
areas. In December 1994, U S West acquired Atlanta's two largest cable operators
and, in February 1996, announced  a definitive agreement to acquire  Continental
Cablevision,  Inc., a  provider with  a major  presence in  Florida. The pending
acquisition by  Time Warner  of Turner  Broadcasting Corporation  will  increase
concentration in the cable and programming industries.

    Competition  for local  service revenues could  adversely affect BellSouth's
net income. However, the existence of facilities-based competitive local service
will allow  the Operating  Telephone  Companies to  qualify to  offer  in-region
interLATA  service, as contemplated in the 1996 Act. (See "BellSouth Competitive
Strategy.")

    ACCESS SERVICE

    The FCC has adopted rules  requiring LECs to offer expanded  interconnection
for   interstate  special  and  switched   transport.  As  a  result,  BellSouth
Telecommunications is required to permit

                                       12
<PAGE>
competitive carriers and customers to terminate their transmission facilities in
its central office  buildings through collocation  arrangements. The effects  of
the rules are to increase competition for access transport.

    TOLL SERVICE

    A   number  of  firms  compete  with  BellSouth  Telecommunications  in  its
nine-state region  for  intraLATA  toll  business  by  reselling  toll  services
obtained  at bulk  rates from  BellSouth Telecommunications  or, subject  to the
approval of  the  applicable state  public  utility commission,  providing  toll
services  over  their own  facilities. Commissions  in  the states  in BellSouth
Telecommunications'  operating  territory  have  allowed  the  latter  type   of
intraLATA  toll  calling,  whereby  the Interexchange  Carriers  are  assigned a
multiple digit access code (10XXX) which  customers may dial to place  intraLATA
toll calls through facilities of such Interexchange Carriers. The legislature or
commissions  in  three  states  have authorized  competing  carriers  to provide
intraLATA toll  presubscribed calling  with  a single  digit access  code  (1+),
giving  them dialing parity  with the LEC  in that area.  Commissions in several
other  states  are  considering  how  and  when  such  authorization  should  be
implemented.   However,  the  1996  Act   prohibits  states  from  ordering  the
implementation of new toll dialing parity  until the earlier of (a) three  years
from  the enactment of the 1996 Act or  (b) such time as the Operating Telephone
Company has qualified  to provide  in-region interLATA  services. Other  Holding
Companies  will be permitted to offer BellSouth's local customers interLATA toll
service before BellSouth is eligible under the 1996 Act to offer such service to
its customers. BellSouth expects  Holding Companies and interexchange  carriers,
including AT&T and MCI, to compete for interLATA toll service.

DIRECTORY ADVERTISING AND PUBLISHING

    In   BellSouth's  advertising  and   publishing  business,  competition  for
advertising revenues has expanded. Many different media compete for  advertising
revenues,  and  some  newspaper  organizations and  other  companies  have begun
publishing  their  own  directories.  Competition  for  directory  sales  agency
contracts for the sale of advertising in publications of nonaffiliated companies
also continues to be strong. Directory listings are now offered in various media
besides  paper books, including  CD ROM, the Internet  and other electronic data
bases through  telephone company  and third  party networks.  As such  offerings
expand and are enhanced through interactivity and other features, BellSouth will
experience  heightened competition  in its directory  advertising and publishing
businesses. BellSouth  has  responded  to  the  increased  competition  and  its
changing  market environment with new  directory products, product enhancements,
multi-media delivery options,  pricing changes,  competitive advertising,  local
promotions, directory redeliveries and extended distributions.

WIRELESS COMMUNICATIONS

    The  FCC's PCS  licensing process  will allow  multiple new  competitors for
BellSouth's wireless businesses. Licenses to provide PCS services have been  won
in   auction  by   AT&T,  Holding   Company  consortia   and  other   large  and
well-capitalized entities. It is also anticipated that in conjunction with cable
operators, interexchange carriers or other alternative local service  providers,
PCS  will  provide  competition  to  BellSouth's  local  wireline  and  cellular
telephone businesses. The exact service  offerings and functionality of PCS  are
not  yet apparent, but it is anticipated  that some competitive systems could be
in place by mid-1996.

    The FCC  has  jurisdiction  over  the licensing  of  cellular  mobile  radio
services  in domestic  markets. The FCC  limits entry for  providers of cellular
mobile  telecommunications  to  two  licensees  for  each  defined  metropolitan
statistical  area (MSA)  and each rural  service area (RSA)  within the country.
Each MSA and RSA  in which BellSouth participates  in the provision of  cellular
mobile  communications  has  a  competing  service  provider.  In  many markets,
competing cellular service is  provided by businesses owned  or controlled by  a
Holding  Company, AT&T or a major  telephone company. In addition, Bell Atlantic
Corporation and NYNEX Corporation have combined their cellular businesses, and U
S West and AirTouch Communications have announced that they plan to merge  their
cellular  businesses.  Those four  Holding Companies  have  also formed  a joint
venture to provide PCS in many domestic markets.

                                       13
<PAGE>
    BellSouth's international cellular joint  ventures are generally subject  to
competition  from at  least one other  cellular service  provider, and sometimes
more than one other provider. For example, in Germany there are two competitors.
These competing cellular service providers  are generally supported by  partners
who  are at  least as  well-capitalized as BellSouth  and its  partners. In some
cases the  competing cellular  provider is  owned by  the state-owned  telephone
company, which may have access to the financial resources of the government.

    BellSouth's wireless data businesses experience competition from private and
public  wireless data networks,  specialized mobile radio  networks and cellular
networks. The  degree and  type of  competition vary  from country  to  country.
BellSouth's  wireless data companies all utilize the Mobitex technology which is
flexible for targeting both specialized and general market segments.

    RAM US's primary competitor is ARDIS, a wholly-owned subsidiary of Motorola,
Inc. The ARDIS network, which was started in 1983 as a private network for  IBM,
has  historically had greater  coverage, an advantage  which BellSouth considers
has been  neutralized. Future  competition could  come from  companies  offering
Cellular  Digital  Packet  Data  (CDPD),  a  cellular-based  system specifically
designed for packet data  applications. There is a  host of network and  product
development  issues that CDPD operators must still address before they can offer
a fully competitive service to that of RAM US.

    Another competitive threat  to each  of BellSouth's  overseas wireless  data
holdings are Global System Mobile (GSM) operators, which may offer an integrated
packet  data standard around the turn of  the century. In Germany and Singapore,
BellSouth's wireless data properties  compete against operators of  technologies
related to Motorola's ARDIS technology.

    The  FCC  has approved  construction  of enhanced  specialized  mobile radio
(ESMR)  systems  in  many  cities  around  the  country.  These  digital  mobile
communications  systems are expected to provide service very similar to cellular
telephone service. There has  been a consolidation of  the licenses required  to
provide  ESMR service, so that  control of this business  is concentrated in the
hands of a few  potential operators, giving them  the ability to offer  services
like  nationwide  roaming  once the  systems  are built.  ESMR  became available
commercially in Los Angeles  during second quarter of  1994 in competition  with
BellSouth's cellular telephone partnership.

BELLSOUTH COMPETITIVE STRATEGY

    REGULATORY AND LEGISLATIVE CHANGES

    BellSouth's  primary  regulatory  focus  continues  to  be  directed  toward
modifying the  regulatory process  to  one that  is  more closely  aligned  with
changing   market  conditions  and  overall  public  policy  objectives.  As  an
alternative to regulation  of earnings,  BellSouth is  seeking price  regulation
where it does not exist, whereby prices of basic local exchange service would be
regulated  and prices for other  products and services would  be based on market
factors. As  such,  BellSouth  Telecommunications  has  price  regulation  plans
approved or authorized in seven states, and approvals are pending in two states.

    As  a result of the 1996 Act,  BellSouth and the other Holding Companies are
freed from many of  the laws, regulations  and judicial restrictions  (including
the  MFJ) that constrained the provision of voice, data and video communications
throughout their  wireline  service  territories  and  elsewhere.  The  FCC  has
commenced  rulemaking proceedings relating to the provision of interLATA service
by the Holding Companies. After  necessary federal and state proceedings,  these
companies  may apply to the FCC  to offer in-region interLATA wireline services,
and the FCC must act on such application within 90 days. The FCC must grant such
application if  it determines  that  the applicant  (a)  has met  a  competitive
checklist;  (b) has shown  (i) the presence  of facilities-based competition for
residential and  business  local service  or  (ii)  in the  absence  thereof,  a
statement  of the terms under  which it would be  willing to interconnect with a
competitive local  carrier;  (c) will  operate  consistently with  the  separate
subsidiary  requirement;  and  (d)  will meet  the  1996  Act's  public interest
requirement in so offering the services on the foregoing conditions.

                                       14
<PAGE>
    The Holding Companies are not required to obtain such FCC approval prior  to
offering  out-of-region  interLATA  wireline  or  nationwide  interLATA wireless
services. BellSouth has  begun to  offer interLATA  wireless service.  BellSouth
plans  to  begin  offering  interLATA  wireline  service  within  its nine-state
territory as  soon as  possible after  completion of  FCC and  state  regulatory
proceedings,  expected to be concluded  in late 1996 or  early 1997; however, no
assurance can be provided with respect  to when BellSouth will be authorized  to
initiate  such  interLATA  wireline service.  BellSouth  has no  plans  to offer
out-of-region interLATA wireline services on a significant scale.

    After some modifications to its network and operating systems, both wireline
and wireless interLATA services  can be offered by  BellSouth. However, many  of
the  telecommunications services that BellSouth  and the other Holding Companies
may provide may be subject to extensive regulations to be adopted by the FCC and
state regulatory commissions.

    The 1996 Act allows,  without additional approval,  BellSouth to market  its
wireless  services jointly  with its  wireline local  exchange services; before,
separate marketing was required for  cellular services. In addition, such  joint
marketing  will include interLATA wireline  services in the nine-state territory
when authorized. BellSouth expects to begin a joint marketing trial for wireline
local exchange and cellular services later in 1996.

    Technological changes and  the effects  of competition  reduce the  economic
useful  lives of BellSouth Telecommunications'  fixed assets. In connection with
BellSouth's  discontinuance  in  1995  of  Statement  of  Financial   Accounting
Standards  No.  71  (SFAS  No.  71),  BellSouth  Telecommunications  reduced the
regulator-approved asset lives for certain categories of fixed assets to reflect
their estimated economic asset lives. (See "Management's Discussion and Analysis
of Results of Operations and Financial Condition (MD&A) -- Results of Operations
-- Extraordinary Losses -- Discontinuance of SFAS No. 71.")

    ENTRY INTO NEW MARKETS

    Notwithstanding the risks associated  with increased competition,  BellSouth
will  have  the opportunity  to benefit  from entry  into new  business markets.
BellSouth believes that in  order to remain competitive  in the future, it  must
aggressively  pursue a corporate strategy of  expanding its offerings beyond its
traditional businesses  and  markets.  These  offerings  may  include  interLATA
services,  information  services  and video  and  electronic  commerce services.
BellSouth may enter such businesses through investments in, strategic  alliances
with  and acquisitions of  established companies in  such industries and through
the development of such services and capabilities internally. BellSouth  intends
to pursue certain foreign telecommunications licenses as they are offered.

    WORK FORCE REDUCTION/RESTRUCTURING

    In  1995, BellSouth  Telecommunications completed  the restructuring  of its
telephone   operations   that   was   announced   in   1993.   Also,   BellSouth
Telecommunications  announced  in  1995  a  plan to  reduce  its  work  force by
approximately 11,300 additional employees by the  end of 1997. For a  discussion
of the work force reduction/restructuring, see "MD&A -- Results of Operations --
Operating Expenses -- Work Force Reduction/Restructuring Charges."

                            RESEARCH AND DEVELOPMENT

    The  majority of BellSouth's research  and development activity is conducted
at Bell Communications Research, Inc. (Bellcore), one-seventh of which is  owned
by  BellSouth, through BellSouth Telecommunications, with the remainder owned by
the other  Holding Companies.  Bellcore provides  research and  development  and
other  services  for  its  owners  and  is  the  central  point  of  contact for
coordinating the Federal  government's telecommunications requirements  relating
to national security and emergency preparedness.

    In April 1995, the Holding Companies announced their intention to dispose of
their  respective interests in  Bellcore. Neither the  method of disposition nor
the  timing  thereof  has  been  determined.  A  final  decision  regarding  the
disposition  of Bellcore and the  structure of such a  transaction is subject to

                                       15
<PAGE>
obtaining satisfactory financial  and other terms  and all necessary  approvals.
There can be no assurance that a disposition will occur. In anticipation of such
disposition,  however,  BellSouth has  negotiated an  agreement for  Bellcore to
provide continuing research and development services for a number of years.

                            LICENSES AND FRANCHISES

    BellSouth Telecommunications' local exchange business is typically  provided
under certificates of public convenience and necessity granted pursuant to state
statutes  and public interest findings of the various public utility commissions
of the  states  in  which  BellSouth  Telecommunications  does  business.  These
certificates  provide for  a franchise  of indefinite  duration, subject  to the
maintenance of satisfactory service at reasonable rates.

    The domestic cellular, PCS and mobile data systems in which BellSouth has an
interest are operated under licenses granted  by the FCC. Prior approval of  the
FCC  is required for the assignment of a license or the transfer of control of a
license. The licenses are generally issued for up to 10-year periods. At the end
of the license period, a renewal  application must be filed. BellSouth  believes
renewal  will generally  be granted on  a routine basis  upon showing compliance
with FCC  regulations and  continuing service  to the  public. Licenses  may  be
revoked and license renewal applications may be denied for cause. With regard to
cellular  licenses, the  FCC has  established the  procedures and  standards for
conducting comparative renewal  proceedings, including the  award of a  "renewal
expectancy"   that  effectively  eliminates  the   need  to  consider  competing
applicants when the incumbent meets specified criteria.

    International systems also operate under licenses granted by the governments
in the countries where such systems are located. The foreign licenses are issued
for varied terms and are generally renewable  at the end of the initial  license
period.  As  is  the case  with  BellSouth's domestic  wireless  properties, the
foreign licenses may be revoked and  license renewal applications may be  denied
for cause.

    BellSouth  believes  that  it  owns  or has  licenses  to  use  all patents,
copyrights, trademarks  and  other intellectual  property  necessary for  it  to
conduct  its present business operations. It is not anticipated that any of such
property will be  subject to  expiration or  non-renewal of  rights which  would
materially and adversely affect BellSouth or its subsidiaries.

                                   EMPLOYEES

    At  December 31, 1995, 1994 and 1993 BellSouth and its subsidiaries employed
approximately 87,600, 92,100 and 95,100 persons, respectively. Of these  amounts
at  these dates, approximately 68,600, 73,800  and 78,000 persons were telephone
employees of BellSouth Telecommunications. About 62% of BellSouth's employees at
December 31, 1995 were represented by the Communications Workers of America (the
CWA), which is affiliated with the AFL-CIO. In October 1995, members of the  CWA
ratified new three-year contracts with BellSouth. These contracts were effective
in August 1995. The contracts include basic wage increases of 10.9% (compounded)
over  three years.  In addition,  the agreement provided  a cash  payment of one
thousand one hundred  dollars to  each eligible employee  upon ratification  and
further  provides  payments of  one thousand  one  hundred dollars  per eligible
employee in either cash or  BellSouth stock, at the  option of the employee,  on
the  1996  and 1997  contract anniversary  dates. Other  terms of  the agreement
include discontinuance  of  annual wage  adjustments  based on  cost  of  living
increases and discontinuance of annual incentive payments.

    During  1995, BellSouth Telecommunications completed the 1993 plan to reduce
its work force by approximately 10,200  employees. For the years ended  December
31,  1995, 1994 and 1993, total employee  reductions under this plan were 5,000,
3,900 and 1,300,  respectively. Also during  1995, BellSouth  Telecommunications
announced  a plan to reduce its work  force by approximately 11,300 employees by
the end of 1997. (See  "MD&A -- Results of  Operations -- Operating Expenses  --
Work Force Reduction/Restructuring Charges.")

                                       16
<PAGE>
ITEM 2.  PROPERTIES

                                    GENERAL

    BellSouth's  properties do not  lend themselves to  description by character
and location of principal units.  BellSouth's investment in property, plant  and
equipment,  93% of which  is held by  BellSouth Telecommunications, consisted of
the following at December 31:

<TABLE>
<CAPTION>
                                                                   1995   1994
                                                                   ----   ----
<S>                                                                <C>    <C>
Outside plant....................................................   43%    44%
Central office equipment.........................................   34     35
Land and buildings...............................................    7      7
Furniture and fixtures...........................................    6      6
Operating and other equipment....................................    8      7
Plant under construction.........................................    2      1
                                                                   ----   ----
                                                                   100%   100%
                                                                   ----   ----
                                                                   ----   ----
</TABLE>

    Outside plant consists of connecting  lines (aerial, underground and  buried
cable)  not on customers' premises, the majority of which are on or under public
roads, highways or streets, while the remainder is on or under private property.
BellSouth currently  self-insures  all of  its  outside plant  against  casualty
losses. Central office equipment consists of analog switching equipment, digital
electronic  switching equipment  and circuit  equipment. Land  and buildings are
occupied principally by central offices. Operating and other equipment  consists
of embedded intrasystem wiring, substantially all of which is on the premises of
customers,  motor vehicles  and equipment. Central  office equipment, buildings,
furniture and fixtures  and certain  operating and other  equipment are  insured
under  a blanket property  insurance program. This  program provides substantial
limits of coverage against "all risks" of loss including fire, windstorm, flood,
earthquake and other perils not specifically excluded.

    Substantially all  of  the installations  of  central office  equipment  and
administrative  offices are located in buildings  and on land owned by BellSouth
Telecommunications. Many garages, business offices and telephone service centers
are in leased quarters.

    BellSouth  Telecommunications'  customers  are  now  served  by   electronic
switching systems that provide a wider variety of services than their mechanical
predecessors.  The  BellSouth Telecommunications  network has  been transitioned
from an analog to a digital  network, which provides capabilities for  BellSouth
Telecommunications   to  furnish  advanced  data  transmission  and  information
management  services.  BellSouth  has  substantially  completed  adding  digital
technology  to  certain  cellular  systems  which  were  operating  with  analog
technology at or near capacity.

                              CAPITAL EXPENDITURES

    Capital expenditures  consist  of gross  additions  to property,  plant  and
equipment  having  an estimated  service  life of  one  year or  more,  plus the
incidental costs of preparing the asset for its intended use.

    The total investment  in property,  plant and equipment  has increased  from
$36,812  million at January 1, 1991 to $46,869 million at December 31, 1995, not
including deductions  of  accumulated  depreciation.  Significant  additions  to
property,  plant  and  equipment  will  be  required  to  meet  the  demand  for
telecommunications services and to further  modernize and improve such  services
to  meet competitive demands. Population and  economic expansion is projected by
BellSouth in certain growth centers within  its nine-state area during the  next
five  to ten years. Expansion of the  network will be needed to accommodate such
projected growth.

                                       17
<PAGE>
    BellSouth's capital expenditures for 1991 through 1995 were as follows:

<TABLE>
<CAPTION>
                                MILLIONS
                                ---------
<S>                             <C>
1995..........................  $   4,203
1994..........................      3,600
1993..........................      3,486
1992..........................      3,189
1991..........................      3,102
</TABLE>

    BellSouth projects  capital expenditures  of approximately  $4.0 billion  to
$4.3   billion   for   1996,   consisting   of   $3.0   billion   for  BellSouth
Telecommunications' and $1.0 billion to $1.3 billion for BellSouth  Enterprises'
businesses.   A  majority  of  such   expenditures  for  BellSouth  Enterprises'
businesses will be for  property additions to its  cellular systems to  complete
construction  of new  systems and to  expand, enhance and  modernize its current
operating systems.

    In 1995,  BellSouth generated  substantially all  of its  funds for  capital
expenditures  internally. In 1996, such capital  expenditures are expected to be
financed primarily  through  internally  generated  funds  and,  to  the  extent
necessary, from external sources.

                             ENVIRONMENTAL MATTERS

    BellSouth is subject to a number of environmental matters as a result of its
operations  and the  shared liability provisions  in the  Plan of Reorganization
(POR). As a result, BellSouth expects that  it will be required to expend  funds
to  remedy  certain  facilities,  including  those  Superfund  sites  for  which
BellSouth has been named as a potentially responsible party, for the remediation
of sites with underground fuel storage tanks and other expenses associated  with
environmental  compliance. At December 31,  1995, BellSouth's recorded liability
related primarily to remediation of these sites was approximately $32 million.

    BellSouth continually  monitors its  operations  with respect  to  potential
environmental  issues,  including  changes  in  legally  mandated  standards and
remediation technologies. BellSouth's recorded liability reflects those specific
issues where  remediation activities  are currently  deemed to  be probable  and
where  the cost of remediation is estimable. BellSouth continues to believe that
expenditures in connection  with additional remedial  actions under the  current
environmental  protection laws or  related matters would not  be material to its
financial position, annual operating results or cash flows.

ITEM 3.  LEGAL PROCEEDINGS

    The MFJ  and the  related POR  provide for  the recognition  and payment  of
liabilities  by AT&T and the Operating Telephone Companies that are attributable
to  pre-divestiture  events  but  that  did  not  become  certain  until   after
divestiture.  These contingent liabilities relate  principally to litigation and
other claims with respect to the former Bell System's environmental liabilities,
rates, taxes, contracts  and torts  (including business torts,  such as  alleged
violations  of  the  antitrust  laws).  Contingent  liabilities  attributable to
pre-divestiture events  have been  shared by  AT&T and  the Operating  Telephone
Companies  in accordance with formulae prescribed by  the POR, whether or not an
entity was a party  to the proceeding  and regardless of  whether an entity  was
dismissed  from the proceeding  by virtue of  settlement or otherwise. BellSouth
Telecommunications' share of these liabilities to date has not been material  to
its financial position, annual operating results or cash flows.

    The  Operating Telephone Companies have agreed among themselves to disengage
from the sharing of most  categories of contingent liabilities formerly  subject
to  the POR sharing mechanism. Sharing under  the POR would continue for matters
for which  notice was  given as  of  May 23,  1994 and  certain  pre-divestiture
environmental  claims.  The sharing  of  liabilities for  pre-divestiture claims
between AT&T and one or more  Operating Telephone Companies are not affected  by
this agreement.

    BellSouth and its subsidiaries are subject to claims and proceedings arising
in  the ordinary  course of business  involving allegations  of personal injury,
breach of contract, anti-competitive conduct,

                                       18
<PAGE>
employment law  issues and  other matters.  While complete  assurance cannot  be
given  as to the outcome  of any pending or  threatened legal actions, BellSouth
believes that  any financial  impact  would not  be  material to  its  financial
position, annual operating results or cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

    No  matter was submitted to a vote  of shareholders in the fourth quarter of
the fiscal year ended December 31, 1995.
                            ------------------------

ADDITIONAL INFORMATION

                         DESCRIPTION OF BELLSOUTH STOCK

GENERAL

    The Articles  of  Incorporation  of  BellSouth  authorize  the  issuance  of
2,200,000,000 shares of common stock, par value $1 per share (the Common Stock),
and  100,000,000 shares of  cumulative, first preferred stock,  par value $1 per
share (the  Preferred Stock).  BellSouth's  Board of  Directors (the  Board)  is
authorized  to provide  for the  issuance, from time  to time,  of the Preferred
Stock in series  and, as to  each series, to  fix the number  of shares in  such
series  and  the  voting,  dividend,  redemption,  liquidation,  retirement  and
conversion provisions applicable  to the  shares of  such series.  No shares  of
Preferred  Stock are outstanding. The Board has created Series A First Preferred
Stock consisting  of  30 million  shares  (the  Series A  Preferred  Stock)  for
possible  issuance under  BellSouth's Shareholder  Rights Plan.  (See "Preferred
Stock Purchase Rights"  and "Market  for Registrants Common  Equity and  Related
Stockholder Matters.")

DIVIDEND RIGHTS

    The  holders of  Common Stock  are entitled  to receive,  from funds legally
available for the payment thereof, dividends when and as declared by  resolution
of  the Board. While any series of  Preferred Stock is outstanding, no dividends
(other than dividends payable solely in Common Stock) may be declared or paid on
Common Stock,  and no  Common  Stock may  be  purchased, redeemed  or  otherwise
acquired  for value, (a) unless dividends on all outstanding shares of Preferred
Stock for the current and all past  dividend periods have been paid or  declared
and  provision made  for payment  thereof and  (b) unless  all requirements with
respect to any purchase, retirement or  sinking fund or funds applicable to  all
outstanding  series of  Preferred Stock  have been  satisfied. Dividends  on the
Preferred Stock would be cumulative.

VOTING RIGHTS

    Except in  connection  with the  "business  combinations" and  "fair  price"
provisions  discussed below, holders  of shares of Common  Stock are entitled to
one vote, in person or  by proxy, for each share  held on the applicable  record
date  with  respect  to  each  matter  submitted  to  a  vote  at  a  meeting of
shareholders, but such holders do not have cumulative voting rights. The holders
of any series of Preferred Stock, when issued, may receive the right to vote  as
a  class on certain amendments  to the Articles of  Incorporation and on certain
other matters,  including the  election of  directors in  the event  of  certain
defaults, which may include non-payment of Preferred Stock dividends.

LIQUIDATION RIGHTS

    In  the event of voluntary or  involuntary liquidation of BellSouth, holders
of the Common Stock will be entitled to receive, after creditors have been  paid
and  the holders of the Preferred Stock, if any, have received their liquidation
preferences and accumulated and  unpaid dividends, all  the remaining assets  of
BellSouth.

PRE-EMPTIVE RIGHTS; CONVERSION RIGHTS; REDEMPTION

    No  shareholders of any class shall be entitled to any pre-emptive rights to
subscribe for or purchase  any shares or other  securities issued by  BellSouth.
The Common Stock has no conversion rights and is not subject to redemption.

                                       19
<PAGE>
PREFERRED STOCK PURCHASE RIGHTS

    The  Board has  declared a  dividend of  one preferred  stock purchase right
(Right) for each  share of  Common Stock from  time to  time outstanding.  Under
certain  circumstances,  each  Right will  entitle  the holder  to  purchase one
one-hundredth of a share  of Series A Preferred  Stock, $1.00 par value  (Common
Equivalent  Preferred Stock), which  unit is substantially  equivalent in voting
and dividend rights to one whole share of  the Common Stock, at a price of  $175
per  whole share (the Purchase Price).  The Rights are not presently exercisable
and may be exercised only if a  person or group acquires 10% of the  outstanding
voting  stock of  BellSouth without the  prior approval of  the Board (Acquiring
Person) or announces a tender or  exchange offer that would result in  ownership
of 25% or more of the Common Stock.

    If an Acquiring Person becomes such without prior Board approval, the Rights
are  adjusted, and each  holder, other than  the Acquiring Person,  then has the
right to receive,  on payment of  the Purchase  Price, the number  of shares  of
Common  Stock, units  of the Common  Equivalent Preferred Stock  or other assets
having a market value equal to twice the Purchase Price.

    The Rights currently trade with the Common Stock and expire in 1999.

BUSINESS COMBINATIONS

    The Georgia legislature has enacted legislation which generally prohibits  a
corporation  which has  adopted a by-law  electing to be  covered thereby (which
BellSouth has done) from engaging in any "business combination" (i.e., a merger,
consolidation or  other specified  corporate  transaction) with  an  "interested
shareholder"  (i.e., a 10% shareholder or  an affiliate of the corporation which
was a 10% shareholder at any time  within the preceding two years) for a  period
of  five  years from  the date  such person  becomes an  interested shareholder,
unless  the  interested  shareholder  (a)   prior  to  becoming  an   interested
shareholder,  obtained the  approval of  the Board  of Directors  for either the
business combination  or  the  transaction which  resulted  in  the  shareholder
becoming an interested shareholder, (b) becomes the owner of at least 90% of the
outstanding voting stock of the corporation in the same transaction in which the
interested  shareholder became an interested shareholder, excluding for purposes
of determining the number of shares outstanding those shares owned by  officers,
directors,  subsidiaries and certain employee stock  plans of the corporation or
(c) subsequent to the acquisition of 10% or more of the outstanding voting stock
of the  corporation, acquires  additional shares  resulting in  ownership of  at
least  90%  of  the outstanding  voting  stock  of the  corporation  and obtains
approval of the business combination by the holders of a majority of the  shares
of  voting  stock  of  the  corporation, other  than  those  shares  held  by an
interested shareholder, officers, directors,  subsidiaries and certain  employee
stock  plans of the corporation.  BellSouth's "business combinations" by-law may
be repealed  only  by  an  affirmative vote  of  two-thirds  of  the  continuing
directors  and a majority of the votes  entitled to be cast by the shareholders,
other than interested shareholders, and shall  not be effective until 18  months
after  such  shareholder  vote. The  Georgia  statute provides  that  a domestic
corporation which has thus repealed such a by-law may not thereafter readopt the
by-law as provided therein.

FAIR PRICE PROVISIONS

    "Fair price" provisions contained in the Articles of Incorporation  require,
generally,  in connection with a merger or similar transaction between BellSouth
and an "interested shareholder" (a 10% shareholder or an affiliate of  BellSouth
which  was a 10%  shareholder at any  time within the  preceding two years), the
unanimous approval of BellSouth's directors  not affiliated with the  interested
shareholder  or  the affirmative  vote  of two-thirds  of  such directors  and a
majority of the  outstanding shares held  by disinterested shareholders,  unless
(a)  within  the  past  three  years  the  shareholder  has  been  an interested
shareholder and has not increased its shareholdings by more than one percent  in
any  12-month  period  or  (b)  all  shareholders  receive  at  least  the  same
consideration for their  shares as the  interested shareholder previously  paid.
Additionally,  these  provisions  may  be revised  or  rescinded  only  upon the
affirmative vote of at least two-thirds of the directors not affiliated with  an
interested  shareholder  and  a  majority  of  the  outstanding  shares  held by
disinterested shareholders.

                                       20
<PAGE>
BOARD CLASSIFICATION

    Board classification provisions adopted by the shareholders and contained in
the By-laws  prescribe a  shareholder vote  for approximately  one-third of  the
directors,  instead of all directors, at each annual meeting of shareholders for
a three-year term. Additionally, such  provisions provide that shareholders  may
remove  directors from  office, with  or without  cause, amend  the By-laws with
respect to the number of directors or amend the board classification  provisions
only  by the affirmative vote of the holders  of at least 75% of the outstanding
shares entitled to vote for the election of directors.

REMOVAL OF DIRECTORS

    BellSouth's Articles  of  Incorporation  provide that  the  shareholders  of
BellSouth  may remove a director, with or without cause, by the affirmative vote
of the holders  of at  least 75%  of the  voting power  of all  shares of  stock
entitled  to vote generally in  the election of directors,  voting together as a
single class.

LIMITATION ON SHAREHOLDERS' PROCEEDINGS

    BellSouth's  By-laws  require   60  days  advance   notice  of   shareholder
nominations  for  directors and  of other  matters to  be brought  before annual
shareholders' meetings. Such By-laws also  provide that a special  shareholders'
meeting  may not be  called by fewer  than two-thirds of  the outstanding shares
entitled to vote at the meeting.
                            ------------------------
    The provisions  discussed  under  the six  preceding  sub-headings  and  the
ability to issue Preferred Stock, such as the Series A Preferred Stock described
above,  with characteristics established by the Board and without the consent of
the holders of Common Stock and the ability to issue additional shares of Common
Stock may have the  effect of discouraging takeover  attempts and may also  have
the  effect of  maintaining the position  of incumbent  management. In addition,
these provisions may have a significant effect on the ability of shareholders of
BellSouth to benefit from certain kinds  of transactions that may be opposed  by
the incumbent Board.

                                       21
<PAGE>
                               EXECUTIVE OFFICERS

    The executive officers of BellSouth are listed below:

<TABLE>
<CAPTION>
                                                                                                        THIS
                                                                                              OFFICER  OFFICE
          NAME             AGE                             OFFICE                              SINCE   SINCE
-------------------------  ---  ------------------------------------------------------------  -------  ------
<S>                        <C>  <C>                                                           <C>      <C>
John L. Clendenin*          61  Chairman of the Board, President and Chief Executive Officer     1983    1984
F. Duane Ackerman*          53  Vice Chairman of the Board and Chief Operating Officer           1983    1995
Walter H. Alford            57  Executive Vice President and General Counsel                     1983    1988
John F. Beasley             56  Vice President and Associate General Counsel                     1985    1993
C. Sidney Boren             52  Senior Vice President -- Strategic Planning                      1984    1995
Ronald M. Dykes             49  Executive Vice President, Chief Financial Officer and            1988    1995
                                 Comptroller
Mark L. Feidler             39  Vice President -- Corporate Development                          1993    1993
J. Robert Fitzgerald        56  Vice President -- Corporate Responsibility and Compliance        1983    1994
H. C. Henry, Jr.            51  Executive Vice President -- Corporate Relations                  1984    1993
David J. Markey             55  Vice President -- Governmental Affairs                           1986    1993
Charles C. Miller, III      43  President -- International                                       1990    1995
Arlen G. Yokley             58  Vice President, Secretary and Treasurer                          1984    1989
</TABLE>

    The  following  officers of  the  companies indicated  may  be deemed  to be
executive officers of BellSouth Corporation:

<TABLE>
<S>                        <C>  <C>                                                           <C>      <C>
Jere A. Drummond            56  President and Chief Executive Officer -- BellSouth               1982    1995
                                 Telecommunications, Inc.
Earle Mauldin               55  President -- BellSouth Enterprises, Inc.                         1987    1995
</TABLE>

    All of the executive officers of BellSouth, other than Mr. Feidler, have for
at least the past five years  held high level management or executive  positions
with  BellSouth or  its subsidiaries.  Prior to  joining BellSouth  in 1992, Mr.
Feidler was employed by  The Robinson-Humphrey Company, Inc.  (1986 - 1990)  and
The Breckenridge Group (1990 - 1991), investment banking firms.

    All officers serve until their successors have been elected and qualified.
------------------------
* BellSouth  has announced that Mr. Clendenin will retire as President and Chief
  Executive Officer at the  end of 1996,  to be succeeded  by Mr. Ackerman.  Mr.
  Clendenin will remain Chairman of the Board of Directors through 1997.

                                       22
<PAGE>
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
       AND RELATED STOCKHOLDER MATTERS

    The  principal market for trading in BellSouth  common stock is the New York
Stock Exchange,  Inc. (NYSE).  BellSouth  common stock  is  also listed  on  the
Boston, Chicago, Pacific and Philadelphia exchanges in the United States and the
London,  Zurich, Basel,  Geneva, Frankfurt  and Amsterdam  exchanges. The ticker
symbol for  BellSouth common  stock is  BLS.  At February  1, 1996,  there  were
1,136,035  holders of  record of  BellSouth common  stock. The  market price and
dividend information listed below  has been adjusted  for the two-for-one  stock
split  effective in November 1995. Market price data were obtained from the NYSE
Composite Tape, which encompasses trading  on the principal United States  stock
exchanges  as  well as  off-board  trading. High  and  low prices  represent the
highest and lowest sales prices for the periods indicated.

<TABLE>
<CAPTION>
                                                                                     MARKET PRICES      PER SHARE
                                                                                   ------------------   DIVIDENDS
                                                                                    HIGH        LOW      DECLARED
                                                                                   -------    -------   ----------
<S>                                                                                <C>        <C>       <C>
1995
First Quarter...................................................................   $30 3/8    $26 7/8   $     .345
Second Quarter..................................................................    32 1/4     29 1/8         .345
Third Quarter...................................................................    36 7/8     31             .36
Fourth Quarter..................................................................    43 7/8     36 3/8         .36

1994
First Quarter...................................................................   $30 3/4    $26 1/2   $     .345
Second Quarter..................................................................    31 3/4     27 3/4         .345
Third Quarter...................................................................    31 3/4     27 3/8         .345
Fourth Quarter..................................................................    28 1/8     25 1/4         .345

1993
First Quarter...................................................................   $28 3/4    $25 1/4   $     .345
Second Quarter..................................................................    28 1/2     25 3/8         .345
Third Quarter...................................................................    31 1/2     27 1/8         .345
Fourth Quarter..................................................................    32         27 1/8         .345
</TABLE>

STOCK TRANSFER AGENT AND REGISTRAR

    Chemical Mellon Shareholder Services LLC is BellSouth's stock transfer agent
and registrar.

                                       23
<PAGE>
ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                      1995        1994       1993       1992       1991
                                                    ---------   --------   --------   --------   --------
<S>                                                 <C>         <C>        <C>        <C>        <C>
Operating Revenues................................  $17,886     $16,845    $15,880    $15,202    $14,445
Operating Expenses (1)............................   14,594      12,787     13,593     12,041     11,636
                                                    ---------   --------   --------   --------   --------
Operating Income..................................    3,292       4,058      2,287      3,161      2,809
Interest Expense..................................      724         666        689        746        802
Other Income, net.................................       20          11          8        178        253
                                                    ---------   --------   --------   --------   --------
Income Before Income Taxes, Extraordinary Losses
 and Accounting Change............................    2,588       3,403      1,606      2,593      2,260
Provision for Income Taxes........................    1,024       1,243        572        934        753
                                                    ---------   --------   --------   --------   --------
Income Before Extraordinary Losses and Accounting
 Change...........................................    1,564       2,160      1,034      1,659      1,507
Extraordinary Losses, net of tax (2)..............   (2,796)      --           (87)       (41)     --
Accounting Change, net of tax.....................    --          --           (67)     --           (35)
                                                    ---------   --------   --------   --------   --------
  Net Income (Loss)...............................  $(1,232)    $ 2,160    $   880    $ 1,618    $ 1,472
                                                    ---------   --------   --------   --------   --------
                                                    ---------   --------   --------   --------   --------
Earnings (Loss) Per Share: (3)
  Income Before Extraordinary Losses and
   Accounting Change..............................  $  1.57     $  2.18    $  1.04    $  1.69    $  1.56
  Extraordinary Losses, net of tax (2)............    (2.81)      --          (.09)      (.04)     --
  Accounting Change, net of tax...................    --          --          (.06)     --          (.04)
                                                    ---------   --------   --------   --------   --------
    Net Income (Loss).............................  $(1.24)     $  2.18    $   .89    $  1.65    $  1.52
                                                    ---------   --------   --------   --------   --------
                                                    ---------   --------   --------   --------   --------
Dividends Declared Per Common Share (3)...........  $  1.41     $  1.38    $  1.38    $  1.38    $  1.38
Book Value Per Share (3)..........................  $ 11.90     $ 14.48    $ 13.60    $ 13.97    $ 13.47
Return to Average Common Equity...................     (9.2%)      15.4%       6.3%      11.9%      11.3%
Weighted Average Common Shares Outstanding (3)....      993         992        991        981        968
Return on Average Total Capital...................     (2.7%)      11.5%       6.1%       9.8%       9.4%
Total Assets......................................  $31,880     $34,397    $32,873    $31,463    $30,942
Capital Expenditures..............................  $ 4,203     $ 3,600    $ 3,486    $ 3,189    $ 3,102
Long-Term Debt....................................  $ 7,924     $ 7,435    $ 7,381    $ 7,360    $ 7,677
Debt Ratio at End of Period (4)...................     46.7%       39.3%      40.2%      39.0%      41.3%
Ratio of Earnings to Fixed Charges................     4.24        5.34       2.98       4.00       3.47
Total Employees...................................   87,571      92,121     95,084     97,112     96,084
Telephone Employees (5)...........................   68,585      73,764     77,958     79,453     79,743
Telephone Employees per 10,000 Access Lines.......     32.5        36.5       40.3       42.6       44.1
Business Volumes: (6)
Network Access Lines in Service (thousands).......   21,133      20,220     19,333     18,650     18,035
Access Minutes of Use (millions):
  Interstate......................................   62,411      57,778     53,345     50,546     47,255
  Intrastate......................................   19,197      16,888     15,261     13,994     13,238
Toll Messages (millions)..........................    1,374       1,559      1,511      1,462      1,504
Cellular Customers (thousands): (7)
  Domestic........................................    2,847       2,156      1,559      1,118        774
  International...................................      655         361        192         78         26
                                                    ---------   --------   --------   --------   --------
    Total.........................................    3,502       2,517      1,751      1,196        800
                                                    ---------   --------   --------   --------   --------
                                                    ---------   --------   --------   --------   --------
<FN>
------------------------------
(1) Operating Expenses for 1995 include a work force reduction charge of $1,082,
    which reduced net  income by  $663. Operating  Expenses for  1993 include  a
    charge  for restructuring of  $1,136, which reduced net  income by $697. See
    Note K to the Consolidated Financial Statements.
(2)  For  1995,  reflects   charges  of  $2,718  ($2.73   per  share)  for   the
    discontinuance  of  Statement  of  Financial  Accounting  Standards  No. 71,
    "Accounting for the Effects  of Certain Types of  Regulation" and $78  ($.08
    per  share) related to the refinancing of long-term debt issues. See Notes B
    and F to the Consolidated Financial Statements.
(3) Amounts for 1991 -  1994 have been restated  to reflect a two-for-one  stock
    split effective in November 1995.
(4)  The debt ratio  at December 31, 1995  has been adjusted  to exclude $485 of
    debentures to be redeemed in January 1996.
(5) Telephone employees exclude those employees in BellSouth Telecommunications'
    subsidiaries which are unrelated to telephone operations.
(6) Prior period operating data are revised  at later dates to reflect the  most
    current   information.  The  above  information  reflects  the  latest  data
    available for the periods indicated.
(7) Equity Basis.
</TABLE>

                                       24
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
       (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

    BellSouth Corporation  (BellSouth) is  a  holding company  headquartered  in
Atlanta,   Georgia  whose  operating  telephone  company  subsidiary,  BellSouth
Telecommunications,  Inc.   (BellSouth   Telecommunications)  serves,   in   the
aggregate,  approximately  two-thirds  of  the population  and  one-half  of the
territory within Alabama,  Florida, Georgia,  Kentucky, Louisiana,  Mississippi,
North  Carolina,  South  Carolina  and  Tennessee.  BellSouth Telecommunications
primarily provides  local  exchange  service and  toll  communications  services
within  geographic areas, called  Local Access and  Transport Areas (LATAs), and
provides network access  services to enable  interLATA communications using  the
long-distance  facilities of interexchange carriers. Through subsidiaries, other
telecommunications services  and  products  are provided  primarily  within  the
nine-state  BellSouth  Telecommunications  region.  BellSouth  Enterprises, Inc.
(BellSouth  Enterprises),  another  wholly-owned  subsidiary,  owns   businesses
providing wireless and international communications services and advertising and
publishing products.

    Approximately  70%, 72% and 73% of  BellSouth's Total Operating Revenues for
the years  ended December  31,  1995, 1994  and  1993, respectively,  were  from
wireline  services provided by BellSouth  Telecommunications. Charges for local,
access and toll  services for  the year ended  December 31,  1995 accounted  for
approximately  59%, 33% and 8%, respectively, of the wireline revenues discussed
above. Revenues from wireless communications services and directory  advertising
and publishing services accounted for approximately 14% and 9%, respectively, of
Total  Operating Revenues for the year ended December 31, 1995. The remainder of
such revenues was derived principally from other nonregulated services  provided
by BellSouth Telecommunications.

RESULTS OF OPERATIONS

    All  per share amounts herein reflect a two-for-one stock split effective in
November 1995. See Note H to the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                           PERCENT CHANGE
                                                                       ----------------------
                                                                        1995 VS.    1994 VS.
                                        1995       1994       1993        1994        1993
                                      ---------  ---------  ---------  ----------  ----------
<S>                                   <C>        <C>        <C>        <C>         <C>
Income Before Extraordinary Losses
 and Cumulative Effect of Change in
 Accounting Principle...............  $   1,564  $   2,160  $   1,034     (27.6%)     108.9%
Extraordinary Loss for
 Discontinuance of SFAS No. 71, net
 of tax.............................     (2,718)    --         --          --          --
Extraordinary Loss on Early
 Extinguishment of Debt, net of
 tax................................        (78)    --           (87)      --        (100.0)
Cumulative Effect of Change in
 Accounting Principle, net of tax...     --         --           (67)      --        (100.0)
                                      ---------  ---------  ---------
Net Income (Loss)...................  $  (1,232) $   2,160  $     880      --         145.5
                                      ---------  ---------  ---------
                                      ---------  ---------  ---------
</TABLE>

                                       25
<PAGE>
<TABLE>
<S>                                   <C>        <C>        <C>        <C>         <C>
Earnings (Loss) Per Share:
<CAPTION>

                                                                           PERCENT CHANGE
                                                                       ----------------------
                                                                        1995 VS.    1994 VS.
                                        1995       1994       1993        1994        1993
                                      ---------  ---------  ---------  ----------  ----------
<S>                                   <C>        <C>        <C>        <C>         <C>
Income Before Extraordinary Losses
 and Cumulative Effect of Change in
 Accounting Principle...............     $ 1.57      $2.18      $1.04      (28.0%)     109.6%
Extraordinary Loss for
 Discontinuance of SFAS No. 71, net
 of tax.............................      (2.73)    --         --        --          --
Extraordinary Loss on Early
 Extinguishment of Debt, net
 of tax.............................       (.08)    --          (.09)    --           (100.0)
Cumulative Effect of Change in
 Accounting Principle, net of tax...     --         --          (.06)    --           (100.0)
                                      ---------  ---------  ---------
Earnings (Loss) Per Share...........     $(1.24)     $2.18      $ .89    --            144.9
                                      ---------  ---------  ---------
                                      ---------  ---------  ---------
</TABLE>

    For a  discussion  of  the  extraordinary  losses  in  1995  and  1993,  see
"Extraordinary  Losses"  below;  the  change  in  accounting  principle  in 1993
resulted from  the retroactive  adoption of  Statement of  Financial  Accounting
Standards  (SFAS) No. 112, "Employers'  Accounting for Postemployment Benefits,"
which is discussed in Note M to the Consolidated Financial Statements.

    Income Before  Extraordinary  Losses  and Cumulative  Effect  of  Change  in
Accounting Principle for 1995 decreased $596 (27.6%) and $.61 per share (28.0%),
respectively, compared to 1994. The decreases were primarily due to a work force
reduction  charge in  1995 of $663  ($.67 per  share). For a  discussion of such
charge, see "Operating Expenses  -- Work Force Reduction/Restructuring  Charges"
below.  Also contributing  to the  decreases were the  effects of  gains in 1994
aggregating $108  ($.11 per  share) related  to the  sale of  two  international
cellular  investments. The  decreases were  partially offset  by revenue growth,
driven by continued growth of access  lines and the cellular customer base,  and
cost control measures at BellSouth Telecommunications, including salary and wage
savings attributable to the restructuring plan initiated in 1993.

    Income  Before  Extraordinary  Losses  and Cumulative  Effect  of  Change in
Accounting Principle  for 1994  increased $1,126  (108.9%) and  $1.14 per  share
(109.6%),  respectively,  compared  to  the previous  year.  The  increases were
attributable in  part  to  growth  in  key  business  volumes,  expense  savings
attributable  to BellSouth  Telecommunications' restructuring  plan initiated in
1993 and, as discussed  above, the gains on  sale of two international  cellular
investments.  The increases were also due to the effect of charges in 1993 which
totaled $785 ($.79 per share). Such 1993 charges are comprised of $697 ($.71 per
share) for  restructuring of  BellSouth's telephone  operations (see  "Operating
Expenses  -- Work Force  Reduction/Restructuring Charges" below);  $47 ($.05 per
share)  for  the  initial  impact   of  a  regulatory  settlement  in   Florida;
approximately  $25 ($.02 per  share) associated with  severe 1993 winter weather
conditions; and  $16  ($.01  per  share)  related  to  the  federal  income  tax
legislation enacted in 1993.

                                       26
<PAGE>
VOLUMES OF BUSINESS

    Network Access Lines in Service at December 31 (thousands):

<TABLE>
<CAPTION>
                                                                                  PERCENT CHANGE
                                                                              ----------------------
                                                                               1995 VS.    1994 VS.
                                               1995       1994       1993        1994        1993
                                             ---------  ---------  ---------  ----------  ----------
<S>                                          <C>        <C>        <C>        <C>         <C>
By Type:
  Residence................................     14,653     14,195     13,692       3.2%        3.7%
  Business.................................      6,225      5,771      5,388       7.9         7.1
  Other....................................        255        254        253       0.4         0.4
                                             ---------  ---------  ---------
    Total..................................     21,133     20,220     19,333       4.5         4.6
                                             ---------  ---------  ---------
                                             ---------  ---------  ---------
By State:
  Florida..................................      5,597      5,350      5,097       4.6         5.0
  Georgia..................................      3,550      3,354      3,167       5.8         5.9
  Tennessee................................      2,435      2,337      2,236       4.2         4.5
  Louisiana................................      2,108      2,037      1,963       3.5         3.8
  North Carolina...........................      2,101      1,994      1,896       5.4         5.2
  Alabama..................................      1,792      1,726      1,668       3.8         3.5
  South Carolina...........................      1,292      1,244      1,200       3.9         3.7
  Mississippi..............................      1,158      1,118      1,077       3.6         3.8
  Kentucky.................................      1,100      1,060      1,029       3.8         3.0
                                             ---------  ---------  ---------
    Total..................................     21,133     20,220     19,333       4.5         4.6
                                             ---------  ---------  ---------
                                             ---------  ---------  ---------
</TABLE>

    The  total  number  of  access  lines in  service  since  December  31, 1994
increased by approximately 913,000 (4.5%) to 21,133,000, compared to a 4.6% rate
of increase in 1994. Business and  residence access lines increased by 7.9%  and
3.2%,  respectively, compared  to growth  rates of  7.1% and  3.7% in  1994. The
number of second residence lines,  included in total residence lines,  increased
by  220,000 (20.9%) to 1,271,000 and accounted for approximately 48.0% and 24.1%
of the  overall increase  in  residence access  lines  and total  access  lines,
respectively, since December 31, 1994. Such second residence lines are generally
used  for  home  office  purposes,  access  to  on-line  computer  services  and
children's phones. The growth  in all categories of  access lines was  primarily
attributable  to continued economic improvement  in the Southeast and successful
marketing programs.

    Access Minutes of Use (millions):

<TABLE>
<CAPTION>
                                                                                    PERCENT CHANGE
                                                                              --------------------------
                                                                                1995 VS.      1994 VS.
                                               1995       1994       1993         1994          1993
                                             ---------  ---------  ---------  ------------  ------------
<S>                                          <C>        <C>        <C>        <C>           <C>
Interstate.................................     62,411     57,778     53,345         8.0%          8.3%
Intrastate.................................     19,197     16,888     15,261        13.7          10.7
                                             ---------  ---------  ---------
  Total....................................     81,608     74,666     68,606         9.3           8.8
                                             ---------  ---------  ---------
                                             ---------  ---------  ---------
</TABLE>

    Access  minutes  of  use  represent   the  volume  of  traffic  carried   by
interexchange  carriers  between LATAs,  both  interstate and  intrastate, using
BellSouth Telecommunications' local facilities. In 1995, total access minutes of
use increased by 6,942 million (9.3%) compared  to an increase of 8.8% in  1994.
The  1995 increase in access minutes of use was primarily attributable to access
line growth,  promotions  by  the  interexchange  carriers  and  intraLATA  toll
competition,  which has  the effect  of increasing  access minutes  of use while
reducing toll messages carried  over BellSouth Telecommunications' network.  The
growth  rate in  total minutes  of use  continues to  be negatively  impacted by
competition

                                       27
<PAGE>
and the  migration of  interexchange carriers  to categories  of service  (e.g.,
special  access) that have a  fixed charge as opposed  to a volume-driven charge
and to high capacity services, which causes a decrease in minutes of use.

<TABLE>
<CAPTION>
                                                                                                PERCENT CHANGE
                                                                                           -------------------------
                                                                                            1995 VS.      1994 VS.
                                                            1995       1994       1993        1994          1993
                                                          ---------  ---------  ---------  -----------  ------------
<S>                                                       <C>        <C>        <C>        <C>          <C>
Toll Messages (millions)................................      1,374      1,559      1,511      (11.9%)         3.2%
</TABLE>

    Toll messages are comprised of  Message Telecommunications Service and  Wide
Area  Telecommunications Service. Toll messages decreased by 185 million (11.9%)
in 1995  compared to  an increase  of 3.2%  in 1994.  The decrease  in 1995  was
primarily  attributable to the expansion of local area calling plans in Florida,
Georgia, South Carolina, North Carolina and Mississippi. These plans and  future
implementation  of  other such  plans  in BellSouth  Telecommunications' service
region,  coupled  with  competition  from  the  interexchange  carriers  in  the
intraLATA  toll market, will adversely impact future toll message volumes. Local
area calling plans  and the  effects of competition  result in  the transfer  of
calls  from toll to  local service and access  categories, respectively, but the
corresponding revenues are not generally shifted at commensurate rates.

    Cellular and Paging Customers -- Equity Basis (thousands):

<TABLE>
<CAPTION>
                                                                                                  PERCENT CHANGE
                                                                                            --------------------------
                                                                                              1995 VS.      1994 VS.
                                                             1995       1994       1993         1994          1993
                                                           ---------  ---------  ---------  ------------  ------------
<S>                                                        <C>        <C>        <C>        <C>           <C>
Domestic Cellular........................................      2,847      2,156      1,559        32.1%         38.3%
International Cellular...................................        655        361        192        81.4          88.0
Paging Customers (all domestic)..........................      1,777      1,614      1,232        10.1          31.0
</TABLE>

    The wireless  communications businesses  are  a significant  contributor  to
BellSouth's operations, primarily due to the continued expansion of the customer
base for cellular communications services. Domestic cellular customers increased
by  691,000 (32.1%)  since December  31, 1994.  While the  rate of  increase has
declined since 1994,  the overall  penetration rate  (number of  customers as  a
percentage of the total population in the service territory) increased from 5.5%
at  December 31, 1994  to 7.1% at December  31, 1995. Total  minutes of use have
also continued  to  increase,  although  average minutes  of  use  per  cellular
customer  declined due  to the trend  of increased  penetration into lower-usage
market segments.

    Since December  31, 1994,  the number  of international  cellular  customers
increased  by 294,000  (81.4%) to  655,000. Growth in  total minutes  of use for
international cellular properties  remained strong due  to demand stimulated  by
competitive programs, enhanced services and underdeveloped land-line service.

    Paging  customers increased by  163,000 (10.1%) since  December 31, 1994 due
primarily to  the  continued success  of  the retail  distribution  program.  In
January  1996,  BellSouth  sold  its  paging  subsidiary;  see  Note  C  to  the
Consolidated Financial Statements.

OPERATING REVENUES

    Total Operating  Revenues increased  $1,041 (6.2%)  in 1995  compared to  an
increase  of  $965 (6.1%)  during 1994.  The increases  resulted from  growth in
revenues  from  BellSouth's  wireline  telephone  businesses,  coupled  with   a
significant  increase  in  revenues  from  cellular  communications  businesses.
Traditionally,  local,   access  and   toll   services  offered   by   BellSouth
Telecommunications have primarily accounted for increases in operating revenues.
BellSouth,  however, continues to experience a gradually increasing shift in the
relative contributions of its revenue sources toward wireless services.

                                       28
<PAGE>
    The components of Total Operating Revenues were as follows:

<TABLE>
<CAPTION>
                                                                                       PERCENT CHANGE
                                                                                  ------------------------
                                                                                   1995 VS.     1994 VS.
                                                   1995       1994       1993        1994         1993
                                                 ---------  ---------  ---------  -----------  -----------
<S>                                              <C>        <C>        <C>        <C>          <C>
Local Service..................................  $   7,294  $   6,863  $   6,577        6.3%         4.3%
Interstate Access..............................      3,275      3,127      2,991        4.7          4.5
Intrastate Access..............................        884        908        882       (2.6)         2.9
Toll...........................................      1,009      1,190      1,220      (15.2)        (2.5)
Wireless Communications........................      2,592      2,067      1,553       25.4         33.1
Directory Advertising and Publishing...........      1,677      1,556      1,515        7.8          2.7
Other Services.................................      1,155      1,134      1,142        1.9         (0.7)
                                                 ---------  ---------  ---------
  Total Operating Revenues.....................  $  17,886  $  16,845  $  15,880        6.2          6.1
                                                 ---------  ---------  ---------
                                                 ---------  ---------  ---------
</TABLE>

    LOCAL SERVICE  revenues  reflect  amounts  billed  to  customers  for  local
exchange services, which include connection to the network and secondary central
office  feature services,  such as  custom calling  features and  custom dialing
packages. Local Service revenues for 1995  increased $431 (6.3%) compared to  an
increase of $286 (4.3%) in 1994.

    The  1995 increase was due primarily to  an increase of 913,000 access lines
since December 31, 1994, an increase of  $107 due to higher customer demand  for
TouchStar-Registered  Trademark- and Custom Calling  services, and the effect of
expanded local area calling plans. The increase in 1995 was partially offset  by
net rate reductions since December 31, 1994 of approximately $46.

    The  increase in  1994 was  due primarily to  an increase  of 887,000 access
lines since December  31, 1993.  Also contributing  to the  increase was  growth
attributable  to optional extended area calling  plans. The increase in 1994 was
partially offset  by  rate reductions,  principally  in Louisiana  and  also  in
Florida and Alabama.

    INTERSTATE  ACCESS revenues result from the  provision of access services to
interexchange carriers to  provide telecommunications  services between  states.
Interstate Access revenues increased $148 (4.7%) in 1995 compared to an increase
of $136 (4.5%) in 1994.

    The increase for 1995 was due primarily to growth in minutes of use of 8.0%,
an  increase in end-user charges of $52  attributable to growth in the number of
access lines in service and an increase of $42 due to higher demand for  special
access  services. The 1995 increase was  partially offset by net rate reductions
since December 31, 1994 of approximately $58.

    The 1994 increase was  primarily attributable to growth  in minutes of  use,
additional  end user charges due to access line growth and the effect of billing
and other adjustments recorded in 1993,  which reduced revenues for that  period
by  approximately $20. The  increase was partially  offset by the  effect of net
rate reductions since December 31, 1993  and decreased net settlements with  the
National Exchange Carriers Association.

    See "Operating Environment and Trends of the Business."

    INTRASTATE  ACCESS revenues result from the  provision of access services to
interexchange carriers which provide  telecommunications services between  LATAs
within  a  state.  In  1995, Intrastate  Access  revenues  decreased  $24 (2.6%)
compared to an increase of $26 (2.9%) in 1994.

    The 1995  decrease  was  due  primarily to  net  rate  reductions  of  $100,
partially offset by 13.7% growth in minutes of use.

    For  1994, the increase was attributable to growth in minutes of use and the
reclassification beginning in 1994 of independent telephone company  settlements
in  certain states, which  would have previously  reduced revenues, to operating
expenses. The increase was  partially offset by the  impact of rate  reductions,
primarily in Alabama and Florida.

                                       29
<PAGE>
    TOLL  revenues  are received  from the  provision of  long-distance services
within (but not between) LATAs. These services include intraLATA service  beyond
the  local  calling  area; Wide  Area  Telecommunications Service  (WATS  or 800
services) for customers with highly  concentrated demand; and special  services,
such as transport of voice, data and video. Toll revenues decreased $181 (15.2%)
in 1995 compared to a decrease of $30 (2.5%) in 1994.

    In  1995, the decrease  was due primarily  to a decline  in toll messages of
11.9%. The decline in toll messages reflects the expansion of local area calling
plans and increased competition from interexchange carriers.

    The 1994 decrease  was primarily  attributable to  several settlements  with
independent companies, the reclassification of certain settlements to Intrastate
Access  revenue, net rate reductions  since December 31, 1993  and the impact of
optional extended  area calling  plans.  The decrease  was partially  offset  by
growth  in  toll message  volumes, reflecting  improvements  related in  part to
optional calling plans.

    The overall decline in toll revenues  is expected to continue over the  long
term.

    WIRELESS  COMMUNICATIONS  revenues  include the  revenues  from consolidated
wireless  communications  businesses  (primarily  cellular  and  paging   within
BellSouth Enterprises) as well as revenues from interconnections by unaffiliated
cellular  carriers  with  BellSouth  Telecommunications'  network.  (BellSouth's
interests in the net  income or loss of  the unconsolidated wireless  businesses
within BellSouth Enterprises, which are accounted for under the equity method of
accounting, are recorded in Other Income.)

    Wireless  Communications revenues increased $525 (25.4%) in 1995 compared to
an increase  of $514  (33.1%) in  1994. The  increases for  both years  resulted
primarily  from continued growth  of the customer base  for wireless services in
domestic and international markets.

    As discussed in Note C  to the Consolidated Financial Statements,  BellSouth
sold  its domestic paging subsidiary in  January 1996. Revenues from such paging
services, included  as a  component of  Wireless Communications  revenues,  were
$349, $276 and $207 in 1995, 1994 and 1993, respectively.

    Consistent  with  anticipated  growth  in  the  overall  cellular  industry,
BellSouth's  revenues  from  cellular  services  are  expected  to  continue  to
increase.  However,  the rate  of  growth of  such  revenues could  be adversely
affected by competitive pressures on service pricing and market penetration, the
continuing effect  of  an  increasingly diversified  customer  base  with  lower
average  usage  and  the  development  of  new  technologies,  such  as personal
communications service (PCS).

    DIRECTORY ADVERTISING AND PUBLISHING revenues include revenues derived  from
publishing, printing and selling advertising in, and performing related services
concerning,   alphabetical  and  classified   telephone  directories.  Directory
Advertising and Publishing revenues increased $121 (7.8%) in 1995 compared to  a
$41 (2.7%) increase in 1994.

    The  1995  increase  was  due  primarily  to  increases  in  the  volume  of
advertising sold and  the impact  of BellSouth  Telecommunications' adoption  of
issue   basis  accounting  for   directory  revenues  in   connection  with  the
discontinuance of Statement  of Financial  Accounting Standards  (SFAS) No.  71,
"Accounting  for the Effects of Certain Types of Regulation," which is discussed
in Note B to the Consolidated Financial Statements.

    In 1994 the increase was primarily  attributable to increases in the  volume
and prices of advertising sold.

    OTHER  SERVICES revenues are principally comprised of revenues from customer
premises equipment (CPE) sales and maintenance services, billing and  collection
services  and  other  nonregulated  services  (primarily  inside  wire services)
offered by BellSouth Telecommunications.  Other Services revenues increased  $21
(1.9%) in 1995 compared to a decrease of $8 (0.7%) in 1994.

    The  increase  in  1995  was  due primarily  to  reduced  levels  of revenue
reduction accruals related to potential  sharing under certain state  regulatory
plans coupled with the reclassification of certain such

                                       30
<PAGE>
accruals to Local Service revenues, the combined effect of which increased Other
Services   revenues  by  approximately  $76.  The   increase  was  also  due  to
approximately $41 resulting from  higher demand for  voice messaging and  inside
wire  services.  The increase  was partially  offset  by a  reduction of  $37 in
revenues from billing and collection  services and by approximately $33  related
to  the sale  in April 1994  of BellSouth  Telecommunications' out-of-region CPE
sales and service operations.

    The slight decrease in 1994 was primarily attributable to increased  revenue
reduction  accruals related to potential  sharing under certain state regulatory
plans and the sale in April 1994 of BellSouth Telecommunications'  out-of-region
CPE  sales  and service  operations. The  decrease  was substantially  offset by
higher  demand  for  unregulated  products  and  services,  including  CPE   for
residential customers, voice messaging and inside wire services, and the effects
of  adjustments and  reclassifications related  to services  under certain state
regulatory plans and billing and collection services.

OPERATING EXPENSES

    Primarily as a result  of the work  force reduction charge  in 1995 and  the
restructuring  charge in 1993, Total Operating Expenses increased $1,807 (14.1%)
in 1995 compared to a decrease of  $806 (5.9%) in 1994. The components of  Total
Operating Expenses were as follows:

<TABLE>
<CAPTION>
                                                                                       PERCENT CHANGE
                                                                                  -------------------------
                                                                                    1995 VS.     1994 VS.
                                                   1995       1994       1993         1994         1993
                                                 ---------  ---------  ---------  ------------  -----------
<S>                                              <C>        <C>        <C>        <C>           <C>
Depreciation and Amortization..................  $   3,455  $   3,259  $   3,162         6.0%         3.1%
                                                 ---------  ---------  ---------
Other Operating Expenses:
  Cost of Services and Products................      6,184      6,043      5,865         2.3          3.0
  Selling, General and Administrative..........      3,873      3,485      3,430        11.1          1.6
                                                 ---------  ---------  ---------
                                                    10,057      9,528      9,295         5.6          2.5
                                                 ---------  ---------  ---------
    Subtotal...................................     13,512     12,787     12,457         5.7          2.6
Work Force Reduction/Restructuring Charges.....      1,082     --          1,136       --          (100.0)
                                                 ---------  ---------  ---------
    Total Operating Expenses...................  $  14,594  $  12,787  $  13,593        14.1         (5.9)
                                                 ---------  ---------  ---------
                                                 ---------  ---------  ---------
</TABLE>

    DEPRECIATION  AND AMORTIZATION increased  $196 (6.0%) in  1995 compared to a
$97 (3.1%) increase in 1994.

    The 1995 increase was due primarily to higher levels of property, plant  and
equipment  since  December  31,  1994 resulting  from  sustained  growth  in the
customer base for wireless and wireline services and continued modernization  of
the networks. For a discussion of the impact of discontinuance of SFAS No. 71 on
depreciation   expense  in   1995  and   1996,  see   "Extraordinary  Losses  --
Discontinuance of SFAS No. 71" below.

    The increase in 1994 was due  primarily to higher levels of property,  plant
and  equipment since  December 31, 1993  resulting from continued  growth in the
customer base for wireless and wireline services and continued modernization  of
the networks. The increase for the period was partially offset by the expiration
of  reserve deficiency amortizations  in Louisiana and the  inclusion in 1993 of
$20  related  to  extraordinary  property  retirements  in  conjunction  with  a
regulatory settlement in Florida.

    OTHER  OPERATING EXPENSES are comprised of Cost of Services and Products and
Selling, General  and Administrative.  Cost of  Services and  Products  includes
employee  and  employee-related  expenses  associated  with  network  repair and
maintenance, material  and supplies  expense, cost  of tangible  goods sold  and
other   expenses  associated  with  providing  services.  Selling,  General  and
Administrative includes expenses related to  sales activities such as  salaries,
commissions,   benefits,   travel,  marketing   and  advertising   expenses  and
administrative expenses. Other Operating Expenses increased $529 (5.6%) in  1995
compared to an increase of $233 (2.5%) in 1994.

                                       31
<PAGE>
    The  1995 increase was due primarily  to increased expenses of approximately
$310 related to sustained growth  in the wireless communications customer  base,
reflecting  additional marketing  and operational  costs associated  with higher
levels of sales and expanded operations. At BellSouth Telecommunications,  Other
Operating  Expenses  increased  $114,  which reflected  volume  growth  that was
partially offset by a decrease of approximately $130 for labor costs,  including
expenses  for  employee  benefits. The  decrease  in such  labor  costs reflects
employee reductions  attributable  to  the restructuring  plan  begun  in  1993,
partially offset by annual compensation increases for management and represented
employees.  The 1995 increase in Other  Operating Expenses was also attributable
to approximately $55 related  to growth in the  volume of directory  advertising
sold.

    The  increase  in  1994  was primarily  attributable  to  increased expenses
related  to  growth   in  the  wireless   communications  customer  base.   Also
contributing  to the  increase were expenses  related both to  volume growth and
network modernization in  the core wireline  business and, to  a lesser  extent,
volume  growth  in the  directory advertising  and publishing  businesses. Total
employee-related costs also increased, reflecting annual compensation  increases
for  management and  represented employees,  increased overtime  attributable to
volume growth and network  service activities and  higher expenses for  employee
benefits,  partially offset by salary and  wage savings from employee reductions
attributable  to   the   restructuring  plan   begun   in  1993   at   BellSouth
Telecommunications  and a  $94 reduction  in pension  expense (see  Note I). The
expense increase  in 1994  was  partially offset  by the  sale  in 1994  of  the
out-of-region  CPE sales  and service  operations and  the inclusion  in 1993 of
approximately $55 and $40, respectively,  related to a regulatory settlement  in
Florida and severe 1993 weather conditions.

    WORK  FORCE REDUCTION/RESTRUCTURING CHARGES. In  the fourth quarter of 1995,
BellSouth recognized a pretax  charge of $1,082 ($663  after tax), comprised  of
$942  ($577 after tax)  related to planned  work force reductions  by the end of
1997, $85 ($52 after tax) for expected severance benefit payments after 1997 and
$55 ($34 after tax)  for additional net curtailment  losses related to  employee
reductions under the restructuring plan initiated in 1993.

    Each  component of the overall 1995 work  force reduction charge, as well as
the 1993 restructuring charge, is discussed below.

    1995 WORK FORCE REDUCTION CHARGE. In connection with a  previously-disclosed
plan  to  significantly reduce  its work  force  by the  end of  1997, BellSouth
recorded a pretax charge of $942 in the fourth quarter of 1995. Under this plan,
BellSouth expects to  reduce the  work force of  the core  wireline business  by
approximately  11,300 employees by the end of 1997, including a reduction of 800
employees which occurred in December 1995.

    The work  force reduction  will be  accomplished through  the separation  of
approximately  13,200 employees, partially  offset by the  planned hiring of new
employees primarily to replace those not expected to relocate in connection with
the consolidation of work locations.

    The $942  pretax  charge  is  comprised  of  approximately  $561  under  the
provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
related  to those employees who are expected to receive severance benefits under
preexisting separation  plans, and  approximately  $381 for  curtailment  losses
under  the provisions of SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits"  and
SFAS  No.  106, "Employers'  Accounting for  Postretirement Benefits  Other Than
Pensions." Substantially all of the curtailment losses relate to  postretirement
benefits other than pensions.

    Once  the plan to reduce 11,300 employees is completed, annual employee cost
savings are estimated  to be  approximately $560.  Such annual  savings will  be
partially  offset  by  increased  costs  of  approximately  $60  for  outsourced
services.

    POSTEMPLOYMENT  BENEFITS  CHARGE.  The  pretax  charge  of  $85   represents
estimated  future postemployment severance benefits to  be paid after 1997, also
in accordance with the provisions  of SFAS No. 112.  This component is based  on
BellSouth's  belief  that work  force  reductions will  continue  under existing
separation plans, although at reduced separation benefit levels.

                                       32
<PAGE>
    1993  RESTRUCTURING  OF   TELEPHONE  OPERATIONS.   During  1993,   BellSouth
Telecommunications recognized a $1,136 restructuring charge in connection with a
plan  to redesign, consolidate and streamline the fundamental processes and work
activities in  its telephone  operations. Consistent  with  previously-disclosed
expectations,  the restructuring was  completed in 1995,  about one year earlier
than initially planned.

    As a part  of the restructuring,  BellSouth Telecommunications  consolidated
and  centralized its existing operations. These efforts involved redesign of key
work  processes  and  the   design  of  new   processes  that  facilitated   the
consolidation of service functions and the reduction of 10,200 employees.

    Since  inception of the  restructuring plan, total  employee reductions were
approximately 10,200, including 5,000  since December 31, 1994.  As a result  of
employee  reductions in 1994 and 1995,  employee-related expenses, included as a
component of operating expenses, for the year 1995 were reduced by approximately
$180 compared to the  1994 level. The cumulative  reduction of 10,200  employees
since   inception  of  the  plan   reduced  1995  employee-related  expenses  by
approximately $375. For the year 1996, the cumulative employee reductions  under
the  plan  are projected  to reduce  employee-related expenses  by approximately
$600.

    A summary of employee reductions and expenditures through December 31,  1995
under the 1993 restructuring plan is as follows:

<TABLE>
<CAPTION>
                                           1993     1994     1995    TOTAL
                                          ------   ------   ------   ------
<S>                                       <C>      <C>      <C>      <C>
Employee Reductions.....................  1,300    3,900    5,000    10,200
                                          ------   ------   ------   ------
                                          ------   ------   ------   ------
Expenditures By Component:
  Consolidation and Elimination of
   Operations...........................  $  15    $ 165    $ 231    $  411
  Systems...............................   --        170      244       414
  Employee Separation...................     38      134      251       423
                                          ------   ------   ------   ------
    Total...............................  $  53    $ 469    $ 726    $1,248
                                          ------   ------   ------   ------
                                          ------   ------   ------   ------
Expenditures By Type:
  Cash..................................  $  53    $ 390    $ 648    $1,091
  Noncash...............................   --         79       78       157
                                          ------   ------   ------   ------
    Total...............................  $  53    $ 469    $ 726    $1,248
                                          ------   ------   ------   ------
                                          ------   ------   ------   ------
Capital Expenditures (not included in
 above expenditures)....................  $--      $ 204    $ 250    $  454
                                          ------   ------   ------   ------
                                          ------   ------   ------   ------
</TABLE>

    Total  expenditures  of $1,248  include  $55 of  additional  net curtailment
losses  resulting  from  a  greater  number  of  retirement-eligible   employees
separating  under  the  plan  than  originally  expected.  These  additional net
curtailment losses  were  included  in  the 1995  work  force  reduction  charge
discussed above.

    At  inception  of the  restructuring plan  in  1993, the  projected employee
reductions and expenditures  for each component  of the charge  by year were  as
follows:

<TABLE>
<CAPTION>
                                                             1993       1994       1995       1996       TOTAL
                                                           ---------  ---------  ---------  ---------  ---------
<S>                                                        <C>        <C>        <C>        <C>        <C>
Employee Reductions......................................      1,300      3,700      2,900      2,300     10,200
                                                           ---------  ---------  ---------  ---------  ---------
                                                           ---------  ---------  ---------  ---------  ---------
Consolidation and Elimination of Operations..............  $      15  $     185  $      87  $      56  $     343
Systems..................................................     --            185        156         84        425
Employee Separation......................................         38        143        105         82        368
                                                           ---------  ---------  ---------  ---------  ---------
  Total..................................................  $      53  $     513  $     348  $     222  $   1,136
                                                           ---------  ---------  ---------  ---------  ---------
                                                           ---------  ---------  ---------  ---------  ---------
</TABLE>

                                       33
<PAGE>
OTHER INCOME STATEMENT ITEMS

<TABLE>
<CAPTION>
                                                                                       PERCENT CHANGE
                                                                                   ----------------------
                                                                                    1995 VS.    1994 VS.
                                                    1995       1994       1993        1994        1993
                                                  ---------  ---------  ---------  ----------  ----------
<S>                                               <C>        <C>        <C>        <C>         <C>
Interest Expense................................  $     724  $     666  $     689       8.7%       (3.3%)
Other Income, net...............................         20         11          8      81.8        37.5
Provision for Income Taxes......................      1,024      1,243        572     (17.6)      117.3
</TABLE>

    INTEREST   EXPENSE  includes   interest  on  debt,   certain  other  accrued
liabilities and capital leases,  partially offset by  interest capitalized as  a
cost  of installing equipment and constructing plant. Interest expense increased
$58 (8.7%) in 1995 compared to a decrease of $23 (3.3%) in 1994.

    The 1995  increase was  primarily attributable  to higher  average  interest
rates  on short-term  borrowings and  higher average  debt levels  for long-term
borrowings. The average interest rate on long-term borrowings was slightly lower
in  1995  compared  to  1994,  reflecting  the  initial  impact  of  1995   debt
refinancings at more favorable interest rates.

    The  decrease for 1994 resulted primarily from interest savings attributable
to refinancings in 1993 of long-term debt at lower interest rates. The  decrease
was partially offset by higher average levels of short-term borrowings at higher
average interest rates.

    OTHER   INCOME,  NET  includes  earnings   and  losses  from  unconsolidated
subsidiaries, businesses and  partnerships; gains  and losses from  the sale  of
operations;  interest and dividend income; and minority interests. Other Income,
net increased $9 (81.8%) in 1995 compared to an increase of $3 (37.5%) in 1994.

    The increase in 1995 included a $43  increase in interest income and $18  in
lower  net  minority interest  deductions.  Equity in  losses  of unconsolidated
affiliates was $(86) in 1995 compared to  $(110) in 1994. The lower 1995  losses
reflect  a reduction in losses in  the mobile data communications businesses and
higher income from domestic cellular  operations, partially offset by  increased
losses  from certain developing international businesses, principally operations
in Germany and Israel. The increase in  Other Income was also attributable to  a
$34   increase  in   miscellaneous  income  related   to  nonstrategic  business
activities. The increases  in Other Income  were partially offset  by a gain  of
$108 in 1994, as discussed below.

    The  increase in 1994 reflected  an aggregate gain of  $108 from the sale of
two international cellular investments  and a $22  increase in interest  income.
The  increases were partially offset by a  $29 increase in net minority interest
deductions. Equity in earnings (losses) of unconsolidated affiliates was  $(110)
in 1994 compared to $11 in 1993. The overall 1994 loss reflects increased losses
attributable   to   developing   operations,   principally   the   mobile   data
communications businesses  and, to  a lesser  extent, the  cellular business  in
Germany  and  the  long  distance  telecommunications  business  in  Chile. Such
increased losses were partially offset by an improvement in earnings from  other
unconsolidated domestic and international wireless businesses.

    PROVISION  FOR INCOME  TAXES decreased $219  (17.6%) in 1995  compared to an
increase of $671 (117.3%) in 1994.  BellSouth's effective tax rates were  39.6%,
36.5%  and 35.6% in 1995,  1994 and 1993, respectively.  A reconciliation of the
statutory Federal income tax rates to  these effective tax rates is provided  in
Note  L. A  discussion of  the 1993  adoption of  SFAS No.  109, "Accounting for
Income Taxes," also is included therein.

EXTRAORDINARY LOSSES

    DISCONTINUANCE OF SFAS NO. 71.  As a result of its continuing regulatory and
marketplace assessments, BellSouth  Telecommunications concluded that  it is  no
longer   appropriate  to  prepare  its  external  financial  results  using  the
accounting   method    required    for    regulated    enterprises.    BellSouth
Telecommunications  believes  that based  on  recent changes  in  the regulatory
framework  and  the  increasing  level  of  competition,  it  was  required   to
discontinue  SFAS No.  71 for  financial reporting  purposes. Discontinuance was
required   because    most    of    BellSouth    Telecommunications'    revenues
will  not be  generated under cost-based  regulation and because  it is doubtful
that regulated rates sufficient to recover the net book value of telephone plant
could be charged to and collected from

                                       34
<PAGE>
customers due to the expected levels of future competition. Accordingly, in  the
second quarter of 1995, BellSouth Telecommunications discontinued application of
SFAS  No. 71  and recorded a  noncash extraordinary  charge of $2,718  (net of a
deferred tax benefit of $1,731). The extraordinary charge reflects $3,002 (after
tax) to reduce the recorded value  of long lived telephone plant and  equipment,
all  of which was within the regulatory  framework, to the level appropriate for
nonregulated enterprises.  The  overall  charge was  partially  offset  by  $194
related  to  the  method  by  which  BellSouth  Telecommunications  reports  its
directory publishing  revenues, $71  related to  the elimination  of  regulatory
assets  and  liabilities and  $19 for  the  partial acceleration  of unamortized
investment tax credits associated with  the reductions in asset carrying  values
and in asset lives.

    Recent  changes in its regulatory framework and the simultaneous elimination
of legal and regulatory barriers for its competitors both support discontinuance
of SFAS No. 71. In the regulatory arena, implementation of price regulation  has
been  and  continues  to  be  a  cornerstone  in  BellSouth  Telecommunications'
corporate strategy. Due  in part  to this  strategy, changes  in the  regulatory
framework  are now being  implemented (see "Operating  Environment and Trends of
the Business"). As a result of such changes, a significant portion of  BellSouth
Telecommunications' revenue will no longer be regulated based on the recovery of
specific   costs.   Furthermore,  BellSouth   Telecommunications   expects  that
competition in its local exchange markets will accelerate. The removal of  legal
and  regulatory  barriers  is  expected to  encourage  potential  competitors to
accelerate deployment of competing networks to either compete directly for local
service or to bypass the BellSouth Telecommunications network for long  distance
access.  Potential competitors  have continued  to make  investments in wireless
licenses, cable properties and enhanced interexchange networks, which serves  as
further evidence of increased competition.

    In   connection  with  the  discontinuance  of  SFAS  No.  71,  the  average
depreciable lives of significant categories  of long lived telephone plant  were
reduced  to  more  closely reflect  the  economic and  technological  lives. The
application of such  shorter lives  does not result  in a  material increase  in
depreciation expense.

    See Note B to the Consolidated Financial Statements.

    EARLY   EXTINGUISHMENT   OF   DEBT.   During   1995   and   1993,  BellSouth
Telecommunications recognized extraordinary losses of $78 (net of a current  tax
benefit  of $49) and  $87 (net of  a current tax  benefit of $59), respectively,
related to the early  extinguishment of outstanding debt  issues. See Note F  to
the Consolidated Financial Statements.

FINANCIAL CONDITION

    BellSouth  uses  the net  cash generated  from  its operations  and external
financing to fund capital expenditures, pay dividends and invest in and  operate
its  existing operations and new  businesses. While current liabilities exceeded
current assets at both December 31, 1995 and 1994, BellSouth's sources of  funds
--  primarily  from  operations  and,  to  the  extent  necessary,  from readily
available external financing arrangements -- are sufficient to meet all  current
obligations  on a  timely basis. BellSouth  believes that such  sources of funds
will be sufficient to meet the needs of its business for the foreseeable future.

<TABLE>
<CAPTION>
                                                                                           PERCENT CHANGE
                                                                                     --------------------------
                                                                                       1995 VS.      1994 VS.
                                                    1995        1994        1993         1994          1993
                                                 ----------  ----------  ----------  ------------  ------------
<S>                                              <C>         <C>         <C>         <C>           <C>
Net Cash Provided by Operating Activities......  $  5,443    $  5,172    $  4,687           5.2%         10.3%
</TABLE>

    OPERATING ACTIVITIES.  Net cash  provided by operating activities  increased
$271  (5.2%)  in 1995  compared  to an  increase of  $485  (10.3%) in  1994. The
increase in 1995  was primarily  attributable to  a $512  increase in  operating
income  excluding  depreciation,  amortization  and  the  work  force  reduction
charges. Such increase in 1995 operating  income was partially offset by  higher
cash expenditures of $258 related to the restructuring plan begun in 1993.

                                       35
<PAGE>
    The  increase  in 1994,  primarily  attributable to  a  higher level  of net
income, was  partially  offset by  cash  expenditures  of $390  related  to  the
restructuring plan begun in 1993.

<TABLE>
<CAPTION>
                                                                                           PERCENT CHANGE
                                                                                     --------------------------
                                                                                       1995 VS.      1994 VS.
                                                      1995       1994       1993         1994          1993
                                                    ---------  ---------  ---------  ------------  ------------
<S>                                                 <C>        <C>        <C>        <C>           <C>
Net Cash Used for Investing Activities............  $  (4,384) $  (3,935) $  (3,435)       11.4%         14.6%
</TABLE>

    INVESTING ACTIVITIES. BellSouth's primary use of capital resources continues
to  be  for capital  expenditures  to support  development  of the  wireline and
wireless networks. Net cash used for investing activities increased $449 (11.4%)
in 1995 compared to an  increase of $500 (14.6%) in  1994. The increase in  1995
was  primarily due to higher capital  expenditures of $603 related substantially
to wireline and wireless  network development, partially  offset by higher  cash
proceeds of $188 from investment dispositions and repayment of advances.

    Capital   expenditures  were  $4,203  in  1995   and  are  projected  to  be
approximately $4,000 to $4,300 in 1996. Such capital expenditures for 1995  were
financed internally and, for 1996, are expected to be financed primarily through
internally generated funds and, to the extent necessary, from external sources.

    The  increase  in  1994  was primarily  attributable  to  increases  in cash
investments and advances to unconsolidated affiliates and capital  expenditures.
Cash used for investments and advances to unconsolidated affiliates increased by
$321  (106.3%) to $623. Of such total, approximately 48% was for investments and
advances to  the  mobile  data  communications businesses  and  the  German  and
Venezuelan  cellular businesses and  30% was loaned  to Prime South Diversified,
Inc. which  indirectly  wholly  owns  Community Cable  TV,  a  Las  Vegas  cable
operation managed by Prime Cable. The remainder was invested in other businesses
in  which BellSouth has  an interest. Capital  expenditures for all consolidated
BellSouth companies increased by $114  (3.3%) to $3,600. Substantially all  cash
required for capital expenditures in 1994 was provided internally.

<TABLE>
<CAPTION>
                                                                                       PERCENT CHANGE
                                                                                  -------------------------
                                                                                   1995 VS.      1994 VS.
                                                   1995       1994       1993        1994          1993
                                                 ---------  ---------  ---------  -----------  ------------
<S>                                              <C>        <C>        <C>        <C>          <C>
Net Cash Provided by (Used for) Financing
 Activities....................................  $      46  $  (1,132) $  (1,016)     --             11.4%
</TABLE>

    FINANCING ACTIVITIES. During 1995, financing activities provided cash of $46
while  in 1994 financing activities used cash  of $(1,132). The change from 1994
to 1995 of  $1,178 primarily  reflects higher levels  of net  proceeds from  all
borrowing activities in 1995 compared to 1994.

    In  September  1995, BellSouth's  Board  of Directors  raised  the quarterly
dividend by $.015 per share to a total  of $.36 per share and declared the  same
$.36 per share dividend again in November 1995.

    The  increase in 1994 was primarily attributable to increases of $62 in cash
dividends paid  to  shareholders  and  $3,447  for  debt  repayments,  primarily
short-term borrowings. The effect of these increases was substantially offset by
an increase of $3,427 in proceeds from all borrowings.

    DEBT  ACTIVITIES. During 1995, BellSouth issued  $500 of long-term debt and,
with net proceeds,  refinanced outstanding  short-term debt.  Also during  1995,
BellSouth  issued approximately $1,900 of long-term  debt to refinance $1,885 of
outstanding long-term  debentures,  including  $485 of  debentures  redeemed  in
January  1996. The funds  to redeem the  $485 of debentures  in January 1996 are
included in  Cash and  Cash Equivalents  in the  Consolidated Balance  Sheet  at
December  31, 1995. In  addition, Cash and Cash  Equivalents includes $500 which
was used to redeem commercial paper on January 2, 1996.

    BellSouth has committed credit lines aggregating $1,539 with various  banks.
Borrowings  under the committed  credit lines totaled $21  at December 31, 1995.
BellSouth also maintains uncommitted  lines of credit of  $650. At December  31,
1995,  there were no borrowings under the  uncommitted lines. As of February 15,
1996, shelf  registration  statements  were  on file  with  the  Securities  and
Exchange  Commission under  which $2,227  of debt  securities could  be publicly
offered.

                                       36
<PAGE>
    BellSouth's debt to total capitalization ratio, adjusted to exclude the $485
of debentures redeemed in January 1996, increased to 46.7% at December 31,  1995
from 39.3% at December 31, 1994. The increase was mostly caused by the reduction
in equity due to the extraordinary loss from the discontinuance of SFAS No. 71.

    DERIVATIVE  ACTIVITIES.  BellSouth  is  party  to  foreign  exchange forward
contracts, currency swap  agreements and  interest rate swap  agreements in  its
normal  course of business for hedging purposes. These financial instruments are
used to mitigate  foreign currency  and interest  rate risks,  although to  some
extent  they expose  the company  to market and  credit risks.  The credit risks
associated with  these instruments  are controlled  through the  evaluation  and
continual monitoring of the creditworthiness of the counterparties. In the event
that  a  counterparty  fails to  meet  the  terms of  a  contract  or agreement,
BellSouth's  exposure  is  limited  to  the  currency  rate  or  interest   rate
differential,  not the full notional amount.  Such contracts and agreements have
been executed with creditworthy financial institutions whose credit ratings  are
generally   AA/Aa  or  higher.   As  such,  BellSouth   considers  the  risk  of
nonperformance to be remote. See Note O to the Consolidated Financial Statements
for additional information.

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

    REGULATORY ENVIRONMENT. In providing telecommunications services,  BellSouth
Telecommunications is subject to regulation by both state and federal regulators
with respect to rates, services and other issues. BellSouth's primary regulatory
focus  continues to be  directed toward modifying the  regulatory process to one
that is more closely aligned with changing market conditions and overall  public
policy  objectives. BellSouth believes that  price regulation, whereby prices of
basic local exchange services are regulated based on factors other than rate  of
return  and prices for other products and  services are based on market factors,
is a logical  progression to  competitive fairness and  provides advantages  for
consumers.  While price regulation plans limit the amount of increases in prices
for specified  services, such  plans  enhance the  company's ability  to  adjust
prices  and  service  options to  more  effectively respond  to  changing market
conditions and competition and enable it to more fully benefit from productivity
enhancements. Price regulation  plans have  been approved or  authorized by  the
requisite  legislative  or regulatory  bodies  in Alabama,  Florida  (although a
sharing  requirement  exists   at  least  through   1996),  Georgia,   Kentucky,
Mississippi,  South Carolina and Tennessee, and approval of a plan is pending in
North Carolina. In addition, BellSouth  Telecommunications has filed a  proposed
price   regulation  plan   in  Louisiana.   At  the   federal  level,  BellSouth
Telecommunications  is  operating  under   an  interim  price  regulation   plan
established  by the Federal  Communications Commission (FCC)  in 1995. This plan
provided a  productivity option,  which BellSouth  Telecommunications  selected,
that  eliminated both earnings limitations and  sharing requirements. The FCC is
expected to consider further the interim  rules as well as other issues  related
to  competition,  streamlined  regulation  and other  matters  contained  in the
Telecommunications Act of 1996 (the 1996 Act).  A final order is expected to  be
issued in 1996.

    ECONOMY.  The nation's output of goods and  services, which grew 4% in 1994,
expanded 3.2% in 1995. Employment  in nonfarm business establishments grew  2.3%
during  the year and the unemployment  rate averaged 5.6%. The nine-state region
served by BellSouth Telecommunications wireline telephone business  outperformed
the  nation again in 1995. The number of jobs in nonfarm businesses grew 2.8% as
the unemployment rate  averaged 5.1% for  the year. Real  income expanded at  an
estimated  4.5%  rate.  Net in-migration  added  approximately  375,000 persons,
accounting  for  half  of  the  region's  population  growth.  The  demand   for
telecommunications services in the region reflected the strength of its economic
and  population growth.  While the  economic expansion  is expected  to continue
through 1996, boosted in Georgia in particular  by the Olympic games to be  held
in  July and  August, tight  labor markets, slow  labor force  growth and modest
productivity growth  will  likely  result  in slower  output  growth.  Its  cost
advantages  and strong  net in-migration promise  to keep  the region's economic
performance comparatively better than the nation's and to bring increased demand
for telecommunications services. The  increasing competition faced by  BellSouth
Telecommunications  and  the  growing  percentage  of  revenues  from  BellSouth
Enterprises make BellSouth's financial  performance more susceptible to  changes
in  the economy than previously, as  its operations reflect the more competitive
business environment and the  greater demand elasticities  for its products  and
services.

                                       37
<PAGE>
    COMPETITION.  Developments in the telecommunications marketplace continue to
indicate that a technological convergence  is occurring in the telephone,  cable
and  broadcast  television,  computer,  entertainment  and  information services
industries. The technologies  utilized and being  developed in these  industries
are  able to provide multiple and  integrated communications offerings. A number
of  large  companies,  including   AT&T  Corp.  (AT&T)   and  the  other   major
interexchange  carriers, other Bell Holding Companies  and cable and other video
and entertainment  companies,  have  completed  acquisitions  and  entered  into
business  alliances that  will ultimately  intensify and  expand competition for
local and  toll  communications  and  other  services  currently  provided  over
BellSouth's  networks. Other competitors  have announced plans  to build, and in
certain locations  have  begun  construction of,  local  phone  connections  and
private  networks that would permit business and residential customers to bypass
the facilities  of  local  telephone companies,  including  those  of  BellSouth
Telecommunications in certain cities in its service territory.

    In   conjunction  with  the  approval   of  state  price  regulation  plans,
competition for local service has  been authorized by legislative or  regulatory
action   in  Alabama,  Florida,  Georgia,  North  Carolina  and  Tennessee,  and
proceedings to  consider  local service  competition  are pending  in  Kentucky,
Louisiana  and Mississippi. In addition, the 1996 Act preempts state legislative
and regulatory barriers to competition for local telephone service, subject only
to competitively neutral requirements to assure quality service consistent  with
public  safety, convenience  and consumer welfare.  AT&T, MCI Telecommunications
Corporation (MCI), U S West, Inc. (U S West) and a number of other carriers have
filed applications and have announced their  intent to provide local service  in
many  of the areas  in which BellSouth  Telecommunications provides service. The
new legislation allows for the  Bell Holding Companies, including BellSouth,  to
compete  for  interLATA  toll business  in  states outside  their  local service
territories prior  to the  time that  such companies  can offer  interLATA  toll
services  in states  within their  local service  territories. BellSouth expects
Bell Holding Companies and  interexchange carriers, including  AT&T and MCI,  to
compete for interLATA toll service and local service business. Those competitors
that choose to provide local service predominantly over their own facilities may
bundle  local and toll service offerings. Such services could be provided before
BellSouth becomes eligible to provide interLATA service within the states in its
region.

    Notwithstanding the risks associated  with increased competition,  BellSouth
will  have opportunities  to benefit from  entry into new  business markets. For
example, the presence  of competition  will allow  the entry  by BellSouth  into
interLATA  wireline  businesses under  provisions contained  in the  new federal
telecommunications legislation.  BellSouth  believes  that in  order  to  remain
competitive  in the future, it must  aggressively pursue a corporate strategy of
expanding its offerings  beyond its  traditional businesses  and markets.  These
offerings  may include  interLATA services,  information services  and video and
electronic  commerce  services.  As  a  part  of  this  strategy,  BellSouth  is
conducting a trial of video dial tone services; acquiring broadband PCS licenses
in certain areas of its wireline territories; and forming business alliances and
partnerships, both domestically and internationally, related to the provision of
interactive  and traditional video programming services  as well as wireless and
wireline communications services.

    As a result  of the  1996 Act,  BellSouth is freed  from many  of the  laws,
regulations  and  judicial  restrictions (including  the  Modification  of Final
Judgment) that constrained the provision of voice, data and video communications
throughout its wireline service territory  and elsewhere. The FCC has  commenced
rulemaking  proceedings relating  to the provision  of interLATA  service by the
Bell Holding Companies. After necessary federal and state proceedings, BellSouth
may apply to the FCC to offer interLATA wireline services within its  nine-state
region,  and the FCC must  act on such application within  90 days. The FCC must
grant such application if it determines that BellSouth (a) has met a competitive
checklist; (b) has shown  (i) the presence  of facilities-based competition  for
residential  and  business  local service  or  (ii)  in the  absence  thereof, a
statement of the terms under  which it would be  willing to interconnect with  a
competitive  local  carrier; (c)  will  operate consistently  with  the separate
subsidiary requirement;  and  (d)  will  meet the  1996  Act's  public  interest
requirement in so offering the services on the foregoing conditions.

    BellSouth  is not  required to  obtain such  FCC approval  prior to offering
out-of-region interLATA  wireline  or nationwide  interLATA  wireless  services.
BellSouth  has begun  to offer  interLATA wireless  service. BellSouth  plans to
begin offering interLATA  wireline service  within its  nine-state territory  as
soon  as  possible after  completion of  FCC  and state  regulatory proceedings,
expected to be concluded in

                                       38
<PAGE>
late 1996 or early 1997; however, no  assurance can be provided with respect  to
when  BellSouth will be authorized to  initiate such interLATA wireline service.
BellSouth has no plans to offer  out-of-region interLATA wireline services on  a
significant scale.

    After some modifications to its network and operating systems, both wireline
and  wireless interLATA services  can be offered by  BellSouth. However, many of
the telecommunications  services  that  BellSouth and  the  other  Bell  Holding
Companies  may provide may be subject to  extensive regulations to be adopted by
the FCC and state regulatory commissions.

    The 1996 Act allows,  without additional approval,  BellSouth to market  its
wireless  services  jointly with  its wireline  local exchange  services; before
separate marketing was required for  cellular services. In addition, such  joint
marketing  will include interLATA wireline  services in the nine-state territory
when authorized. BellSouth expects to begin a joint marketing trial for wireline
local exchange and cellular services later in 1996.

    As another part of its competitive strategy, BellSouth has completed a  1993
restructuring  plan to  streamline its telephone  operations and  to improve its
overall cost structure  and has  undertaken a plan  to further  reduce its  work
force  by the  end of 1997.  BellSouth Telecommunications is  continuing to seek
additional ways  to better  enhance  customer service  and productivity  and  to
further  improve  its cost  structure.  As a  result  of these  ongoing efforts,
additional changes to  fundamental business  processes and  work activities  are
expected.

    BellSouth  may  consider (a)  investments in,  strategic alliances  with and
acquisitions  of  established   companies  that   provide  interLATA   services,
information  services and  video and  electronic commerce  services and  (b) the
development of such services and capabilities internally. Such transactions,  if
accomplished,  could initially reduce earnings  and require substantial capital.
Financing for such business opportunities would be provided from funds generated
through internal operations and from external sources.

OTHER MATTERS

    CWA CONTRACTS. In  October 1995,  members of the  Communications Workers  of
America  (CWA) ratified new three-year contracts with BellSouth. These contracts
were effective in  August 1995. The  contracts include basic  wage increases  of
10.9%  (compounded) over three years. In addition, the agreement provided a cash
payment of  one thousand  one hundred  dollars to  each eligible  employee  upon
ratification  and  provides payments  of one  thousand  one hundred  dollars per
eligible employee  in either  cash or  BellSouth  stock, at  the option  of  the
employee,  on the 1996 and  1997 contract anniversary dates.  Other terms of the
agreement include discontinuance  of annual  wage adjustments based  on cost  of
living increases and discontinuance of annual incentive payments.

    ACCOUNTING PRONOUNCEMENTS. In March 1995, the Financial Accounting Standards
Board  (FASB) issued SFAS No. 121,  "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which BellSouth is required
to adopt  effective  January  1,  1996.  SFAS  No.  121  establishes  accounting
standards   for  the  impairment  of  long-lived  assets,  certain  identifiable
intangibles and goodwill. The adoption of SFAS No. 121 is not expected to have a
material impact on BellSouth's financial  position, annual operating results  or
cash flows.

    In  October 1995, the FASB issued  SFAS No. 123, "Accounting for Stock-Based
Compensation," which BellSouth is required  to adopt effective January 1,  1996.
SFAS No. 123 establishes optional alternative accounting methods for stock-based
compensation  as  well as  new required  disclosures.  BellSouth has  elected to
account  for  stock-based  compensation  under  previously-existing   accounting
guidance.  As such, SFAS No. 123 will be adopted in 1996 for disclosure purposes
only and  will  not  impact BellSouth's  financial  position,  annual  operating
results or cash flows.

                                       39
<PAGE>
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              REPORT OF MANAGEMENT

    To the Shareholders of BellSouth Corporation:

    These  financial statements have been  prepared in conformity with generally
accepted accounting  principles  and have  been  audited by  Coopers  &  Lybrand
L.L.P., independent accountants, whose report is contained herein.

    The  integrity  and  objectivity of  the  data in  the  financial statements
including estimates and judgments relating to  matters not concluded by the  end
of  the year, are the responsibility  of the management of BellSouth. Management
has also  prepared  all  other information  included  therein  unless  indicated
otherwise.

    Management  maintains  a system  of  internal accounting  controls  which is
continuously reviewed  and evaluated.  However, there  are inherent  limitations
that  should be recognized in considering  the assurances provided by any system
of internal accounting controls. The concept of reasonable assurance  recognizes
that  the cost of a system of internal accounting controls should not exceed, in
management's judgment,  the benefits  to be  derived. Management  believes  that
BellSouth's  system does provide reasonable  assurance that the transactions are
executed in accordance with management's general or specific authorizations  and
are  recorded properly to  maintain accountability for assets  and to permit the
preparation of  financial  statements  in  conformity  with  generally  accepted
accounting  principles.  Management  also  believes  that  this  system provides
reasonable assurance that access to assets is permitted only in accordance  with
management's  authorizations,  that the  recorded  accountability for  assets is
compared with the existing assets  at reasonable intervals and that  appropriate
action is taken with respect to any differences. Management also seeks to assure
the  objectivity and integrity of its financial data by the careful selection of
its  managers,  by  organizational  arrangements  that  provide  an  appropriate
division of responsibility and by communications programs aimed at assuring that
its policies, standards and managerial authorities are understood throughout the
organization.  Management is also  aware that changes  in operating strategy and
organizational structure  can give  rise to  disruptions in  internal  controls.
Special attention is given to controls while the changes are being implemented.

    Management  maintains a strong internal  auditing program that independently
assesses the  effectiveness of  the internal  controls and  recommends  possible
improvements  thereto.  In addition,  as part  of its  audit of  these financial
statements, Coopers  &  Lybrand L.L.P.  completed  a review  of  the  accounting
controls  to establish a  basis for reliance thereon  in determining the nature,
timing and extent of  audit tests to be  applied. Management has considered  the
internal auditor's and Coopers & Lybrand L.L.P.'s recommendations concerning the
system  of  internal  controls  and  has  taken  actions  that  it  believes are
cost-effective  in  the   circumstances  to  respond   appropriately  to   these
recommendations. Management believes that as of December 31, 1995, the system of
internal controls was adequate to accomplish the objectives discussed herein.

    Management also recognizes its responsibility for fostering a strong ethical
climate  so  that BellSouth's  affairs are  conducted  according to  the highest
standards of personal and corporate conduct. This responsibility is communicated
to all  employees through  policies  and guidelines  addressing such  issues  as
conflict   of  interest,  safeguarding  of  BellSouth's  real  and  intellectual
properties, providing equal employment opportunities and ethical relations  with
customers,  suppliers  and governmental  representatives. BellSouth  maintains a
program to  assess compliance  with  these policies  and our  ethical  standards
through   its  Vice  President  --   Corporate  Responsibility  and  Compliance,
designated as the ombudsman/ethics officer who reports directly to the  Chairman
of the Board on these matters.

<TABLE>
<S>                                            <C>
/s/ John L. Clendenin                          /s/ Ronald M. Dykes
CHAIRMAN OF THE BOARD, PRESIDENT               EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
AND CHIEF EXECUTIVE OFFICER                    OFFICER AND COMPTROLLER
</TABLE>

February 5, 1996

                                       40
<PAGE>
                       AUDIT COMMITTEE CHAIRMAN'S LETTER

    The  Audit Committee of the Board of  Directors consists of four members who
are neither officers nor employees  of BellSouth Corporation. Information as  to
these  persons, as well as their duties, is provided in the Proxy Statement. The
Audit Committee  met  seven  times  during 1995  and  reviewed  with  the  Chief
Corporate  Auditor,  Coopers  &  Lybrand  L.L.P.  and  management  current audit
activities, plans  and  the  results  of selected  internal  audits.  The  Audit
Committee  also reviewed the objectivity of  the financial reporting process and
the adequacy of internal controls.  The Audit Committee recommended, subject  to
shareholder  ratification, the  appointment of  the independent  accountants and
considered factors  relating  to  their independence.  In  addition,  the  Audit
Committee  provided  guidance in  matters  regarding ethical  considerations and
business conduct, reviewed  the operations  of political  action committees  and
monitored  compliance with laws and regulations. The Chief Corporate Auditor and
Coopers & Lybrand L.L.P. each met privately with the Audit Committee on occasion
to encourage confidential discussions as to any auditing matters.

                                          /s/ Marshall M. Criser
                                          CHAIRMAN, AUDIT COMMITTEE
February 5, 1996

                                       41
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders
BellSouth Corporation
Atlanta, Georgia

    We have audited  the accompanying consolidated  balance sheets of  BellSouth
Corporation  as  of December  31, 1995  and 1994,  and the  related consolidated
statements of income, shareholders' equity and cash flows for each of the  three
years  in the period ended December 31, 1995. These financial statements are the
responsibility of BellSouth'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, the financial statements  referred to above present fairly,
in all  material  respects, the  consolidated  financial position  of  BellSouth
Corporation  as of December 31,  1995 and 1994, and  the consolidated results of
its operations and  its cash flows  for each of  the three years  in the  period
ended  December  31,  1995,  in conformity  with  generally  accepted accounting
principles.

    As discussed in Note B  to the consolidated financial statements,  BellSouth
discontinued accounting for the operations of BellSouth Telecommunications, Inc.
in   accordance  with  Statement  of  Financial  Accounting  Standards  No.  71,
"Accounting for the Effects of Certain Types of Regulation," effective June  30,
1995.  Also, as  discussed in  Notes I,  L and  M to  the consolidated financial
statements, BellSouth  changed  its  method  of  accounting  for  postretirement
benefits other than pensions, income taxes and postemployment benefits in 1993.

                                          /s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 5, 1996

                                       42
<PAGE>
                             BELLSOUTH CORPORATION
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                                            -----------------------------------
                                                                              1995         1994         1993
                                                                            ---------    ---------    ---------
<S>                                                                         <C>          <C>          <C>
Operating Revenues:
  Network and related services:
    Local service.......................................................    $   7,294    $   6,863    $   6,577
    Interstate access...................................................        3,275        3,127        2,991
    Intrastate access...................................................          884          908          882
    Toll................................................................        1,009        1,190        1,220
  Wireless communications...............................................        2,592        2,067        1,553
  Directory advertising and publishing..................................        1,677        1,556        1,515
  Other services........................................................        1,155        1,134        1,142
                                                                            ---------    ---------    ---------
    Total Operating Revenues............................................       17,886       16,845       15,880
                                                                            ---------    ---------    ---------
Operating Expenses:
  Cost of services and products.........................................        6,184        6,043        5,865
  Depreciation and amortization.........................................        3,455        3,259        3,162
  Selling, general and administrative...................................        3,873        3,485        3,430
  Work force reduction/restructuring charges (Note K)...................        1,082       --            1,136
                                                                            ---------    ---------    ---------
    Total Operating Expenses............................................       14,594       12,787       13,593
                                                                            ---------    ---------    ---------
Operating Income........................................................        3,292        4,058        2,287
Interest Expense........................................................          724          666          689
Other Income, net.......................................................           20           11            8
                                                                            ---------    ---------    ---------
Income Before Income Taxes, Extraordinary Losses and Cumulative Effect
 of Change in Accounting Principle......................................        2,588        3,403        1,606
Provision for Income Taxes (Note L).....................................        1,024        1,243          572
                                                                            ---------    ---------    ---------
Income Before Extraordinary Losses and Cumulative
 Effect of Change in Accounting Principle...............................        1,564        2,160        1,034
Extraordinary Loss for Discontinuance of SFAS No. 71,
 net of tax (Note B)....................................................       (2,718)      --           --
Extraordinary Loss on Early Extinguishment of Debt,
 net of tax (Note F)....................................................          (78)      --              (87)
Cumulative Effect of Change in Accounting Principle,
 net of tax (Note M)....................................................       --           --              (67)
                                                                            ---------    ---------    ---------
    Net Income (Loss)...................................................    $  (1,232)   $   2,160    $     880
                                                                            ---------    ---------    ---------
                                                                            ---------    ---------    ---------
Weighted Average Common Shares Outstanding (Note H).....................          993          992          991
Dividends Declared Per Common Share (Note H)............................    $    1.41    $    1.38    $    1.38
Earnings Per Share: (Note H)
  Income Before Extraordinary Losses and Cumulative
   Effect of Change in Accounting Principle.............................    $    1.57    $    2.18    $    1.04
  Extraordinary Loss for Discontinuance of SFAS No. 71,
   net of tax (Note B)..................................................        (2.73)      --           --
  Extraordinary Loss on Early Extinguishment of Debt,
   net of tax (Note F)..................................................         (.08)      --             (.09)
  Cumulative Effect of Change in Accounting Principle,
   net of tax (Note M)..................................................       --           --             (.06)
                                                                            ---------    ---------    ---------
    Net Income (Loss)...................................................    $   (1.24)   $    2.18    $     .89
                                                                            ---------    ---------    ---------
                                                                            ---------    ---------    ---------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       43
<PAGE>
                             BELLSOUTH CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                       DECEMBER 31,
                                                                                                   --------------------
                                                                                                     1995       1994
                                                                                                   ---------  ---------
<S>                                                                                                <C>        <C>
ASSETS
Current Assets:
  Cash and cash equivalents......................................................................  $   1,711  $     606
  Temporary cash investments.....................................................................         71         51
  Accounts receivable, net of allowance for uncollectibles of $171 and $154......................      3,772      3,127
  Material and supplies..........................................................................        430        490
  Other current assets...........................................................................        521        454
                                                                                                   ---------  ---------
                                                                                                       6,505      4,728
                                                                                                   ---------  ---------
Investments and Advances (Note C)................................................................      2,418      2,532
Property, Plant and Equipment, net (Note D)......................................................     21,092     25,162
Deferred Charges and Other Assets................................................................        338        535
Intangible Assets, net...........................................................................      1,527      1,440
                                                                                                   ---------  ---------
    Total Assets.................................................................................  $  31,880  $  34,397
                                                                                                   ---------  ---------
                                                                                                   ---------  ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Debt maturing within one year: (Note F)
    Debentures to be redeemed in January 1996....................................................  $     485  $  --
    Other........................................................................................      2,466      2,019
  Accounts payable...............................................................................      1,724      1,378
  Other current liabilities (Note E).............................................................      2,715      3,101
                                                                                                   ---------  ---------
                                                                                                       7,390      6,498
                                                                                                   ---------  ---------
Long-Term Debt (Note F)..........................................................................      7,924      7,435
                                                                                                   ---------  ---------
Deferred Credits and Other Liabilities:
  Accumulated deferred income taxes..............................................................      1,650      3,647
  Unamortized investment tax credits.............................................................        355        443
  Other liabilities and deferred credits (Note G)................................................      2,736      2,006
                                                                                                   ---------  ---------
                                                                                                       4,741      6,096
                                                                                                   ---------  ---------
Shareholders' Equity:
  Common stock, $1 par value (2,200 and 1,100 shares authorized; 994 and 496 shares
   outstanding)..................................................................................      1,007        503
  Paid-in capital................................................................................      7,619      8,064
  Retained earnings..............................................................................      4,099      6,721
  Shares held in trust (Note H)..................................................................       (374)      (336)
  Guarantee of ESOP debt (Notes H and I).........................................................       (526)      (584)
                                                                                                   ---------  ---------
                                                                                                      11,825     14,368
                                                                                                   ---------  ---------
    Total Liabilities and Shareholders' Equity...................................................  $  31,880  $  34,397
                                                                                                   ---------  ---------
                                                                                                   ---------  ---------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       44
<PAGE>
                             BELLSOUTH CORPORATION
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                       NUMBER OF SHARES                                 AMOUNT
                                     ---------------------   -------------------------------------------------------------
                                                  SHARES                                       SHARES
                                      COMMON       HELD        PAR     PAID-IN   RETAINED       HELD          GUARANTEE OF
                                       STOCK     IN TRUST     VALUE    CAPITAL   EARNINGS     IN TRUST         ESOP DEBT
                                     ---------   ---------   -------   -------   --------   -------------     ------------
<S>                                  <C>         <C>         <C>       <C>       <C>        <C>               <C>
Balance at December 31, 1992.......      494        --       $   494   $ 7,610   $  6,395     $ --            $    (700)
Net income.........................                                                   880
Dividends declared.................                                                (1,369)
Shares issued for:
  Shareholder Dividend Reinvestment
   and Stock Purchase Plan.........        1                       1        81
  Employee benefit plans...........        1                       1        32
  Grantor trusts...................        6         (6)           6       287                    (293)
ESOP activities and related tax
 benefit...........................                                                    13                            57
                                     ---------      ---      -------   -------   --------       ------           ------
Balance at December 31, 1993.......      502         (6)         502     8,010      5,919         (293)            (643)
Net income.........................                                                 2,160
Dividends declared.................                                                (1,370)
Shares issued for:
  Employee benefit plans...........                                          6
  Grantor trusts...................        1         (1)           1        42                     (43)
ESOP activities and related tax
 benefit...........................                                                    12                            59
Foreign currency translation
 adjustment........................                                          6
                                     ---------      ---      -------   -------   --------       ------           ------
Balance at December 31, 1994.......      503         (7)         503     8,064      6,721         (336)            (584)
Two-for-one stock split (Note H)...      503         (6)         503      (503)
Net loss...........................                                                (1,232)
Dividends declared.................                                                (1,400)
Shares issued for:
  Employee benefit plans...........        1                       1        30
  Grantor trusts...................                                         38                     (38)
ESOP activities and related tax
 benefit...........................                                                    10                            58
Foreign currency translation
 adjustment........................                                        (10)
                                     ---------      ---      -------   -------   --------       ------           ------
Balance at December 31, 1995.......    1,007        (13)     $ 1,007   $ 7,619   $  4,099     $   (374)       $    (526)
                                     ---------      ---      -------   -------   --------       ------           ------
                                     ---------      ---      -------   -------   --------       ------           ------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       45
<PAGE>
                             BELLSOUTH CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED DECEMBER
                                                                               31,
                                                                   ----------------------------
                                                                     1995      1994      1993
                                                                   --------  --------  --------
<S>                                                                <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..............................................  $ (1,232) $  2,160  $    880
  Adjustments to net income (loss):
    Extraordinary loss for discontinuance of SFAS No. 71.........     4,449     --        --
    Extraordinary loss on early extinguishment of debt...........       127     --          146
    Payment of call premium......................................       (74)    --         (100)
    Change in accounting principle...............................     --        --          110
    Work force reduction/restructuring charges...................     1,082     --        1,136
    Depreciation and amortization................................     3,455     3,259     3,162
    Provision for losses on bad debts............................       213       175       198
    Deferred income taxes and unamortized investment tax
     credits.....................................................    (1,971)      (19)     (676)
    Pension expense in excess of funding/(pension income)........       (53)       28       121
    Dividends from unconsolidated affiliates.....................       149       122       200
    Losses (earnings) from unconsolidated affiliates.............        86       110       (11)
    Change in accounts receivable and other current assets.......      (770)     (741)     (752)
    Change in accounts payable and other current liabilities.....      (283)     (187)      (13)
    Change in deferred charges and other assets..................       (28)      (34)      254
    Change in other liabilities and deferred credits.............       315       437        46
    Other reconciling items, net.................................       (22)     (138)      (14)
                                                                   --------  --------  --------
      Net cash provided by operating activities..................     5,443     5,172     4,687
                                                                   --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures...........................................    (4,203)   (3,600)   (3,486)
  Proceeds from disposals of property, plant and equipment.......       104       138       156
  Proceeds from disposition of short-term investments............       187       107       148
  Purchases of short-term investments............................      (207)     (108)     (116)
  Proceeds from investment dispositions and repayments of
   advances......................................................       426       238       182
  Investments in and advances to unconsolidated affiliates.......      (521)     (623)     (302)
  Other investing activities, net................................      (170)      (87)      (17)
                                                                   --------  --------  --------
      Net cash used for investing activities.....................    (4,384)   (3,935)   (3,435)
                                                                   --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term borrowings............................    21,075    22,489    16,290
  Repayments of short-term borrowings............................   (20,565)  (22,306)  (15,857)
  Proceeds from long-term debt...................................     2,488       191     2,963
  Repayments of long-term debt...................................    (1,555)     (129)   (3,131)
  Dividends paid.................................................    (1,385)   (1,369)   (1,307)
  Other financing activities, net................................       (12)       (8)       26
                                                                   --------  --------  --------
      Net cash provided by (used for) financing activities.......        46    (1,132)   (1,016)
                                                                   --------  --------  --------
Net Increase in Cash and Cash Equivalents........................     1,105       105       236
Cash and Cash Equivalents at Beginning of Period.................       606       501       265
                                                                   --------  --------  --------
Cash and Cash Equivalents at End of Period.......................  $  1,711  $    606  $    501
                                                                   --------  --------  --------
                                                                   --------  --------  --------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       46
<PAGE>
                             BELLSOUTH CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE A -- ACCOUNTING POLICIES
    ORGANIZATION.    BellSouth  Corporation  (BellSouth)  is  a  holding company
headquartered in Atlanta, Georgia whose operating telephone company  subsidiary,
BellSouth  Telecommunications, Inc.  (BellSouth Telecommunications),  serves, in
the aggregate, approximately two-thirds  of the population  and one-half of  the
territory  within Alabama,  Florida, Georgia,  Kentucky, Louisiana, Mississippi,
North Carolina,  South  Carolina  and  Tennessee.  BellSouth  Telecommunications
primarily  provides  local  exchange service  and  toll  communications services
within geographic areas, called  Local Access and  Transport Areas (LATAs),  and
provides  network access services  to enable interLATA  communications using the
long-distance facilities of interexchange carriers. Through subsidiaries,  other
telecommunications  services  and  products are  provided  primarily  within the
nine-state BellSouth  Telecommunications  region.  BellSouth  Enterprises,  Inc.
(BellSouth   Enterprises),  another  wholly-owned  subsidiary,  owns  businesses
providing wireless and international communications services and advertising and
publishing products.

    Substantially  all  of  BellSouth's  operating  revenues  are  derived  from
domestic  operations. For the year ended December 31, 1995, approximately 70% of
BellSouth's operating revenues were from wireline and network services, 14% were
from wireless communications services and 9% were from directory advertising and
publishing services.  The  remainder  of such  operating  revenues  was  derived
principally   from   other   nonregulated   services   provided   by   BellSouth
Telecommunications.

    BASIS OF PRESENTATION.   The consolidated  financial statements include  the
accounts  of BellSouth and subsidiaries in  which it has a controlling financial
interest. Investments in certain  partnerships, joint ventures and  subsidiaries
are  accounted  for  using  the  equity  method.  All  significant  intercompany
transactions and accounts  have been  eliminated. Certain amounts  in the  prior
period  consolidated financial statements  have been reclassified  to conform to
the current year's presentation.

    BASIS OF  ACCOUNTING.   BellSouth's consolidated  financial statements  have
been  prepared in accordance with generally accepted accounting principles. Such
financial statements include estimates and assumptions that affect the  reported
amounts   of  assets  and  liabilities,  disclosure  of  contingent  assets  and
liabilities and  the amounts  of  revenues and  expenses. Actual  results  could
differ from those estimates.

    Effective  June 30, 1995, BellSouth discontinued application of Statement of
Financial Accounting Standards  (SFAS) No.  71, "Accounting for  the Effects  of
Certain  Types of Regulation." See Note B  for further discussion of the impacts
of discontinuance of SFAS No. 71.

    CASH  AND  CASH  EQUIVALENTS.     BellSouth  considers  all  highly   liquid
investments  with  an original  maturity  of three  months  or less  to  be cash
equivalents. Investments with an original maturity  of over three months to  one
year  are not  considered cash  equivalents and  are included  as temporary cash
investments  on  the  consolidated  balance  sheets.  Interest  income  on  cash
equivalents,  temporary cash investments  and other interest-bearing instruments
was $108, $65  and $43 for  the years ended  December 31, 1995,  1994 and  1993,
respectively.

    MATERIAL  AND SUPPLIES.  New and  reusable material is carried in inventory,
principally at average original cost, except that specific costs are used in the
case of large  individual items.  Nonreusable material is  carried at  estimated
salvage value.

    PROPERTY,  PLANT  AND  EQUIPMENT.   The  investment in  property,  plant and
equipment is stated at original cost. For plant dedicated to providing regulated
telecommunications services, depreciation is based on the remaining life  method
of  depreciation and  straight-line composite rates  determined on  the basis of
equal life groups of certain categories  of telephone plant acquired in a  given
year.  When depreciable telephone plant is  disposed of, the original cost, less
net   salvage   value,   is    charged   to   accumulated   depreciation.    The

                                       47
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE A -- ACCOUNTING POLICIES (CONTINUED)
cost  of  other  property,  plant  and  equipment  is  depreciated  using either
straight-line or  accelerated methods  over the  estimated useful  lives of  the
assets.  Gains or  losses on disposal  of other depreciable  property, plant and
equipment are  recognized in  the year  of disposition  as an  element of  other
non-operating income.

    INTANGIBLE  ASSETS.  Intangible  assets consist of  the excess consideration
paid over net assets  acquired in business  combinations, acquired licenses  and
customer  lists. Intangible assets  are being amortized  using the straight-line
and accelerated methods over periods of  benefit. Such periods do not exceed  40
years.  The carrying value of intangible  assets is periodically reviewed on the
basis  of  whether  such  intangibles  are  fully  recoverable  from  projected,
discounted  net cash  flows of the  related business unit.  Amortization of such
intangibles was $50, $53 and $58 for the years ended December 31, 1995, 1994 and
1993, respectively. At December 31,  1995 and 1994, accumulated amortization  of
intangibles was $228 and $212, respectively.

    FOREIGN CURRENCY.  Assets and liabilities of foreign subsidiaries and equity
investees with a functional currency other than U.S. dollars are translated into
U.S.  dollars at exchange  rates in effect  at the end  of the reporting period.
Foreign entity revenues  and expenses are  translated into U.S.  dollars at  the
average  rates that prevailed  during the period.  The resulting net translation
gains and losses  are reported  as foreign currency  translation adjustments  in
Shareholders' Equity as a component of Paid-In Capital.

    Exchange  gains and  losses on  transactions of  the company  and its equity
investees denominated in  a currency  other than their  functional currency  are
generally  included in results of operations as incurred unless the transactions
are hedged (see  "Derivative Financial Instruments"  below). The exchange  gains
and  losses  for the  years  ended December  31, 1995,  1994  and 1993  were not
material.

    DERIVATIVE FINANCIAL  INSTRUMENTS.    BellSouth manages  risk  arising  from
fluctuations  in interest rates and currency  exchange rates by using derivative
financial instruments,  such as  foreign  exchange forward  contracts,  currency
swaps and interest rate swaps.

    Foreign  exchange  forward  contracts  are  carried  at  fair  value  in the
consolidated balance  sheets.  Gains  and losses  on  foreign  exchange  forward
contracts used as currency hedges of existing assets or liabilities are deferred
and  offset the deferred losses and gains  of the underlying asset or liability.
The net effect is ultimately recognized in income as the underlying  transaction
matures.  Gains and losses related to qualifying hedges of firm commitments also
are deferred and are recognized in income or as adjustments of carrying  amounts
when the hedged transaction occurs.

    Currency  swap  contracts  entered into  as  hedges of  existing  assets and
liabilities are carried at fair value in the consolidated balance sheets.  Gains
and  losses  on currency  swaps  are deferred  and  offset against  the deferred
currency losses and gains of the  underlying asset or liability. The net  effect
is ultimately recognized in income as the underlying transaction matures.

    Interest  rate swap  agreements are  treated as  off-balance sheet financial
instruments.  Receipts  or  payments   resulting  from  these  instruments   are
recognized as adjustments to interest expense as received or paid.

    REVENUE  RECOGNITION.  Revenues are recognized when earned. Certain revenues
derived from local telephone and wireless services are billed monthly in advance
and are recognized  the following  month when services  are provided.  Directory
advertising  and publishing revenues and  related directory costs are recognized
upon publication of directories. Revenues derived from other  telecommunications
services,  principally  network access,  toll  and cellular  airtime  usage, are
recognized monthly as services are provided. Allowances for uncollectible billed
services are adjusted monthly. The provision for such uncollectible accounts was
$213, $175  and $198  for the  years ended  December 31,  1995, 1994  and  1993,
respectively.

    Revenues from services provided to AT&T Corp., BellSouth's largest customer,
were approximately 10%, 11% and 14% of consolidated operating revenues for 1995,
1994 and 1993, respectively.

                                       48
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE A -- ACCOUNTING POLICIES (CONTINUED)
    MAINTENANCE  AND REPAIRS.   The  cost of  maintenance and  repairs of plant,
including  the  cost  of  replacing   minor  items  not  effecting   substantial
betterments, is charged to operating expenses.

    INCOME  TAXES.  The balance sheet  reflects deferred tax balances associated
with the anticipated tax impact of  future income or deductions implicit in  the
balance  sheet  in  the  form of  temporary  differences.  Temporary differences
primarily result  from the  use  of accelerated  methods  and shorter  lives  in
computing depreciation for tax purposes.

    For   financial  reporting   purposes,  BellSouth   is  amortizing  deferred
investment tax credits  earned prior to  the 1986 repeal  of the investment  tax
credit  and also some transitional credits  earned after the repeal. The credits
are being amortized as a  reduction to the provision  for income taxes over  the
estimated useful lives of the assets to which the credits relate.

    EARNINGS  PER SHARE.  Earnings per common share are computed on the basis of
the weighted average number  of shares of common  stock outstanding during  each
year. Earnings per share have been restated to reflect a two-for-one stock split
approved  by BellSouth's Board  of Directors in  September 1995. See  Note H for
additional information.

NOTE B -- DISCONTINUANCE OF SFAS NO. 71
    As a  result  of  its continuing  regulatory  and  marketplace  assessments,
BellSouth Telecommunications concluded during the second quarter 1995 that it is
no  longer  appropriate  to prepare  its  external financial  results  using the
accounting   method    required    for    regulated    enterprises.    BellSouth
Telecommunications  believes  that, based  on recent  changes in  the regulatory
framework  and  the  increasing  level  of  competition,  it  was  required   to
discontinue  SFAS  No.  71, "Accounting  for  the  Effects of  Certain  Types of
Regulation," for  financial  reporting  purposes.  Discontinuance  was  required
because  most of  BellSouth Telecommunications'  revenues will  not be generated
under cost-based  regulation and  because it  is doubtful  that regulated  rates
sufficient  to recover the net book value of telephone plant could be charged to
and collected from customers due to  the expected levels of future  competition.
Accordingly,  in the  second quarter,  BellSouth Telecommunications discontinued
application of SFAS No. 71 and recorded a noncash extraordinary charge of $2,718
(net of a deferred tax benefit of  $1,731). The components of the charge are  as
follows:

<TABLE>
<CAPTION>
                                                                                           PRETAX    AFTER TAX
                                                                                          ---------  ---------
<S>                                                                                       <C>        <C>
Reduction in recorded value of long lived telephone plant...............................  $  (4,896) $  (3,002)
Full adoption of issue basis accounting.................................................        317        194
Elimination of regulatory assets and liabilities........................................        111         71
Partial adjustment to unamortized investment tax credits................................         19         19
                                                                                          ---------  ---------
  Total.................................................................................  $  (4,449) $  (2,718)
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>

                                       49
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE B -- DISCONTINUANCE OF SFAS NO. 71 (CONTINUED)
    The  reduction  of  telephone plant,  $4,896  (pretax), was  recorded  as an
increase to the  related accumulated depreciation  accounts, the categories  and
amounts of which are as follows:

<TABLE>
<S>                                                                               <C>
Central Office Equipment:
  Digital switching.............................................................  $   1,305
  Circuit-other.................................................................      1,291
                                                                                  ---------
    Total Central Office Equipment..............................................      2,596
                                                                                  ---------
Outside Plant:
  Buried metallic cable.........................................................      1,345
  Aerial metallic cable.........................................................        630
  Underground metallic cable....................................................        325
                                                                                  ---------
    Total Outside Plant.........................................................      2,300
                                                                                  ---------
  Total.........................................................................  $   4,896
                                                                                  ---------
                                                                                  ---------
</TABLE>

    Such  reduction  of  plant was  determined  by an  impairment  analysis that
identified estimated amounts not recoverable from future discounted cash  flows.
The  analysis  considered projected  effects of  future  competition as  well as
changes in technology and capital requirements. The plant-related charge, all of
which related to assets within  the regulatory framework, was further  supported
by  depreciation  studies  that  identified  inadequate  levels  of  accumulated
depreciation for certain asset categories. These studies give recognition to the
historical   underdepreciation    of    assets    resulting    primarily    from
regulator-prescribed  asset  lives that  exceeded  the estimated  economic asset
lives.

    For financial reporting purposes, the average depreciable lives of  affected
categories  of  long lived  telephone plant  have been  reduced to  more closely
reflect   the   economic   and   technological   lives.   Differences    between
regulator-approved  asset lives and  the current estimated  economic asset lives
are as follows:

<TABLE>
<CAPTION>
                                                                               COMPOSITE OF            ESTIMATED
                                                                            REGULATOR-APPROVED      ECONOMIC ASSET
CATEGORY                                                                  ASSET LIVES (IN YEARS)   LIVES (IN YEARS)
------------------------------------------------------------------------  -----------------------  -----------------
<S>                                                                       <C>                      <C>
Digital switching.......................................................              17.0                  10.0
Circuit-other...........................................................              10.5                   9.1
Buried metallic cable...................................................              20.0                  14.0
Aerial metallic cable...................................................              20.0                  14.0
Underground metallic cable..............................................              25.0                  12.0
</TABLE>

    The remaining components of the extraordinary charge, which partially offset
the plant-related  portion  of the  overall  charge, include  $194  (after  tax)
related  to  the  method  by  which  BellSouth  Telecommunications  reports  its
directory publishing  revenues. BellSouth's  unregulated subsidiaries  recognize
directory   publishing  revenues  and  production  expenses  using  issue  basis
accounting. Under  issue basis  accounting, revenues  and product  expenses  are
recognized  when directories  are published  rather than  over the  lives of the
directories (generally one year) as  under the prescribed regulatory  accounting
framework.  BellSouth  Telecommunications  is now  reporting  using  issue basis
accounting  consistent  with  BellSouth's  unregulated  subsidiaries  and   with
publishing companies in general.

    The  overall extraordinary  charge was  also reduced  by $71  (after tax) to
reflect the removal of regulatory assets and liabilities that were recorded as a
result of  previous actions  by regulators.  Virtually all  of these  regulatory
assets  and  liabilities  arose  in connection  with  the  incorporation  of new
accounting standards into the ratemaking process and were transitory in  nature.
The  magnitude of the regulatory assets and liabilities has been decreasing over
time due to the  ongoing amortization prescribed  as a part  of the adoption  in
1988  of  the  Federal  Communications Commission's  current  Uniform  System of
Accounts. In  addition, the  overall  extraordinary charge  was reduced  by  $19
(after  tax) for the partial acceleration  of unamortized investment tax credits
associated with the reductions in asset carrying values and in asset lives.

                                       50
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE C -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS
    Investments and advances as of December 31 consist of the following:

<TABLE>
<CAPTION>
                                                                                             1995       1994
                                                                                           ---------  ---------
<S>                                                                                        <C>        <C>
Investments accounted for under the equity method........................................  $   1,619  $   1,716
Advances to and notes receivable from affiliates.........................................        703        729
Other investments........................................................................         96         87
                                                                                           ---------  ---------
  Total Investments and Advances.........................................................  $   2,418  $   2,532
                                                                                           ---------  ---------
                                                                                           ---------  ---------
</TABLE>

    BellSouth's equity method investments primarily include various partnerships
in domestic  cellular properties,  mobile  data communications,  investments  in
international   cellular  properties  and   other  international  communications
consortiums. Earnings (losses)  related to investments  accounted for under  the
equity  method were $(86), $(110) and $11 for the three years ended December 31,
1995, 1994 and  1993, respectively,  and are included  as a  component of  Other
Income.

    DOMESTIC  CELLULAR.    BellSouth's  domestic  cellular  investments  consist
primarily of  a 60.0%  non-controlling  financial interest  in the  Los  Angeles
Cellular  Telephone  Company  and  a  43.8%  interest  in  the  Houston Cellular
Telephone Company. At  December 31,  1995, BellSouth's  aggregate investment  in
these  entities exceeded the underlying book  value of the investees' net assets
by $907. The excess  of consideration paid over  net assets acquired along  with
other  intangible  assets  are  being amortized  using  either  straight-line or
accelerated methods over periods of benefit which do not exceed 40 years.

    MOBILE DATA COMMUNICATIONS.  In January 1992, BellSouth and RAM Broadcasting
Corporation (RBC) formed an  investment to own and  operate certain mobile  data
communications  networks  worldwide  as  well  as  certain  cellular  and paging
operations in the United States. The mobile data portion of the investment gives
BellSouth a 49% interest in the  United States mobile data operations, which  is
operated by RBC, and various interests in foreign mobile data operations ranging
from  6% to 72.5%.  In July 1994,  BellSouth acquired RBC's  50% interest in the
paging segment  of the  investment  giving BellSouth  a  100% interest  in  this
entity;  after such acquisition, this investment was consolidated. BellSouth had
a note receivable from and advances to mobile data affiliates totaling $220  and
$135  at  December  31,  1995 and  1994,  respectively.  These  receivables bear
interest at the rate of the three-month LIBOR, plus 3 1/2%. The instruments  are
collateralized by assets of the affiliates.

    INTERNATIONAL   COMMUNICATIONS.     BellSouth  has   equity  investments  in
international cellular  operations in  Latin America,  Europe, the  Asia-Pacific
region  and other  international markets  with ownership  ranging from  21.4% to
53.3%. Telcel Cellular C.A.  (TelCel), in which  BellSouth has a  noncontrolling
53.3% interest, provides cellular telephone service in Venezuela. BellSouth is a
24.5%  participant in Optus,  an international consortium  which provides a full
spectrum of telecommunications services in Australia, including switched network
and enhanced services,  wireless and  satellite based services.  BellSouth is  a
21.4%  participant in the  E-Plus Mobilfunk consortium  (E-Plus), which provides
cellular telephone service in Germany. BellSouth has agreed to guarantee  E-Plus
borrowings  up to 400  million German Marks  (U.S. Dollar equivalent  of $280 at
December 31, 1995).  The U.S. dollar  equivalent of the  outstanding balance  of
such  guaranteed debt as of  December 31, 1995 was  $110. Subsequent to December
31, 1995, BellSouth purchased an additional interest in E-Plus, which raised its
percentage ownership to 22.5%.

    In January 1994,  BellSouth disposed  of its  36.4% interest  in a  cellular
telephone  business in Mexico. In November  1994, BellSouth sold its 4% interest
in a  company  providing  cellular service  in  France.  As a  result  of  these
dispositions,  BellSouth recognized gains aggregating $108 which are included in
Other Income.

    OTHER INVESTMENT ACTIVITY.  BellSouth has noncontrolling financial interests
ranging from 70% to 80% in the  CSL Ventures and 1155 Peachtree Associates  real
estate  partnerships. BellSouth had notes receivable  from and advances to these
partnerships  totaling  $188   and  $186   at  December  31,   1995  and   1994,

                                       51
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE C -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS (CONTINUED)
respectively. The notes bear interest at rates ranging from 7.88% to 9.31% while
the  advances  bear interest  at  the federal  funds  rate plus  .30%. Principal
amounts outstanding  at December  31,  1995 are  due  and payable  to  BellSouth
between  December 31, 1996 and August  8, 2002. The instruments require periodic
payments of interest and are collateralized by various real estate holdings.

    BellSouth has a credit agreement with Prime South Diversified, Inc.  (Prime)
to  provide up to $250 in financing, of which $185 had been borrowed by Prime as
of December 31, 1995 and 1994. The loan is collateralized by the stock of  Prime
South Diversified, which indirectly wholly owns Community Cable TV in Las Vegas,
and  its  wholly-owned  subsidiary Prime  South  Holdings, Inc.  The  loan bears
interest at a variable rate of 10% to 11% and matures in 2001.

    Minority interests of consolidated subsidiaries, included as a component  of
Other  Income, were  $(62), $(80),  and $(51) for  the years  ended December 31,
1995, 1994 and 1993, respectively.

    SUBSEQUENT  EVENT.    In  January   1996,  BellSouth  sold  to   MobileMedia
Communications, Inc. its paging subsidiary, Mobile Communications Corporation of
America  (MCCA), and  its two-way nationwide  narrowband personal communications
services license for a total of approximately $930. The pretax gain on such sale
was approximately $442.

    MCCA's operating  revenues  and  operating  expenses  were  $349  and  $300,
respectively,  for the year ended December 31, 1995 and total assets at December
31, 1995 were $355.

NOTE D -- PROPERTY, PLANT AND EQUIPMENT
    Property, plant and equipment is summarized as follows at December 31:

<TABLE>
<CAPTION>
                                                                                           1995       1994
                                                                                         ---------  ---------
<S>                                                                                      <C>        <C>
Outside plant..........................................................................  $  20,092  $  19,292
Central office equipment...............................................................     16,132     15,443
Building and building improvements.....................................................      3,303      3,114
Operating and other equipment..........................................................      2,952      2,416
Furniture and fixtures.................................................................      2,791      2,535
Plant under construction...............................................................        782        616
Station equipment......................................................................        626        601
Land...................................................................................        191        182
                                                                                         ---------  ---------
                                                                                            46,869     44,199
  Less: Accumulated depreciation.......................................................     25,777     19,037
                                                                                         ---------  ---------
    Total Property, Plant and Equipment, net...........................................  $  21,092  $  25,162
                                                                                         ---------  ---------
                                                                                         ---------  ---------
</TABLE>

    See Note B for  a discussion of  the discontinuance of SFAS  No. 71 and  its
effect on Property, Plant and Equipment.

                                       52
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE E -- OTHER CURRENT LIABILITIES
    Other current liabilities are summarized as follows at December 31:

<TABLE>
<CAPTION>
                                                                                             1995       1994
                                                                                           ---------  ---------
<S>                                                                                        <C>        <C>
Advanced billing and customer deposits...................................................  $     493  $     500
Taxes accrued............................................................................        382        374
Dividends payable........................................................................        363        347
Salaries and wages payable...............................................................        325        343
Compensated absences.....................................................................        317        333
Interest and rents accrued...............................................................        282        278
Postemployment benefits (see Note K).....................................................        273     --
1993 restructuring accrual (see Note K)..................................................     --            615
Other....................................................................................        280        311
                                                                                           ---------  ---------
  Total Other Current Liabilities........................................................  $   2,715  $   3,101
                                                                                           ---------  ---------
                                                                                           ---------  ---------
</TABLE>

NOTE F -- DEBT
    DEBT  MATURING WITHIN ONE YEAR: Debt  maturing within one year is summarized
as follows at December 31:

<TABLE>
<CAPTION>
                                                                                             1995       1994
                                                                                           ---------  ---------
<S>                                                                                        <C>        <C>
Debentures to be Redeemed in January 1996................................................  $     485  $  --
                                                                                           ---------  ---------
Short-term notes payable:
  Bank loans.............................................................................         85         45
  Commercial paper.......................................................................      2,302      1,839
Current maturities of long-term debt.....................................................         79        135
                                                                                           ---------  ---------
Total Other Debt Maturing Within One Year................................................      2,466      2,019
                                                                                           ---------  ---------
  Total Debt Maturing Within One Year....................................................  $   2,951  $   2,019
                                                                                           ---------  ---------
                                                                                           ---------  ---------
Weighted average interest rate at end of period:
  Bank loans.............................................................................      7.50%      6.39%
  Commercial paper.......................................................................      5.81%      5.82%
</TABLE>

    BellSouth has committed credit lines aggregating $1,539 with various  banks.
Borrowings  under  the committed  lines totaled  $21  and $16,  respectively, at
December 31, 1995 and 1994. BellSouth also maintains uncommitted lines of credit
of $650. At December  31, 1995, there were  no borrowings under the  uncommitted
lines. There are no significant commitment fees or requirements for compensating
balances associated with any lines of credit.

                                       53
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE F -- DEBT (CONTINUED)
    LONG-TERM:   Long-term  debt,   summarized  below,   consists  primarily  of
debentures and notes issued by BellSouth Telecommunications. Interest rates  and
maturities  in the table below  are for the amounts  outstanding at December 31,
1995.

<TABLE>
<CAPTION>
                                                         CONTRACTUAL
                                                       INTEREST RATES       MATURITIES      1995       1994
                                                     -------------------  --------------  ---------  ---------
<S>                                                  <C>                  <C>             <C>        <C>
BellSouth Telecommunications Debentures:                 4 3/8% - 6 3/4%     1997 - 2045  $   1,915  $   1,270
                                                              6.65% - 7%            2095        626         --
                                                             7% - 8 1/4%     1996 - 2035      2,535      1,935
                                                         8 1/2% - 8 3/4%        --               --      1,400
                                                                                          ---------  ---------
                                                                                              5,076      4,605
BellSouth Telecommunications Notes.................        5 1/4% -   7%     1998 - 2008      2,175      1,875
Guarantee of ESOP debt.............................       9.125% - 9.19%            2003        647        694
BellSouth Capital Funding Corporation Notes........        4.50% - 9.25%     1996 - 2002        544        374
Other..............................................                                              79         83
Unamortized discount, net of premium...............                                             (33)       (61)
                                                                                          ---------  ---------
                                                                                              8,488      7,570
Current maturities.................................                                            (564)      (135)
                                                                                          ---------  ---------
  Total Long-Term Debt.............................                                       $   7,924  $   7,435
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>

    Maturities of long-term debt outstanding (principal amounts) at December 31,
1995 are summarized below. Maturities after the year 2000 include $500 principal
amount 6.65% debentures due in 2095.  At December 31, 1995, such debentures  had
an accreted book value of $126.

<TABLE>
<CAPTION>
                                                  1996       1997       1998       1999       2000     THEREAFTER     TOTAL
                                                ---------  ---------  ---------  ---------  ---------  -----------  ---------
<S>                                             <C>        <C>        <C>        <C>        <C>        <C>          <C>
Maturities....................................  $     564  $     198  $     771  $     259  $     460   $   6,643   $   8,895
                                                ---------  ---------  ---------  ---------  ---------  -----------  ---------
                                                ---------  ---------  ---------  ---------  ---------  -----------  ---------
</TABLE>

    As  further discussed  in Note H,  BellSouth incorporated  an Employee Stock
Ownership Plan (ESOP)  feature into certain  of its existing  savings plans.  In
1990,  the ESOP  trusts (the  Trusts) borrowed  $850 aggregate  principal amount
through the issuance of amortizing notes.  Although the obligations are owed  by
the  Trusts,  they are  guaranteed by  BellSouth  and thus  are reflected  as an
addition to Long-Term Debt and a  reduction to Shareholders' Equity. The  Trusts
service  the debt  with contributions from  BellSouth and dividends  paid on the
shares held  by the  Trusts. As  the  ESOP obligations  are repaid,  the  amount
guaranteed decreases and Long-Term Debt is reduced accordingly.

    Notes  issued by BellSouth Capital Funding Corporation (Capital Funding) are
used to  finance the  businesses of  BellSouth Enterprises  and the  unregulated
subsidiaries of BellSouth Telecommunications. BellSouth has agreed to ensure the
timely  payment of principal, premium, if any, and interest on Capital Funding's
debt securities.

    During 1995, BellSouth Telecommunications refinanced certain long-term  debt
issues  at more favorable interest rates.  The approximate $1,900 gross proceeds
of debentures  issued  during the  year  to accomplish  these  refinancings  are
included  in Long-Term Debt.  Of the total $1,885  aggregate principal amount of
debentures called for redemption during 1995, $1,400 had actually been  redeemed
as  of December 31, 1995. The remaining  $485 of debentures, redeemed in January
1996, are included in the Consolidated Balance  Sheet at December 31, 1995 as  a
separate component of Debt Maturing Within One Year.

                                       54
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE F -- DEBT (CONTINUED)
    As  a  result of  the early  extinguishment of  these issues,  including the
issues redeemed in January 1996, an extraordinary loss of $78 ($.08 per  share),
net  of a current tax benefit of $49, was recognized in 1995. Also, during 1993,
an extraordinary loss of $87 ($.09 per  share), net of a current tax benefit  of
$59, was recognized due to early extinguishments of debt during that year.

    At  December 31, 1995,  shelf registration statements were  on file with the
Securities and Exchange Commission under  which $1,127 of debt securities  could
be offered.

NOTE G -- OTHER LIABILITIES AND DEFERRED CREDITS
    Other liabilities and deferred credits are summarized as follows at December
31:

<TABLE>
<CAPTION>
                                                                                             1995       1994
                                                                                           ---------  ---------
<S>                                                                                        <C>        <C>
Postretirement benefits other than pensions (see Notes I and K)..........................  $     675  $     118
Postemployment benefits (see Note K).....................................................        494        141
Accrued pension cost (see Notes I and K).................................................        469        568
Compensation related.....................................................................        421        342
Minority interests.......................................................................        347        208
Sharing accrual under FCC price cap plan.................................................        186        141
Regulatory liability related to income taxes (see Note L)................................     --            304
Other....................................................................................        144        184
                                                                                           ---------  ---------
  Total Other Liabilities and Deferred Credits...........................................  $   2,736  $   2,006
                                                                                           ---------  ---------
                                                                                           ---------  ---------
</TABLE>

NOTE H -- SHAREHOLDERS' EQUITY

    STOCK  SPLIT.  In September 1995,  BellSouth's Board of Directors approved a
two-for-one stock split effected in the  form of a stock dividend, whereby  each
shareholder  of record as of  October 11, 1995 received  on November 8, 1995 one
additional share of common stock for each share owned as of the record date.  As
a  result of the split, 503,555,084 shares  were issued and $503 was transferred
from Paid-In Capital to Common Stock. Also in September 1995, BellSouth's  Board
of  Directors approved an increase in the  number of authorized shares of common
stock to  2,200,000,000  from  1,100,000,000.  Weighted  average  common  shares
outstanding  and per share amounts for  all periods presented have been restated
to reflect the stock split.

    PREFERRED STOCK AUTHORIZED.  BellSouth's Articles of Incorporation authorize
100 million shares of cumulative First Preferred Stock having a par value of  $1
per share, of which 30 million shares have been reserved and designated Series A
for  possible issuance under BellSouth's Shareholder Rights Plan. As of December
31, 1995, no preferred shares had been issued.

    SHAREHOLDER RIGHTS PLAN.   In 1989, BellSouth  adopted a Shareholder  Rights
Plan  by declaring a dividend  of one right for each  share of common stock then
outstanding and to be issued thereafter. Each right entitles shareholders to buy
one one-hundredth of  a share of  Series A  First Preferred Stock  for $175  per
share. The rights may be exercised only if a person or group acquires 10% of the
common  stock of BellSouth without the prior  approval of the Board of Directors
or announces a tender or exchange offer that would result in ownership of 25% or
more of the common stock. If a person or group acquires 10% of BellSouth's stock
without prior Board approval,  other shareholders are  then allowed to  purchase
BellSouth  common stock at half price. The rights currently trade with BellSouth
common stock and  may be redeemed  by the Board  of Directors for  one cent  per
right until they become exercisable, and thereafter under certain circumstances.
The rights expire in 1999.

    GUARANTEE  OF ESOP  DEBT.   Financial reporting  practices require  that the
amount equivalent to BellSouth's guarantee of the amortizing notes issued by its
ESOP trusts be presented as a reduction to

                                       55
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)
Shareholders' Equity, as well as an increase  to debt. The amount recorded as  a
decrease  in Shareholders' Equity  represents the cost  of unallocated BellSouth
common stock purchased with the proceeds of the amortizing notes and the  timing
difference  resulting  from the  shares  allocated accounting  method.  All ESOP
shares are considered outstanding for financial reporting purposes and, as such,
are included in the  computation of earnings  per share. As  the ESOP notes  are
repaid,  the  amount  of  debt guaranteed  decreases,  and  Shareholders' Equity
increases accordingly (see Notes F and I).

    SHARES HELD IN TRUST.  During  1993, 1994 and 1995, BellSouth issued  shares
to  grantor trusts  to provide  partial funding  for the  benefits payable under
certain non-qualified  benefit  plans. The  trusts  are irrevocable  and  assets
contributed  to the trusts  can only be  used to pay  such benefits with certain
exceptions. At December 31, 1995 and 1994, the assets held in the trusts consist
of cash and 13,753,204 and 12,524,174 shares, respectively, of BellSouth  common
stock  (restated to reflect the two-for-one stock  split). The total cost of the
BellSouth shares as  of the date  of funding  the trusts is  included in  Common
Stock  and Paid-In Capital;  however, because the  shares held in  trust are not
considered  outstanding  for  financial  reporting  purposes,  the  shares   are
reflected  separately  as Shares  Held in  Trust,  a reduction  to Shareholders'
Equity. Accordingly, there is no earnings per share impact.

NOTE I -- EMPLOYEE BENEFIT PLANS

    PENSION PLANS.   Substantially  all employees  of BellSouth  are covered  by
noncontributory  defined benefit  pension plans.  Principal plans  are discussed
below; other plans are not significant individually or in the aggregate.

    The plan  covering nonrepresented  employees is  a cash  balance plan  which
provides  pension  benefits determined  by  a combination  of compensation-based
service and additional  credits and individual  account-based interest  credits.
The cash balance plan is subject to a minimum benefit determined under a plan in
existence  for nonrepresented  employees prior  to July  1, 1993  which provided
benefits based upon credited service  and employees' average compensation for  a
specified  period. The  minimum benefit  under the  prior plan  is applicable to
employees retiring  through  2005. Both  the  1995 and  1994  projected  benefit
obligations  assume  interest and  additional credits  greater than  the minimum
levels specified in the written plan. Pension benefits provided for  represented
employees  are  based on  specified  benefit amounts  and  years of  service and
include the projected effect of future bargained-for improvements.

    BellSouth's funding policy is to make contributions to trust funds with  the
objective  of accumulating  sufficient assets  to pay  all pension  benefits for
which BellSouth is  liable. Contributions are  actuarially determined using  the
aggregate   cost  method,  subject   to  ERISA  and   Internal  Revenue  Service
limitations. Pension  plan assets  consist primarily  of equity  securities  and
fixed income investments.

    The components of net pension cost (income) are summarized below:

<TABLE>
<CAPTION>
                                                                                1995       1994       1993
                                                                              ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>
Service cost -- benefits earned during the year.............................  $     239  $     272  $     266
Interest cost on projected benefit obligation...............................        812        778        775
Actual loss (return) on plan assets.........................................     (3,041)       136     (1,735)
Net amortization and deferral...............................................      1,937     (1,158)       816
                                                                              ---------  ---------  ---------
    Net pension cost (income)...............................................  $     (53) $      28  $     122
                                                                              ---------  ---------  ---------
                                                                              ---------  ---------  ---------
</TABLE>

    Effective  January 1, 1994, the nonrepresented cash balance plan was divided
from one into four cash  balance plans which allowed  for costs to be  accounted
for more precisely based upon specific company demographic information. The plan
division  had  no  material  impact  on  BellSouth  in  1994.  Net  pension cost

                                       56
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
(income) is  affected  by changes  in  the  discount rate  and  other  actuarial
assumptions.  The consolidated net pension cost (income) amounts reflected above
are exclusive of curtailment effects reflected  in the work force reduction  and
restructuring activities discussed below.

    The  following table sets forth  the funded status of  the plans at December
31:

<TABLE>
<CAPTION>
                                                                                           1995       1994
                                                                                         ---------  ---------
<S>                                                                                      <C>        <C>
Actuarial present value of:
  Vested benefit obligation............................................................  $   8,853  $   7,431
                                                                                         ---------  ---------
                                                                                         ---------  ---------
  Accumulated benefit obligation.......................................................  $   9,961  $   8,404
                                                                                         ---------  ---------
                                                                                         ---------  ---------
  Projected benefit obligation.........................................................  $  11,994  $  10,115
Plan assets at fair value..............................................................     14,613     12,343
                                                                                         ---------  ---------
Plan assets in excess of projected benefit obligation..................................      2,619      2,228
Unrecognized net gain due to past experience different from assumptions made...........     (2,738)    (2,264)
Unrecognized prior service cost........................................................       (199)      (361)
Unrecognized net asset at transition...................................................       (151)      (171)
                                                                                         ---------  ---------
  Accrued pension cost.................................................................  $    (469) $    (568)
                                                                                         ---------  ---------
                                                                                         ---------  ---------
</TABLE>

    The significant actuarial assumptions at December 31, 1995 and 1994 were  as
follows:

<TABLE>
<CAPTION>
                                          1995   1994
                                          ----   -----
<S>                                       <C>    <C>
Weighted average discount rate..........    7.0%    8.25%
Weighted average rate of compensation
 increase...............................    5.7%    5.7%
Expected long-term rate of return on
 plan assets............................    8.0%    8.0%
</TABLE>

    POSTRETIREMENT   BENEFITS   OTHER   THAN  PENSIONS.      BellSouth  sponsors
postretirement  health  and  life  insurance  welfare  plans  for  most  of  its
nonrepresented  and represented employees. Effective  January 1, 1993, BellSouth
adopted SFAS No. 106, "Employers'  Accounting for Postretirement Benefits  Other
Than  Pensions,"  to account  for  these plans.  BellSouth's  transition benefit
obligation of $1,486  is being amortized  over 15 years,  the average  remaining
service  period of active plan participants  at adoption. The accounting for the
health care  plan does  not anticipate  future adjustments  to the  cost-sharing
arrangements  provided for  in the written  plan for employees  who retire after
December 31, 1991. As a result of the  adoption of SFAS No. 106, net income  for
1993 was reduced by approximately $23 ($.02 per share).

    BellSouth's  funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all health and life  benefits
for  which BellSouth is  liable. Contributions are  actuarially determined using
the aggregate  cost  method,  subject  to ERISA  and  Internal  Revenue  Service
limitations.  Assets in  the health and  life plans consist  primarily of equity
securities and fixed income investments.

                                       57
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
    Net postretirement benefit cost  (income) for the  years ended December  31,
1995, 1994 and 1993, respectively, is composed of the following:

<TABLE>
<CAPTION>
                                               1995              1994              1993
                                          ---------------   ---------------   ---------------
                                          HEALTH    LIFE    HEALTH    LIFE    HEALTH    LIFE
                                          ------   ------   ------   ------   ------   ------
<S>                                       <C>      <C>      <C>      <C>      <C>      <C>
Service cost -- benefits earned during
 the year...............................   $ 27    $   10    $ 35    $   13    $ 30    $    9
Interest on accumulated postretirement
 benefit obligation.....................    223        38     211        37     199        32
Actual loss (return) on plan assets.....   (185)     (125)     14       (12)    (43)      (35)
Amortization of transition liability
 (asset)................................    110       (13)    112       (13)    113       (13)
Other amortization and deferral, net....    115        77     (65)      (30)     (9)      (10)
                                          ------   ------   ------   ------   ------   ------
Net postretirement benefit cost
 (income)...............................   $290    $  (13)   $307    $   (5)   $290    $  (17)
                                          ------   ------   ------   ------   ------   ------
                                          ------   ------   ------   ------   ------   ------
</TABLE>

    The  consolidated net postretirement benefit cost (income) amounts reflected
above are exclusive of curtailment effects reflected in the work force reduction
and restructuring activities discussed below.

    The following table sets forth the plans' funded status at December 31, 1995
and 1994, respectively:

<TABLE>
<CAPTION>
                                                                                      1995                  1994
                                                                              --------------------  --------------------
                                                                               HEALTH      LIFE      HEALTH      LIFE
                                                                              ---------  ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>        <C>
Accumulated postretirement benefit obligation:
  Retirees..................................................................  $   1,909  $     305  $   1,835  $     249
  Fully eligible active plan participants...................................        712        178        304         69
  Other active plan participants............................................        687        137        507        132
                                                                              ---------  ---------  ---------  ---------
                                                                                  3,308        620      2,646        450
Plan assets at fair value...................................................      1,159        692        883        583
                                                                              ---------  ---------  ---------  ---------
Accumulated postretirement benefit obligation
 less than (in excess of) plan assets.......................................     (2,149)        72     (1,763)       133
Unrecognized prior service cost.............................................        103          5     --         --
Unrecognized net losses.....................................................        218        117        220         60
Unrecognized transition obligation (asset)..................................      1,153       (157)     1,425       (170)
                                                                              ---------  ---------  ---------  ---------
Prepaid (accrued) postretirement benefit cost...............................  $    (675) $      37  $    (118) $      23
                                                                              ---------  ---------  ---------  ---------
                                                                              ---------  ---------  ---------  ---------
</TABLE>

    The significant actuarial assumptions at December 31, 1995 and 1994 were  as
follows:

<TABLE>
<CAPTION>
                                                     1995      1994
                                                    -------   -------
<S>                                                 <C>       <C>
Weighted average discount rate....................       7.0%      8.75%
Weighted average rate of compensation increase....       5.7%      5.7%
Health care cost trend rate (1)...................       9.0%     11.0%
Expected long-term rate of return on plan assets
 (2)..............................................       8.0%      8.0%
</TABLE>

------------------------
(1) Trend  rate used to value the  accumulated postretirement obligation in 1995
    is assumed to decrease gradually to 5% in 2003; trend rate used in 1994  was
    assumed to decrease gradually to 5% in 2007.

(2) Rate net of an estimated 30% tax reduction for the nonrepresented employees'
    trust for both 1995 and 1994.

                                       58
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
    The  health care cost trend rate  assumption affects the amounts reported. A
one-percentage-point increase in the  assumed health care  cost trend rates  for
each   future  year  would  increase   the  accumulated  postretirement  benefit
obligation by $204 at December 31, 1995 and the estimated aggregate service  and
interest cost components of the 1995 postretirement benefit cost by $9.

    EFFECT  OF 1995 WORK FORCE REDUCTION  AND 1993 RESTRUCTURING ON PENSIONS AND
OTHER POSTRETIREMENT BENEFITS.  As a part of the work force reduction charge  in
1995  (see  Note  K), BellSouth  recorded  an  estimated liability  of  $381 for
curtailment losses  expected to  impact BellSouth's  pension and  postretirement
health  plans from January 1, 1996  through December 31, 1997. Substantially all
of such losses relate to postretirement health plans. The expected benefits from
curtailment gains will be recognized as they occur in 1996 and 1997.

    As a  part of  the restructuring  charge  in 1993  (see Note  K),  BellSouth
recorded  a liability  of $88 for  estimated net curtailment  losses expected to
impact BellSouth's pension  and postretirement health  plans; subsequently,  the
estimate  has been revised for actual  results and additional charges based upon
revised projections. Having recognized through  1995 the total net  curtailments
originally  projected  for  the  restructuring,  BellSouth  has  reevaluated the
original estimate  and charged  an  additional $55  for net  curtailment  losses
reflected  in the income  statement on a  line item combined  with the 1995 work
force reduction charge. The additional net  curtailment charge is a result of  a
greater  number of  employees terminating in  a retirement  eligible status than
originally  expected,  thus  generating  additional  losses  in  retiree  health
benefits and reduced gains in pensions.

    DEFINED  CONTRIBUTION  PLANS.    BellSouth  maintains  several  contributory
savings plans which cover substantially all employees. The BellSouth Savings and
Employee Stock  Ownership  Plan and  the  BellSouth Savings  and  Security  Plan
(collectively,  the ESOP Plans) are tax-qualified employee stock ownership plans
which cover the largest portion of the  employees. Assets of the plans are  held
by  two trusts (the  Trusts), which, in  turn, are part  of the BellSouth Master
Savings Trust. In 1990, a leveraged ESOP feature was incorporated into the  ESOP
Plans.  With proceeds  from the  ESOP notes (see  Note F),  the Trusts purchased
shares of BellSouth common stock in the open market which will be used, in part,
to fulfill BellSouth's  matching contribution obligation  over the 13-year  debt
repayment period of the leveraged ESOP program.

    Employee  participants  contribute part  of  their annual  compensation, via
payroll deductions,  to  the  ESOP Plans,  a  portion  of which  is  matched  by
BellSouth.  The  matching  amount, stated  in  percentage terms  and  applied to
certain eligible amounts, is determined annually by the Board of Directors.  The
match  consists of shares of  BellSouth common stock that  were purchased by the
Trusts with proceeds from the ESOP Notes, or that are purchased by the Trusts in
the market from time to time should there be insufficient shares available  from
the  Trust. The shares are allocated to  each participant's account based on the
market price of the shares  at the time of  allocation. Shares are released  for
allocation  as each semi-annual loan payment is made. None of the shares held by
the ESOP Plans is subject to repurchase.

    BellSouth makes annual contributions to the  Trusts to fund the ESOP's  debt
service,  plus that amount required to  purchase any additional shares allocated
to participant accounts, less  dividends received by  the Trusts. All  dividends
received by the Trusts on shares purchased with the proceeds from the ESOP notes
are used for debt service.

    In  1993,  new authoritative  guidance  became effective  which  created new
accounting requirements  for certain  ESOPs, and  was elective  for all  others.
BellSouth  has  elected to  continue the  existing  accounting guidance  and has
adopted the new disclosure requirements applicable to all ESOPs. As a  leveraged
ESOP, BellSouth recognizes expense using the shares allocated accounting method,
which combines the cost of the

                                       59
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
shares allocated for the period plus interest incurred, reduced by the dividends
used  to service the ESOP  debt. Dividends on all ESOP  shares are recorded as a
reduction to  retained  earnings  and  all  ESOP  shares  are  included  in  the
computation of earnings per share.

<TABLE>
<CAPTION>
                                                                       1995           1994           1993
                                                                   -------------  -------------  -------------
<S>                                                                <C>            <C>            <C>
Compensation cost................................................            $83            $77            $68
Interest expense.................................................            $29            $39            $40
Actual interest on ESOP Notes....................................            $62            $66            $70
Cash contributions, excluding dividends paid
 to the Trusts...................................................           $101           $100            $85
Dividends paid to the Trusts, used for debt service..............            $44            $42            $44
Shares allocated to participants.................................     11,942,278      9,621,034      7,343,314
Shares committed to be released..................................       --             --             --
Shares unallocated...............................................     19,836,446     22,157,690     24,435,410
</TABLE>

    BellSouth  also maintains certain defined  contribution plans for most other
employees  not  covered  by  the  ESOP  Plans.  BellSouth's  contributions  were
approximately $12, $15 and $13 in 1995, 1994 and 1993, respectively.

NOTE J -- STOCK OPTION PLANS
    In April 1995, BellSouth shareholders approved the adoption of the BellSouth
Corporation  Stock Plan  (the Stock Plan).  The Stock Plan  provides for various
types of grants to  key employees, including  stock options, stock  appreciation
rights  (SARs), restricted  shares, and  performance-based awards.  One share of
BellSouth common stock is the underlying  security for any award. The  aggregate
number  of shares of BellSouth common stock which may be granted in any calendar
year shall not  exceed one  percent of  the shares  outstanding at  the time  of
grant.  Prior  to adoption  of the  Stock  Plan, awards  were granted  under the
BellSouth Corporation Stock Option Plan  (the Stock Option Plan). Stock  options
granted  under these plans  entitle an optionee to  purchase shares of BellSouth
common stock  within prescribed  periods at  either a  price equal  to the  fair
market  value on the date of grant or at a price in excess of the stock price on
the date  of grant.  SARs entitle  an optionee  to surrender  unexercised  stock
options  for cash or stock equal  to the excess of the  fair market value of the
surrendered shares over the option price  of such shares. Options granted  under
these  plans generally become  exercisable at the  end of five  years and have a
term of 10 years.

    In April  1995, BellSouth  shareholders also  approved the  adoption of  the
BellSouth  Corporation  Non-Employee  Director Stock  Plan  (the  Director Stock
Plan). The Director Stock Plan provides for grants of stock options and SARs  to
non-employee  directors up to an aggregate of 300,000 shares of BellSouth common
stock. Under the plan, each non-employee director will be granted on the date of
each annual  shareholders' meeting  an  option to  purchase 1,000  shares.  Each
option  granted will  include the grant  of a  tandem SAR. The  option price per
share is equal to the  fair market value on the  date of grant. Options  granted
under the Director Stock Plan become exercisable at the end of one year and have
a term of 10 years.

    Of  the total  14,287,748 shares  covered by  outstanding options  under all
plans at December 31, 1995, 488,938 were accompanied by SARs.

                                       60
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE J -- STOCK OPTION PLANS (CONTINUED)
    The following table  summarizes the activity  for stock options  outstanding
(1):

<TABLE>
<CAPTION>
                                                                         1995               1994               1993
                                                                   ----------------   ----------------   ----------------
<S>                                                                <C>                <C>                <C>
Options outstanding at January 1.................................        10,345,924          7,308,284          6,873,448
Options granted..................................................         5,269,040          3,525,722          1,680,604
Options exercised................................................       (1,112,220)          (260,996)        (1,139,016)
Options cancelled/forfeited......................................         (214,996)          (227,086)          (106,752)
                                                                          ---------          ---------           --------
Options outstanding at December 31...............................        14,287,748         10,345,924          7,308,284
                                                                          ---------          ---------           --------
                                                                          ---------          ---------           --------
</TABLE>

<TABLE>
<S>                                                                <C>                    <C>                 <C>
Option prices per common share:
  Granted........................................................  $29.53 - $43.56        $25.34 - $42.21     $25.34 - $31.09
  Exercised......................................................  $16.17 - $30.84        $ 6.49 - $29.12     $11.38 - $29.12
  Cancelled/forfeited............................................  $16.17 - $31.87        $16.17 - $42.21     $16.17 - $29.12
  Outstanding at year-end........................................  $16.17 - $43.56        $16.17 - $42.21     $ 6.49 - $31.09
Options exercisable at year-end..................................     5,242,258              4,667,262           2,815,828
Shares available for grant at
 December 31.....................................................    10,074,447             10,050,096          10,031,038
</TABLE>

------------------------
(1)  Reflects the two-for-one stock split as  if it occurred as of the beginning
    of the earliest period presented.

NOTE K -- WORK FORCE REDUCTION/RESTRUCTURING CHARGES

    1995 WORK FORCE REDUCTION CHARGE.  In the fourth quarter of 1995,  BellSouth
recognized  a  pretax charge  of $1,082  related to  work force  reductions. The
primary component of the charge, $942  for planned work force reductions in  the
core wireline business by the end of 1997, consists of $561 under the provisions
of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," related to
those employees who are expected to receive severance benefits under preexisting
separation  plans, and $381 for curtailment  losses under the provisions of SFAS
No. 88,  "Employers'  Accounting for  Settlements  and Curtailments  of  Defined
Benefit   Pension  Plans  and  for  Termination  Benefits"  and  SFAS  No.  106,
"Employers'  Accounting  for  Postretirement  Benefits  Other  Than   Pensions."
Substantially  all of the  curtailment losses relate  to postretirement benefits
other than pensions. The remaining components of the charge are $85 for expected
severance benefit payments  after 1997,  also under SFAS  No. 112,  and $55  for
additional  net curtailment losses related to employee reductions under the 1993
restructuring plan.

    1993 RESTRUCTURING CHARGE.   The results  of operations for  the year  ended
December  31,  1993 include  a $1,136  restructuring charge.  The restructuring,
which was  completed in  1995, was  undertaken to  redesign and  streamline  the
fundamental  processes  and  work  activities  in  BellSouth Telecommunications'
telephone operations to better respond  to an increasingly competitive  business
environment.

    The  material  components of  the  charge related  to  the reduction  of the
workforce by 10,200  employees. Through December  31, 1995, employee  reductions
related to the restructuring plan were 1,300 in 1993, 3,900 in 1994 and 5,000 in
1995.  The  components  of  the  charge  consisted  of  provisions  of  $368 for
separation  payments   and  relocations   of  remaining   employees,  $343   for
consolidation  and  elimination of  certain operations  facilities and  $425 for
enabling changes  to  information  systems,  primarily  those  used  to  provide
services to existing customers.

                                       61
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE L -- INCOME TAXES
    Effective  January 1, 1993, BellSouth adopted  SFAS No. 109, "Accounting for
Income Taxes," which applies a balance sheet approach to income tax  accounting.
In  accordance with the standard, the balance sheet reflects the anticipated tax
impact of future taxable income or  deductions implicit in the balance sheet  in
the  form  of temporary  differences.  These temporary  differences  reflect the
difference between  the basis  in  assets and  liabilities  as measured  in  the
financial  statements and as measured  by tax laws using  enacted tax rates. The
cumulative effect  to January  1,  1993 of  the adoption  of  SFAS No.  109  was
recorded as a $8 reduction to 1993 income tax expense.

    Upon  adoption in 1993,  BellSouth, for its  regulated operations, reflected
only the balance sheet impact of SFAS No. 109, in accordance with the provisions
of SFAS  No.  71.  Specifically, BellSouth  Telecommunications  recorded  a  net
regulatory  liability of $538 to correspond to the net reduction in deferred tax
liabilities; the reduction resulted from changes in tax rates and from temporary
differences which  were  previously flowed  through.  The balance  of  such  net
liability  at  December 31,  1994, included  in  Other Liabilities  and Deferred
Credits, was $304.  In 1995,  this net  regulatory liability  was eliminated  in
conjunction with the discontinuance of SFAS No. 71.

    The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                                   1995       1994       1993
                                                                                 ---------  ---------  ---------
<S>                                                                              <C>        <C>        <C>
Federal:
  Current......................................................................  $   1,061  $   1,082  $   1,080
  Deferred, net................................................................       (148)        34       (532)
  Investment tax credits, net..................................................        (69)       (73)       (88)
                                                                                 ---------  ---------  ---------
                                                                                       844      1,043        460
                                                                                 ---------  ---------  ---------
State:
  Current......................................................................        203        180        174
  Deferred, net................................................................        (23)        20        (62)
                                                                                 ---------  ---------  ---------
                                                                                       180        200        112
                                                                                 ---------  ---------  ---------
    Total provision for income taxes...........................................  $   1,024  $   1,243  $     572
                                                                                 ---------  ---------  ---------
                                                                                 ---------  ---------  ---------
</TABLE>

    Extraordinary  losses in 1995 are presented in the Consolidated Statement of
Income net of tax benefits totaling $1,780,  of which $49 is current and  $1,731
is  deferred. In 1993, the extraordinary loss  and accounting change were net of
tax benefits totaling $102, of which $59 was current and $43 was deferred.

                                       62
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE L -- INCOME TAXES (CONTINUED)
    Temporary  differences  which   gave  rise  to   deferred  tax  assets   and
(liabilities) at December 31 were as follows:

<TABLE>
<CAPTION>
                                                                                            1995       1994
                                                                                          ---------  ---------
<S>                                                                                       <C>        <C>
Compensation related....................................................................  $     627  $     545
Work force reduction/restructuring charges..............................................        370        238
Regulatory sharing accruals.............................................................        114         92
Bad debts...............................................................................         89         88
Other...................................................................................        172        159
                                                                                          ---------  ---------
                                                                                              1,372      1,122
Valuation allowance.....................................................................         (8)        (7)
                                                                                          ---------  ---------
  Deferred Tax Assets...................................................................      1,364      1,115
                                                                                          ---------  ---------
Depreciation............................................................................     (2,042)    (3,731)
Equity investments......................................................................       (361)      (367)
Licenses................................................................................       (190)      (194)
Issue basis accounting..................................................................       (207)       (58)
Other...................................................................................       (129)      (180)
                                                                                          ---------  ---------
  Deferred Tax Liabilities..............................................................     (2,929)    (4,530)
                                                                                          ---------  ---------
    Net Deferred Tax Liability..........................................................  $  (1,565) $  (3,415)
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>

    The  decrease in  the net  deferred tax  liability is  primarily due  to the
discontinuance of  SFAS No.  71. The  valuation allowance  primarily relates  to
state  net operating  losses that will  not be utilized  during the carryforward
period. Of the Net Deferred Tax Liability at December 31, 1995 and 1994, $85 and
$232, respectively, was  current and  $(1,650) and  $(3,647), respectively,  was
noncurrent.

    A  reconciliation of  the Federal statutory  income tax  rate to BellSouth's
effective tax rate follows:

<TABLE>
<CAPTION>
                                                                                     1995       1994       1993
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Federal statutory tax rate.......................................................       35.0%      35.0%      35.0%
State income taxes, net of Federal income tax benefit............................        4.5        4.0        4.8
Amortization of investment tax credits...........................................       (2.7)      (2.1)      (5.5)
Equity of unconsolidated subsidiaries............................................        2.0        0.6     --
Benefit of capital loss carryforward.............................................       (0.4)      (1.1)    --
Miscellaneous items, net.........................................................        1.2         .1        1.3
                                                                                         ---        ---        ---
  Effective tax rate.............................................................       39.6%      36.5%      35.6%
                                                                                         ---        ---        ---
                                                                                         ---        ---        ---
</TABLE>

NOTE M -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    BellSouth adopted,  effective January  1, 1993,  SFAS No.  112,  "Employers'
Accounting  for  Postemployment Benefits."  SFAS No.  112 requires  employers to
accrue the  cost  of postemployment  benefits  provided to  former  or  inactive
employees  after employment but before retirement,  including but not limited to
worker's compensation,  disability, and  continuation of  health care  benefits.
Previously, BellSouth used the cash method to account for such costs. A one-time
charge of $67 ($.06 per share), net of a deferred tax benefit of $43, related to
adoption  of this statement was recognized  as a change in accounting principle.
The effect of the change on BellSouth's 1993 operating results was not material.

                                       63
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE N -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                             1995       1994       1993
                                                                           ---------  ---------  ---------
<S>                                                                        <C>        <C>        <C>
CASH PAID FOR:
Income Taxes.............................................................  $   1,231  $   1,375  $   1,145
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
Interest.................................................................  $     760  $     665  $     755
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Shares Issued to Grantor Trusts..........................................  $      38  $      43  $     293
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
Common and Treasury Shares Issued in Lieu of Cash Dividends Under
 Shareholder Dividend Reinvestment and Stock Purchase Plan...............  $  --      $  --      $      66
                                                                           ---------  ---------  ---------
                                                                           ---------  ---------  ---------
</TABLE>

NOTE O -- FINANCIAL INSTRUMENTS
    The   following  disclosure  of  the   estimated  fair  value  of  financial
instruments is presented  in accordance  with the  provisions of  SFAS No.  107,
"Disclosures  about  Fair Value  of Financial  Instruments." The  estimated fair
value amounts have been determined using available market information  described
below.  Since  judgment  is required  to  develop the  estimates,  the estimated
amounts presented herein  may not be  indicative of the  amounts that  BellSouth
could realize in a current market exchange.

<TABLE>
<CAPTION>
                                                            1995                   1994
                                                    --------------------   ---------------------
                                                    RECORDED  ESTIMATED    RECORDED   ESTIMATED
                                                     AMOUNT   FAIR VALUE    AMOUNT    FAIR VALUE
                                                    --------  ----------   --------   ----------
<S>                                                 <C>       <C>          <C>        <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
    Assets (Liabilities):
      Cash and cash equivalents...................  $  1,711   $  1,711    $    606    $   606
      Temporary cash investments..................        71         71          51         51
      Bank loans..................................       (85)       (85)        (45)       (45)
      Commercial paper............................    (2,302)    (2,302)     (1,839)    (1,839)
      Long-Term Debt:
        BellSouth Telecommunications Debentures...    (5,076)    (5,079)     (4,605)    (4,177)
        BellSouth Telecommunications Notes........    (2,175)    (2,216)     (1,875)    (1,670)
        Guarantee of ESOP Debt....................      (647)      (803)       (694)      (717)
        BellSouth Capital Funding Corporation
         Notes....................................      (544)      (587)       (374)      (363)
      Foreign Exchange Forward Contracts:
        Contract amount receivable................        27         27          68         68
        Contract amount payable...................       (27)       (27)        (67)       (67)
      Currency Swap...............................        20         20          12         12
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
    Interest Rate Swaps:
      With unrealized gains.......................        --         --          --          1
      With unrealized losses......................        --        (10)         --         (3)
</TABLE>

    CASH  AND CASH EQUIVALENTS/TEMPORARY CASH INVESTMENTS.  At December 31, 1995
and 1994, the recorded amounts for cash and cash equivalents and temporary  cash
investments,  respectively, approximate fair value  due to the short-term nature
of these instruments.

    DEBT.  At December 31,  1995 and 1994, the  recorded amounts for bank  loans
and  commercial paper approximate fair value due to the short-term nature of the
liabilities. The  estimates  of  fair  value  for  BellSouth  Telecommunications
Debentures   and   Notes   are   estimated   based   on   the   closing   market

                                       64
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE O -- FINANCIAL INSTRUMENTS (CONTINUED)
prices for each issue  at December 31, 1995  and 1994, respectively. Fair  value
estimates  for  the  Guarantee  of  ESOP  Debt  and  BellSouth  Capital  Funding
Corporation Notes are based on quotes from dealers.

    OTHER FINANCIAL INSTRUMENTS.  BellSouth is party to foreign exchange forward
contracts, currency swap  agreements and  interest rate swap  agreements in  its
normal  course  of business  for purposes  other  than trading.  These financial
instruments are  used to  mitigate  foreign currency  and interest  rate  risks,
although  to some  extent they  expose the  company to  market risks  and credit
risks. The credit risks associated with these instruments are controlled through
the  evaluation  and  continual  monitoring  of  the  creditworthiness  of   the
counterparties.  In the event that  a counterparty fails to  meet the terms of a
contract or agreement, BellSouth's exposure is  limited to the currency rate  or
interest  rate differential.  Such contracts  and agreements  have been executed
with creditworthy financial institutions. As such, BellSouth considers the  risk
of nonperformance to be remote.

    FOREIGN  EXCHANGE FORWARD CONTRACTS.  Foreign exchange forward contracts are
contracts for delivery  or purchase  of foreign currencies  at specified  future
dates.  The fair  values of  such contracts are  estimated based  on quotes from
brokers. BellSouth enters into foreign  exchange forward contracts primarily  as
hedges  relating to identifiable currency exposures. These financial instruments
are  designed  to  minimize  exposure   and  reduce  risk  from  exchange   rate
fluctuations in the normal course of business.

    As of December 31, 1995, BellSouth had foreign exchange forward contracts to
buy  $27 worth  of German  Marks. At  December 31,  1994, BellSouth  had foreign
exchange forward contracts to sell $67 worth of German Marks.

    CURRENCY SWAP.  Currency swap contracts provide for the exchange of  defined
cash  flows between  two currencies  at specified times.  The fair  value of the
currency swap is estimated based on quotes from brokers. BellSouth entered  into
a  currency swap in 1994 to hedge European Currency Units (ECU) 125,000,000 debt
issued by Capital Funding. The currency swap and related debt mature in February
1999.

    At December  31, 1995,  the net  currency swap  receivable was  $20 and  the
related  net interest receivable was $8, both  of which are included in accounts
receivable in the consolidated balance sheet at December 31, 1995. The  interest
rate  on  the ECU  debt is  5.25%.  The currency  swap effectively  converts the
interest rate on such ECU debt from  5.25% payable in ECUs to 5.247% payable  in
U.S. dollars.

    INTEREST  RATE SWAPS.  Interest  rate swap agreements require counterparties
to exchange interest  cash flows on  a specified  amount of debt  for a  defined
period.  The fair values of interest rate swap agreements are estimated based on
quotes from  dealers. In  order to  manage exposure  to interest  rate  changes,
BellSouth  enters  into  interest rate  swap  agreements to  exchange  fixed and
variable  rate  interest  payment  obligations  without  the  exchange  of   the
underlying principal amounts. These agreements have been used to adjust interest
on certain fixed and variable rate obligations.

                                       65
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE O -- FINANCIAL INSTRUMENTS (CONTINUED)
    Summarized  below are the  types of interest rate  swaps outstanding and the
related weighted-average interest  rates. Such  swaps mature in  either 1996  or
2002.

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                              ------------------
                                                                               1995       1994
                                                                              -------    -------
<S>                                                                           <C>        <C>
Pay Fixed Rate/Receive Variable Rate
  Notional amount..........................................................   $   96     $   95
  Average rate paid........................................................        7.38%      6.97%
  Average rate received....................................................        6.05%      5.08%
Pay Variable Rate/Receive Fixed Rate
  Notional amount..........................................................   $   75     $   75
  Average rate paid........................................................        5.96%      5.36%
  Average rate received....................................................        4.86%      4.86%
</TABLE>

    OTHER.  BellSouth has also issued letters of credit and financial guarantees
which  approximate $340 at December  31, 1995. Since there  is no market for the
instruments, it is not practicable to estimate their fair value.

    CONCENTRATIONS OF  CREDIT RISK.    Financial instruments  which  potentially
subject   BellSouth  to  credit  risk  consist  principally  of  trade  accounts
receivable. Concentrations of  credit risk  with respect  to these  receivables,
other than those from interexchange carriers, are limited due to the composition
of  the  customer  base,  which  includes  a  large  number  of  individuals and
businesses. At  December  31,  1995  and  1994,  approximately  $520  and  $448,
respectively, of trade accounts receivable were from interexchange carriers.

NOTE P -- COMMITMENTS AND CONTINGENCIES

    LEASES.   BellSouth  has entered  into operating  leases for  facilities and
equipment used in operations.  Rental expense under  operating leases was  $252,
$311 and $300 for 1995, 1994 and 1993, respectively. Capital leases currently in
effect are not significant.

    The  following table summarizes the approximate future minimum rentals under
noncancelable operating leases in effect at December 31, 1995:

<TABLE>
<CAPTION>
                                          1996  1997  1998   1999   2000   THEREAFTER   TOTAL
                                          ----  ----  ----   ----   ----   ----------   ------
<S>                                       <C>   <C>   <C>    <C>    <C>    <C>          <C>
Minimum rentals.........................  $166  $140  $ 99   $ 81   $ 64      $508      $1,058
                                          ----  ----  ----   ----   ----     -----      ------
                                          ----  ----  ----   ----   ----     -----      ------
</TABLE>

    OUTSIDE PLANT.  BellSouth  currently self-insures all  of its outside  plant
against  casualty losses.  The net  book value of  outside plant  was $8,080 and
$10,459 at  December 31,  1995  and 1994,  respectively.   Such  outside  plant,
located  in the nine Southeastern states served by BellSouth Telecommunications,
is susceptible  to  damage from  severe  weather conditions  and  other  perils,
including hurricanes.

    LEGAL  ACTIONS.   BellSouth and its  subsidiaries are subject  to claims and
proceedings arising in the ordinary course of business involving allegations  of
personal  injury, breach  of contract, anti-competitive  conduct, employment law
issues and other matters. BellSouth Telecommunications is also subject to claims
and proceedings attributable to  pre-divestiture events involving  environmental
liabilities,  rates, taxes, contracts and  torts. Certain contingent liabilities
for pre-divestiture events are shared by AT&T Corp. and the operating  telephone
companies.  While complete assurance  cannot be given  as to the  outcome of any
pending or  threatened  legal actions,  BellSouth  believes that  any  financial
impact would not be material to its financial position, annual operating results
or cash flows.

                                       66
<PAGE>
                             BELLSOUTH CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE Q -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
    In the following summary of quarterly financial information, all adjustments
necessary  for a fair presentation of each period were included. The results for
fourth quarter  1995 include  a work  force reduction  charge of  $1,082,  which
reduced net income by $663.

<TABLE>
<CAPTION>
                                                      FIRST      SECOND     THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                    ---------   --------   --------   --------
<S>                                                 <C>         <C>        <C>        <C>
1995
Operating Revenues................................  $   4,299   $  4,390   $  4,432   $  4,765
Operating Income (Loss)...........................  $   1,095   $  1,096   $  1,058   $     43

Income (Loss) Before Extraordinary Losses.........  $     547   $    557   $    559   $    (99)
Extraordinary Loss for Discontinuance of
 SFAS No. 71, net of tax..........................     --         (2,718)     --         --
Extraordinary Loss on Early Extinguishment of
 Debt, net of tax.................................     --            (16)     --           (62)
                                                    ---------   --------   --------   --------
Net Income (Loss).................................  $     547   $ (2,177)  $    559   $   (161)
                                                    ---------   --------   --------   --------
                                                    ---------   --------   --------   --------

Earnings Per Share:
  Income (Loss) Before Extraordinary Losses.......  $     .55   $    .56   $    .56   $   (.10)
Extraordinary Loss for Discontinuance of
 SFAS No. 71, net of tax..........................     --          (2.73)     --         --
Extraordinary Loss on Early Extinguishment of
 Debt, net of tax.................................     --           (.02)     --          (.06)
                                                    ---------   --------   --------   --------
  Net Income (Loss)...............................  $     .55   $  (2.19)  $    .56   $   (.16)
                                                    ---------   --------   --------   --------
                                                    ---------   --------   --------   --------

1994
Operating Revenues................................  $   4,124   $  4,128   $  4,198   $  4,395
Operating Income..................................  $   1,012   $  1,002   $    994   $  1,050
Net Income........................................  $     585   $    517   $    500   $    558
Earnings Per Share................................  $     .59   $    .52   $    .50   $    .56
</TABLE>

                                       67
<PAGE>
SUPPLEMENTARY DATA

                             BELLSOUTH CORPORATION
                               DOMESTIC CELLULAR
                          PROPORTIONATE OPERATING DATA
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)

    The  following table sets  forth unaudited, supplemental  financial data for
BellSouth's domestic cellular operations reflecting proportionate  consolidation
of  entities in which BellSouth has  an interest. This presentation differs from
the consolidation methodology  used to prepare  BellSouth's principal  financial
statements  in  accordance with  generally  accepted accounting  principles. The
proportionate  operating  data  reflect  BellSouth's  ownership  percentage   of
entities consolidated for financial reporting purposes and BellSouth's ownership
percentage  in the  entities which  are accounted for  on the  equity method for
financial  reporting  purposes.  The  data  exclude  gains  (losses)  from   the
disposition of property interests and include equipment revenue, net of cost.

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER
                                                                                           31,
                                                                                   --------------------
                                                                                     1995       1994
                                                                                   ---------  ---------
<S>                                                                                <C>        <C>
Cellular Revenue, net............................................................  $   1,888  $   1,465
                                                                                   ---------  ---------
Operating Expenses...............................................................      1,065        834
Depreciation and Amortization....................................................        298        234
                                                                                   ---------  ---------
    Total Operating Expenses.....................................................      1,363      1,068
                                                                                   ---------  ---------
Operating Income.................................................................        525        397
Other Expenses, net (including interest and taxes)...............................        233        164
                                                                                   ---------  ---------
    Net Income...................................................................  $     292  $     233
                                                                                   ---------  ---------
                                                                                   ---------  ---------
Operating Margins as a Percentage of Revenue:
  Including Depreciation and Amortization........................................       27.8%      27.1%
  Excluding Depreciation and Amortization........................................       43.6%      43.1%
Operational Comparisons (thousands):
  Proportionate Cellular Population Served.......................................     39,937     39,206
  Proportionate Cellular Customers...............................................      2,847      2,155
</TABLE>

                                       68
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    No  change in  accountants or disagreements  on the  adoption of appropriate
accounting standards or  financial disclosure  has occurred  during the  periods
included in this report.

                                    PART III

ITEMS 10 THROUGH 13.

    Information  regarding executive officers required by Item 401 of Regulation
S-K is furnished in a  separate disclosure on page 22  in Part I of this  report
since  the registrant did  not furnish such information  in its definitive proxy
statement prepared in accordance with Schedule 14A.

    The additional information required by these  items will be included in  the
registrant's  definitive proxy statement dated March 11, 1996 as follows, and is
herein incorporated by reference pursuant to General Instruction G(3):

<TABLE>
<CAPTION>
                                                                                                           PAGE(S) IN
                                                                                                           DEFINITIVE
   ITEM                                             DESCRIPTION                                         PROXY STATEMENT
   -----     -----------------------------------------------------------------------------------------  ----------------
<S>          <C>                                                                                        <C>
       10.   Directors and Executive Officers of the Registrant.......................................        3-7
       11.   Executive Compensation...................................................................    12-17; 19-22
       12.   Security Ownership of Certain Beneficial Owners and Management...........................         7
       13.   Certain Relationships and Related Transactions...........................................        18*
</TABLE>

------------------------
* Incorporation by reference excludes Five Year Performance Comparison.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                                                                               PAGE(S) IN THIS
                                                                                  FORM 10-K
                                                                               ---------------
<C>     <C>    <S>                                                             <C>
  a.    Documents filed as a part of the report:
        (1)    Financial Statements:
               Report of Independent Accountants...........................             42
               Consolidated Statements of Income...........................             43
               Consolidated Balance Sheets.................................             44
               Consolidated Statements of Shareholders' Equity.............             45
               Consolidated Statements of Cash Flows.......................             46
               Notes to Consolidated Financial Statements..................             47
</TABLE>

    (2)  Financial statement schedules  have been omitted  because the  required
         information  is contained in the financial statements and notes thereto
         or because such schedules are not required or applicable.

                                       69
<PAGE>
    (3)  Exhibits: Exhibits identified  in parentheses below,  on file with  the
         SEC,  are  incorporated herein  by  reference as  exhibits  hereto. All
         management contracts or compensatory plans or arrangements required  to
         be  filed as exhibits to  this Form 10-K Report  pursuant to Item 14(c)
         are filed as Exhibits 10a through 10w inclusive.

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>        <C>
 3a        Articles of Incorporation of BellSouth Corporation. (Exhibit 3a to Form 10-K for the year ended
           December 31, 1990, File No. 1-8607).
 3a-1      Articles of Amendment to Articles of Incorporation of BellSouth Corporation. (Exhibit 3a-1 to Form 10-Q
           for the quarter ended September 30, 1995, File No. 1-8607).
 3b        Bylaws of BellSouth Corporation. (Exhibit 3b to Form 10-Q for the quarter ended September 30, 1994,
           File No. 1-8607).
 4         BellSouth Corporation Shareholder Rights Agreement. (Exhibit 4-b to Form 8-K. Date of report November
           27, 1989).
 4a        No instrument which defines the rights of holders of long and intermediate term debt of BellSouth
           Corporation is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
           regulation, BellSouth Corporation hereby agrees to furnish a copy of any such instrument to the SEC
           upon request.
10a        BellSouth Corporation Executive Short Term Incentive Plan. (Exhibit 10d to Form 10-K for the year ended
           December 31, 1991, File No. 1-8607).
10b        BellSouth Corporation Executive Long Term Incentive Plan. (Exhibit 10e to Form 10-K for the year ended
           December 31, 1991, File No. 1-8607).
10c        BellSouth Corporation Executive Long Term Disability and Survivor Protection Plan. (Exhibit 10dd to
           Form 10-K for the year ended December 31, 1985, File No. 1-8607).
10c-1      Amendment dated January 1, 1994 to the BellSouth Corporation Executive Long Term Disability and
           Survivor Protection Plan. (Exhibit 10c-1 to Form 10-K for the year ended December 31, 1993, File No.
           1-8607).
10d        BellSouth Corporation Executive Transfer Plan. (Exhibit 10ee to Registration Statement No. 2-87846).
10e        BellSouth Corporation Death Benefit Program. (Exhibit 10ff to Form 10-K for the year ended December 31,
           1989, File No. 1-8607).
10f        BellSouth Corporation Plan For Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to
           Registration Statement No. 2-87846).
10g        BellSouth Corporation Executive Incentive Award Deferral Plan. (Exhibit 10k to Form 10-K for the year
           ended December 31, 1992, File No. 1-8607).
10h        BellSouth Corporation Nonqualified Deferred Compensation Plan as amended and restated on November 28,
           1994. (Exhibit 10i to Form 10-K for the year ended December 31, 1994, File No. 1-8607).
10i        BellSouth Corporation Supplemental Executive Retirement Plan as amended on May 18, 1995. (Exhibit 10j-1
           to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10j        BellSouth Management Savings and Employee Stock Ownership Plan as amended and restated effective as of
           January 1, 1994. (Exhibit 10k to Form 10-K for the year ended December 31, 1994, File No. 1-8607).
10j-1      Amendment dated December 15, 1995 to the BellSouth Management Savings and Employee Stock Ownership
           Plan.
</TABLE>

                                       70
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>        <C>
10k        BellSouth Corporation Directors Retirement Plan. (Exhibit 10qq to Form 10-K for the year ended December
           31, 1986, File No. 1-8607).
10l        BellSouth Corporation Financial Counseling Plan. (Exhibit 10r to Form 10-K for the year ended December
           31, 1992, File No. 1-8607).
10l-1      Amendment dated November 3, 1995 to the BellSouth Corporation Executive Financial Counseling Plan.
10m        BellSouth Corporation Deferred Compensation Plan for Non-Employee Directors. (Exhibit 10gg to
           Registration Statement No. 2-87846).
10n        BellSouth Corporation Executive Life Insurance Plan. (Exhibit 10v to Form 10-K for the year ended
           December 31, 1992, File No. 1-8607).
10o        BellSouth Corporation Stock Option Plan for Non-Employee Directors. (Exhibit 10z to Form 10-K for the
           year ended December 31, 1991, File No. 1-8607).
10p        Form of Executive Officer Succession and Retirement Agreement. (Exhibit 10r to Form 10-K for the year
           ended December 31, 1995, File No. 1-8607).
10q        BellSouth Non-Employee Directors Charitable Contribution Program. (Exhibit 10z to Form 10-K for the
           year ended December 31, 1992, File No. 1-8607).
10r        BellSouth Personal Retirement Account Pension Plan. (Exhibit 10aa to Form 10-Q for the quarter ended
           June 30, 1993, File No. 1-8607).
10r-1      Amendment dated August 9, 1993 to the BellSouth Personal Retirement Account Pension Plan. (Exhibit
           10aa-1 to Form 10-Q for the quarter ended September 30, 1993, File No. 1-8607).
10r-2      Amendments dated October 15, 1993 and November 12, 1993 to the BellSouth Personal Retirement Account
           Pension Plan. (Exhibit 10t-2 to Form 10-K for the year ended December 31, 1993, File No. 1-8607).
10r-3      Amendment dated April 22, 1994 to the BellSouth Personal Retirement Account Pension Plan. (Exhibit
           10t-3 to Form 10-Q for the quarter ended June 30, 1994, File No. 1-8607).
10r-4      Amendment dated March 3, 1995 to the BellSouth Personal Retirement Account Pension Plan. (Exhibit 10t-5
           to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10r-5      Amendment dated September 21, 1995 to the BellSouth Personal Retirement Account Pension Plan.
10r-6      Amendment dated October 12, 1995 to the BellSouth Personal Retirement Account Pension Plan. (Exhibit
           10t-6 to Form 10-Q for the quarter ended September 30, 1995, File No.1-8607).
10r-7      Amendment dated November 9, 1995 to the BellSouth Personal Retirement Account Pension Plan. (Exhibit
           10t-7 to Form 10-Q for the quarter ended September 30, 1995, File No.8607).
10s        BellSouth Corporation Trust Under Executive Benefit Plan(s) as amended April 28, 1995. (Exhibit 10u-1
           to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10t        BellSouth Telecommunications, Inc. Trust Under Executive Benefit Plan(s) as amended April 28, 1995.
           (Exhibit 10v-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10u        BellSouth Corporation Trust Under Board of Directors Benefit Plan(s) as amended April 28, 1995.
           (Exhibit 10w-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
</TABLE>

                                       71
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>        <C>
10v        BellSouth Telecommunications, Inc. Trust Under Board of Directors Benefit Plan(s) as amended April 28,
           1995. (Exhibit 10x-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10w        BellSouth Corporation Stock Plan. (Exhibit 10bb to Form 10-Q for the quarter ended June 30, 1995, File
           No. 1-8607).
11         Computation of Earnings Per Share.
12         Computation of Ratio of Earnings to Fixed Charges.
21         Subsidiaries of BellSouth.
24         Powers of Attorney.
27         Financial Data Schedule.
99a        Annual report on Form 11-K for BellSouth Management Savings and Employee Stock Ownership Plan for the
           fiscal year ended December 31, 1995 (to be filed as an amendment hereto within 180 days of the end of
           the period covered by this report).
99b        Annual report on Form 11-K for BellSouth Savings and Security ESOP Plan for the fiscal year ended
           December 31, 1995 (to be filed as an amendment hereto within 180 days of the end of the period covered
           by this report).
99c        Annual report on Form 11-K for BellSouth Enterprises Retirement Savings Plan for the fiscal year ended
           December 31, 1995 (to be filed as an amendment hereto within 180 days of the end of the period covered
           by this report).
</TABLE>

b.  Reports on Form 8-K:

<TABLE>
<CAPTION>
    DATE OF EVENT                            SUBJECT
----------------------  --------------------------------------------------
<S>                     <C>
   January 22, 1996            Fourth Quarter 1995 Earnings Release
</TABLE>

                                       72
<PAGE>
                                   SIGNATURES

    Pursuant to  the requirements  of  Section 13  or  15(d) of  the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          BELLSOUTH CORPORATION

                                                   /s/ RONALD M. DYKES

                                          --------------------------------------
                                                     Ronald M. Dykes
                                             EXECUTIVE VICE PRESIDENT, CHIEF
                                                    FINANCIAL OFFICER
                                                     AND COMPTROLLER
                                                    February 27, 1996

    Pursuant  to the requirements  of the Securities Exchange  Act of 1934, this
report has  been  signed  below  by  the following  persons  on  behalf  of  the
registrant and in the capacities and on the date indicated.

PRINCIPAL EXECUTIVE OFFICER:
John L. Clendenin*
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
Ronald M. Dykes*
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND COMPTROLLER

DIRECTORS:
F. Duane Ackerman*                   Phyllis Burke Davis*
Reuben V. Anderson*                  John G. Medlin, Jr.*
James H. Blanchard*                  Robin B. Smith*
J. Hyatt Brown*                      C. Dixon Spangler, Jr.*
John L. Clendenin*                   Ronald A. Terry*
Armando M. Codina*                   Thomas R. Williams*
Marshall M. Criser*                  J. Tylee Wilson*

                                     *By:          /s/ RONALD M. DYKES
                                     --------------------------------------
                                                   Ronald M. Dykes
                                       (INDIVIDUALLY AND AS ATTORNEY-IN-FACT)
                                                  February 27, 1996

                                       73
<PAGE>
                       CONSENT OF INDEPENDENT ACCOUNTANTS

    We  consent to the incorporation by reference in the registration statements
of BellSouth  Corporation  on  Form  S-3  (Nos.  33-29411,  33-22785,  33-48929,
33-49461,  33-51449  and  33-63173)  and  Form  S-8  (Nos.  33-38265,  33-38264,
33-38263, 33-30773, 33-30772, 33-26518, 33-12165,  2-94802 and 33-49459) of  our
report  dated February 5, 1996, which  includes an explanatory paragraph stating
that the  Company  discontinued  accounting  for  the  operations  of  BellSouth
Telecommunications,  Inc. in  accordance with Statement  of Financial Accounting
Standards No. 71, "Accounting for the  Effects of Certain Types of  Regulation,"
effective June 30, 1995, and changed its method of accounting for postretirement
benefits  other than pensions, income taxes and postemployment benefits in 1993,
on our audits of the consolidated financial statements of BellSouth  Corporation
as  of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, which report is included in this Annual Report on  Form
10-K.

                                          /s/ Coopers & Lybrand L.L.P.

Atlanta, Georgia
February 27, 1996

                                       74