<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
 
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                   FORM 11-K
 
             [X]  Annual Report Pursuant to Section 15(d) of the
                        Securities Exchange Act of 1934
 
                  For the fiscal year ended December 31, 1997
 
                                       or
 
             [_]  Transition Report Pursuant to Section 15(d) of the 
                       Securities Exchange Act of 1934
 
 For the transition                                    Commission file number
 period from __ to ___                                         1-8607
 
                       BellSouth Savings and Security Plan

                            BELLSOUTH CORPORATION
                         1155 Peachtree Street, N.E.
                         Atlanta, Georgia 30309-3610
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
 ITEM                                                                      PAGE
 ----                                                                      ----
 <C>  <S>                                                                  <C>
 1.   Financial Statements..............................................     2
      Report of Independent Accountants.................................     2
      Consent of Independent Accountants................................     3
      Statement of Net Assets Available for Plan Benefits With Fund
       Information as of December 31, 1997..............................     4
      Statement of Net Assets Available for Plan Benefits With Fund
       Information as of December 31, 1996..............................     6
      Statement of Changes in Net Assets Available for Plan Benefits
       With Fund
       Information for the Year ended December 31, 1997.................     8
      Statement of Changes in Net Assets Available for Plan Benefits
       With Fund
       Information for the Year ended December 31, 1996.................    10
      Statement of Changes in Net Assets Available for Plan Benefits
       With Fund
       Information for the Year ended December 31, 1995.................    12
      Notes to Financial Statements.....................................    14
 2.   Supplemental Schedule.............................................   S-1
      Item 27a--Schedule of Assets Held for Investment Purposes.........   S-1
</TABLE>
 
                                       1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
Management Savings Plan Committee of the
 BellSouth Savings and Security Plan:
 
  We have audited the accompanying statements of net assets available for plan
benefits with fund information of the BellSouth Savings and Security Plan (the
Plan) as of December 31, 1997 and 1996, and the related statements of changes
in net assets available for plan benefits with fund information for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Plan'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 net assets available for plan benefits of the
Plan as of December 31, 1997 and 1996, and the changes in net assets available
for plan benefits for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
 
  Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets
Held for Investment Purposes is presented for the purpose of additional
analysis and is not a required part of the basic financial statements. The
fund information in the statements of net assets available for plan benefits
and the statements of changes in net assets available for plan benefits is
presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for
plan benefits of each fund. The supplemental schedule and fund information
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
 
Coopers & Lybrand L.L.P.
Atlanta, Georgia
 
June 22, 1998
 
                                       2
<PAGE>
 
                      CONSENT OF INDEPENDENT ACCOUNTANTS
 
  We consent to the incorporation by reference in the registration statements
of BellSouth Corporation on Form S-8 (File Nos. 33-30772 and 33-38265) of our
report dated June 22, 1998, on our audits of the financial statements of the
BellSouth Savings and Security Plan as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which report is
included in this Annual Report on Form 11-K.
 
Coopers & Lybrand L.L.P.
Atlanta, Georgia
 
June 29, 1998
 
                                       3
<PAGE>
 
                                                              BELLSOUTH SAVINGS
 
                                          STATEMENT OF NET ASSETS AVAILABLE FOR
 
                                                                       DECEMBER
                                                                         (IN THO
 
<TABLE>
<CAPTION>

                                                                       FIDELITY
                          BELLSOUTH  INTEREST INDEXED                   GROWTH
                            STOCK     INCOME   STOCK   BALANCED  BOND  & INCOME
                             FUND      FUND     FUND     FUND    FUND  PORTFOLIO
         ASSETS           ---------- -------- -------- -------- ------ ---------
<S>                       <C>        <C>      <C>      <C>      <C>    <C>
Allocated share of Trust
 net assets.............  $1,162,928 $349,378 $181,838 $22,155  $7,754  $62,019
Investment in BellSouth
 Savings and Security
 Employee Stock Owner-
 ship Plan Trust:
 Shares of BellSouth
  common stock allocated
  to participants ......         --       --       --      --      --       --
 Shares of BellSouth
  common stock held for
  future allocation.....         --       --       --      --      --       --
 Temporary cash invest-
  ments.................         --       --       --      --      --       --
                          ---------- -------- -------- -------  ------  -------
 Total Investments......   1,162,928  349,378  181,838  22,155   7,754   62,019
Contributions receiv-
 able...................       1,625    1,133      496      72      39      159
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 receivable--net........       2,424      433       39     142     --       183
                          ---------- -------- -------- -------  ------  -------
 Total Assets...........   1,166,977  350,944  182,373  22,369   7,793   62,361
                          ---------- -------- -------- -------  ------  -------
      LIABILITIES
Distributions payable...         165       94       48     --      --        97
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 payable--net...........         --       --       --      --       30      --
Notes payable ..........         --       --       --      --      --       --
                          ---------- -------- -------- -------  ------  -------
 Total Liabilities......         165       94       48     --       30       97
                          ---------- -------- -------- -------  ------  -------
Net Assets Available for
 Plan Benefits..........  $1,166,812 $350,850 $182,325 $22,369  $7,763  $62,264
                          ========== ======== ======== =======  ======  =======
</TABLE>
 
 
                                             The accompanying notes are an integ
 
                                       4
<PAGE>
 
AND SECURITY PLAN
 
PLAN BENEFITS WITH FUND INFORMATION
 
31, 1997
USANDS)
 
<TABLE>
<CAPTION>
                  VANGUARD
                    INDEX   T. ROWE DFA U.S.       DFA                            EMPLOYEE STOCK
       DFA U.S.     TRUST    PRICE  LARGE CAP INTERNATIONAL                       OWNERSHIP PLAN
      6-10 VALUE   GROWTH   MID-CAP VALUE II    VALUE II    PARTICIPANT        ---------------------
     PORTFOLIO II PORTFOLIO GROWTH    FUND        FUND         LOANS    OTHER  ALLOCATED UNALLOCATED   TOTAL
     ------------ --------- ------- --------- ------------- ----------- ------ --------- ----------- ----------
<S>  <C>          <C>       <C>     <C>       <C>           <C>         <C>    <C>       <C>         <C>

       $24,737     $19,712  $11,154  $13,583     $4,725       $23,121   $6,222 $    --    $    --    $1,889,326






           --          --       --       --         --            --       --   582,136        --       582,136


           --          --       --       --         --            --       --       --     279,149      279,149

           --          --       --       --         --            --       --     5,727      7,897       13,624
       -------     -------  -------  -------     ------       -------   ------ --------   --------   ----------
        24,737      19,712   11,154   13,583      4,725        23,121    6,222  587,863    287,046    2,764,235

            67          56       33       37         18           --       --     4,504        --         8,239



           233         154      --        59        --             19      --       --         --         3,686
       -------     -------  -------  -------     ------       -------   ------ --------   --------   ----------
        25,037      19,922   11,187   13,679      4,743        23,140    6,222  592,367    287,046    2,776,160
       -------     -------  -------  -------     ------       -------   ------ --------   --------   ----------

           --          --       --       --         --            --     3,720       89        --         4,213



           --          --       118      --          32           --     2,502      --         --         2,682
           --          --       --       --         --            --       --       --     177,959      177,959
       -------     -------  -------  -------     ------       -------   ------ --------   --------   ----------
           --          --       118      --          32           --     6,222       89    177,959      184,854
       -------     -------  -------  -------     ------       -------   ------ --------   --------   ----------

       $25,037     $19,922  $11,069  $13,679     $4,711       $23,140   $  --  $592,278   $109,087   $2,591,306
       =======     =======  =======  =======     ======       =======   ====== ========   ========   ==========
</TABLE>

 
ral part of these financial statements.
 
                                       5
<PAGE>
 
                                                              BELLSOUTH SAVINGS
 
                                          STATEMENT OF NET ASSETS AVAILABLE FOR
 
                                                                       DECEMBER
                                                                         (IN THO
 
<TABLE>
<CAPTION>
                                                                       FIDELITY
                           BELLSOUTH INTEREST INDEXED                   GROWTH
                             STOCK    INCOME   STOCK   BALANCED  BOND  & INCOME
                             FUND      FUND     FUND     FUND    FUND  PORTFOLIO
          ASSETS           --------- -------- -------- -------- ------ ---------
<S>                        <C>       <C>      <C>      <C>      <C>    <C>
Allocated share of Trust
 net assets..............  $948,885  $328,749 $102,271 $15,011  $6,997  $18,808
Investment in BellSouth
 Savings and Security
 Employee Stock Ownership
 Plan Trust:
 Shares of BellSouth
  common stock allocated
  to participants........       --        --       --      --      --       --
 Shares of BellSouth
  common stock held for
  future allocation .....       --        --       --      --      --       --
 Temporary cash
  investments............       --        --       --      --      --       --
                           --------  -------- -------- -------  ------  -------
  Total Investments......   948,885   328,749  102,271  15,011   6,997   18,808
Contributions receivable.     1,537     1,300      425      76      35       75
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 receivable--net.........       --      1,530      448       1     --       497
                           --------  -------- -------- -------  ------  -------
  Total Assets...........   950,422   331,579  103,144  15,088   7,032   19,380
                           --------  -------- -------- -------  ------  -------
       LIABILITIES
Distributions payable....     1,288       190      --        3      19        3
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 payable--net............     2,798       --       --      --       35      --
Notes payable............       --        --       --      --      --       --
                           --------  -------- -------- -------  ------  -------
  Total Liabilities......     4,086       190      --        3      54        3
                           --------  -------- -------- -------  ------  -------
Net Assets Available for
 Plan Benefits...........  $946,336  $331,389 $103,144 $15,085  $6,978  $19,377
                           ========  ======== ======== =======  ======  =======
</TABLE>
 
 
                                              The accompanying notes are an inte
 
                                       6
<PAGE>
 
 AND SECURITY PLAN
 
 PLAN BENEFITS WITH FUND INFORMATION
 
 31, 1996
USANDS)
 
<TABLE>
<CAPTION>
                  DFA U.S.       DFA                  AMERICAN                            EMPLOYEE STOCK
     DFA U.S.     LARGE CAP INTERNATIONAL BERGER  CENTURY/TWENTIETH                       OWNERSHIP PLAN
    6-10 VALUE    VALUE II    VALUE II      100    CENTURY GROWTH   PARTICIPANT        ---------------------
   PORTFOLIO II     FUND        FUND       FUND    INVESTORS FUND      LOANS    OTHER  ALLOCATED UNALLOCATED   TOTAL
   ------------   --------- ------------- ------- ----------------- ----------- ------ --------- ----------- ----------
   <S>            <C>       <C>           <C>     <C>               <C>         <C>    <C>       <C>         <C>

      $7,120       $5,916      $3,122     $13,498      $5,761         $17,906   $2,012 $    --    $    --    $1,476,056






         --           --          --          --          --              --       --   385,762        --       385,762


         --           --          --          --          --              --       --       --     234,722      234,722

         --           --          --          --          --              --       --     4,513      8,055       12,568
      ------       ------      ------     -------      ------         -------   ------ --------   --------   ----------
       7,120        5,916       3,122      13,498       5,761          17,906    2,012  390,275    242,777    2,109,108
          21           10           8          30          10             --       --     1,694        --         5,221



         220           38         100         104           9              27       16      125        --         3,115
      ------       ------      ------     -------      ------         -------   ------ --------   --------   ----------
       7,361        5,964       3,230      13,632       5,780          17,933    2,028  392,094    242,777    2,117,444
      ------       ------      ------     -------      ------         -------   ------ --------   --------   ----------

         --           --          --          --          --              200    1,901      119        --         3,723



         --           --          --          --          --              --       --       --         --         2,833
         --           --          --          --          --              --       --       --     199,757      199,757
      ------       ------      ------     -------      ------         -------   ------ --------   --------   ----------
         --           --          --          --          --              200    1,901      119    199,757      206,313
      ------       ------      ------     -------      ------         -------   ------ --------   --------   ----------

      $7,361       $5,964      $3,230     $13,632      $5,780         $17,733   $  127 $391,975   $ 43,020   $1,911,131
      ======       ======      ======     =======      ======         =======   ====== ========   ========   ==========
</TABLE>
 
 
gral part of these financial statements.
 
                                       7
<PAGE>
 
                                                              BELLSOUTH SAVINGS
 
                                                           STATEMENT OF CHANGES
                                                            FOR PLAN BENEFITS WI
 
                                                                  YEAR ENDED DEC
                                                                         (IN THO
 
<TABLE>
<CAPTION>

                                                                           FIDELITY
                          BELLSOUTH   INTEREST  INDEXED                     GROWTH   DFA U.S. 6-
                            STOCK      INCOME    STOCK   BALANCED   BOND   & INCOME    10 VALUE
                             FUND       FUND     FUND      FUND     FUND   PORTFOLIO PORTFOLIO II
                          ----------  -------- --------- --------- ------  --------- ------------
<S>                       <C>         <C>      <C>       <C>       <C>     <C>       <C>
Net Assets Available for
 Plan Benefits,
 December 31, 1996......  $  946,336  $331,389 $ 103,144 $  15,085 $6,978   $19,377    $ 7,361
                          ----------  -------- --------- --------- ------   -------    -------
Employee contributions..      36,523    23,987    13,185     2,159    847     3,967      1,202
Transfer of
 participants'
 balances--net..........    (108,974)   14,010    33,567     2,287    (80)   30,214     13,600
Employing company
 contributions..........         --        --        --        --     --        --         --
Supplemental
 contributions..........         --        --        --        --     --        --         --
Allocation of shares to
 participants...........         --        --        --        --     --        --         --
Transfer of loan
 repayment..............         --        --        --        --     --        --         --
                          ----------  -------- --------- --------- ------   -------    -------
Total Contributions,
 Allocations and
 Transfers..............     (72,451)   37,997    46,752     4,446    767    34,181     14,802
Allocated share of Trust
 investment activities..     370,107    21,201    39,525     3,667    581    10,896      3,508
                          ----------  -------- --------- --------- ------   -------    -------
Total Additions.........     297,656    59,198    86,277     8,113  1,348    45,077     18,310
                          ----------  -------- --------- --------- ------   -------    -------
Less: Distributions to
      participants......      77,180    39,737     7,096       829    563     2,190        634
  Interest on notes
     payable............         --        --        --        --     --        --         --
                          ----------  -------- --------- --------- ------   -------    -------
Net Assets Available for
 Plan Benefits,
 December 31, 1997......  $1,166,812  $350,850 $ 182,325 $ 22,369  $7,763   $62,264    $25,037
                          ==========  ======== ========= ========= ======   =======    =======
</TABLE>
 
 
                                             The accompanying notes are an integ
 
                                       8
<PAGE>
 
 AND SECURITY PLAN
 
 IN NET ASSETS AVAILABLE
TH FUND INFORMATION
 
EMBER 31, 1997
USANDS)
 
<TABLE>
<CAPTION>
     VANGUARD
       INDEX   T. ROWE DFA U.S.       DFA                   AMERICAN                            EMPLOYEE STOCK
       TRUST    PRICE  LARGE CAP INTERNATIONAL BERGER   CENTURY/TWENTIETH                       OWNERSHIP PLAN
      GROWTH   MID-CAP VALUE II    VALUE II      100     CENTURY GROWTH   PARTICIPANT        ----------------------
     PORTFOLIO GROWTH    FUND        FUND       FUND     INVESTORS FUND      LOANS    OTHER  ALLOCATED  UNALLOCATED   TOTAL
     --------- ------- --------- ------------- -------  ----------------- ----------- -----  ---------  ----------- ----------
<S>  <C>       <C>     <C>       <C>           <C>      <C>               <C>         <C>    <C>        <C>         <C>


      $   --   $   --   $ 5,964     $3,230     $13,632       $5,780         $17,733   $ 127  $391,975    $ 43,020   $1,911,131
      -------  -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------
          485      310      615        387         627          222             --      --        --          --        84,516


       18,920   10,672    5,029      1,405     (18,372)      (7,639)          4,463    (356)  (3,147)         --       (4,401)

          --       --       --         --          --           --              --      --     20,053         --        20,053

          --       --       --         --          --           --              --      --        --       23,857       23,857

          --       --       --         --          --           --              --      --     37,790     (37,790)         --

          --       --       --         --          --           --              --      --     (7,492)      7,492          --
      -------  -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------


       19,405   10,982    5,644      1,792     (17,745)      (7,417)          4,463    (356)   47,204      (6,441)     124,025

          728      248    2,430       (159)      4,531        1,813           1,481     239   173,364      90,257      724,417
      -------  -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------
       20,133   11,230    8,074      1,633     (13,214)      (5,604)          5,944    (117)  220,568      83,816      848,442
      -------  -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------

          211      161      359        152         418          176             537      10    20,265         --       150,518

          --       --       --         --          --           --              --      --        --       17,749       17,749
      -------  -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------


      $19,922  $11,069  $13,679     $4,711     $   --        $  --          $23,140   $ --   $592,278    $109,087   $2,591,306
      =======  =======  =======     ======     =======       ======         =======   =====  ========    ========   ==========
</TABLE>
 
 
ral part of these financial statements.
 
                                       9
<PAGE>
 
                                                              BELLSOUTH SAVINGS
 
                                                           STATEMENT OF CHANGES
                                                            FOR PLAN BENEFITS WI
 
                                                                   YEAR ENDED DE
                                                                         (IN THO
 
<TABLE>
<CAPTION>
                                                                          FIDELITY
                          BELLSOUTH   INTEREST  INDEXED                    GROWTH     DFA U.S.
                            STOCK      INCOME    STOCK   BALANCED  BOND   & INCOME   6-10 VALUE
                             FUND       FUND      FUND     FUND    FUND   PORTFOLIO PORTFOLIO II
                          ----------  --------  -------- -------- ------  --------- ------------
<S>                       <C>         <C>       <C>      <C>      <C>     <C>       <C>
Net Assets Available for
 Plan Benefits,
 December 31, 1995......  $1,051,289  $329,289  $ 56,642 $ 8,360  $6,730   $   --      $1,321
                          ----------  --------  -------- -------  ------   -------     ------
Employee contributions..      43,544    28,475    10,683   2,262   1,206       550        139
Transfer of
 participants'
 balances--net..........     (54,318)  (18,290)   24,124   3,560    (773)   17,970      4,918
Employing company
 contributions..........         --        --        --      --      --        --         --
Supplemental
 contributions..........         --        --        --      --      --        --         --
Allocation of shares to
 participants...........         --        --        --      --      --        --         --
Transfer of loan
 repayment..............         --        --        --      --      --        --         --
                          ----------  --------  -------- -------  ------   -------     ------
Total Contributions,
 Allocations and
 Transfers..............     (10,774)   10,185    34,807   5,822     433    18,520      5,057
Allocated share of Trust
 investment activities..     (37,102)   20,060    15,610   1,467     254     1,008      1,043
                          ----------  --------  -------- -------  ------   -------     ------
Total Additions.........     (47,876)   30,245    50,417   7,289     687    19,528      6,100
                          ----------  --------  -------- -------  ------   -------     ------
Less: Distributions to
 participants...........      57,077    28,145     3,915     564     439       151         60
  Interest on notes
   payable..............         --        --        --      --      --        --         --
                          ----------  --------  -------- -------  ------   -------     ------
Net Assets Available for
 Plan Benefits,
 December 31, 1996......  $  946,336  $331,389  $103,144 $15,085  $6,978   $19,377     $7,361
                          ==========  ========  ======== =======  ======   =======     ======
</TABLE>
 
 
                                              The accompanying notes are an inte
 
                                       10

<PAGE>
 
 AND SECURITY PLAN
 
 IN NET ASSETS AVAILABLE
TH FUND INFORMATION
 
CEMBER 31, 1996
USANDS)
 
<TABLE>
<CAPTION>
    DFA U.S.                             AMERICAN                           EMPLOYEE STOCK
    LARGE CAP       DFA      BERGER  CENTURY/TWENTIETH                      OWNERSHIP PLAN
    VALUE II   INTERNATIONAL   100    CENTURY GROWTH   PARTICIPANT       ----------------------
      FUND     VALUE II FUND  FUND    INVESTORS FUND      LOANS    OTHER ALLOCATED  UNALLOCATED   TOTAL
    ---------  ------------- ------- ----------------- ----------- ----- ---------  ----------- ----------
   <S>         <C>           <C>     <C>               <C>         <C>   <C>        <C>         <C>


     $1,541       $  968     $ 6,003      $2,690         $ 9,968   $--   $368,721    $ 78,837   $1,922,359
     ------       ------     -------      ------         -------   ----  --------    --------   ----------
         78           59         267          69             --     --        --          --        87,332


      3,822        2,056       6,014       2,629           7,423     39       --          --          (826)

        --           --          --          --              --     --     17,906         --        17,906

        --           --          --          --              --     --        --       25,322       25,322

        --           --          --          --              --     --     33,075     (33,075)         --

        --           --          --          --              --     --     (4,693)      4,693          --
     ------       ------     -------      ------         -------   ----  --------    --------   ----------


      3,900        2,115       6,281       2,698           7,423     39    46,288      (3,060)     129,734

        577          154       1,455         438             612    113   (11,084)    (13,164)     (18,559)
     ------       ------     -------      ------         -------   ----  --------    --------   ----------
      4,477        2,269       7,736       3,136           8,035    152    35,204     (16,224)     111,175
     ------       ------     -------      ------         -------   ----  --------    --------   ----------

         54            7         107          46             270     25    11,950         --       102,810

        --           --          --          --              --     --        --       19,593       19,593
     ------       ------     -------      ------         -------   ----  --------    --------   ----------


     $5,964       $3,230     $13,632      $5,780         $17,733   $127  $391,975    $ 43,020   $1,911,131
     ======       ======     =======      ======         =======   ====  ========    ========   ==========
</TABLE>
 
 
gral part of these financial statements.
 
                                       11
<PAGE>
 
                                                              BELLSOUTH SAVINGS
 
                                                           STATEMENT OF CHANGES
                                                            FOR PLAN BENEFITS WI
 
                                                                   YEAR ENDED DE
                                                                         (IN THO
 

<TABLE>
<CAPTION>
                          BELLSOUTH   INTEREST  INDEXED                    DFA U.S.
                            STOCK      INCOME    STOCK  BALANCED  BOND    6-10 VALUE
                             FUND       FUND     FUND     FUND    FUND   PORTFOLIO II
                          ----------  --------  ------- -------- ------  ------------
<S>                       <C>         <C>       <C>     <C>      <C>     <C>
Net Assets Available for
 Plan Benefits,
 December 31, 1994......  $  646,155  $313,647  $32,245  $3,975  $5,113     $  458
                          ----------  --------  -------  ------  ------     ------
Employee contributions..      37,421    31,484    7,008   1,243   1,235        --
Transfer of
 participants'
 balances--net..........      (3,835)  (13,087)   6,132   1,900     (55)       697
Employing company
 contributions..........         --        --       --      --      --         --
Supplemental
 contributions..........         --        --       --      --      --         --
Allocation of shares to
 participants...........         --        --       --      --      --         --
Transfer of loan
 repayment..............         --        --       --      --      --         --
                          ----------  --------  -------  ------  ------     ------
Total Contributions,
 Allocations and
 Transfers..............      33,586    18,397   13,140   3,143   1,180        697
Allocated share of Trust
 investment activities..     414,437    21,737   13,156   1,354     799        166
                          ----------  --------  -------  ------  ------     ------
Total Additions.........     448,023    40,134   26,296   4,497   1,979        863
                          ----------  --------  -------  ------  ------     ------
Less: Distributions to
 participants...........      42,889    24,492    1,899     112     362        --
  Interest on notes
   payable..............         --        --       --      --      --         --
                          ----------  --------  -------  ------  ------     ------
Net Assets Available for
 Plan Benefits,
 December 31, 1995......  $1,051,289  $329,289  $56,642  $8,360  $6,730     $1,321
                          ==========  ========  =======  ======  ======     ======
</TABLE>
 
 
 
                                              The accompanying notes are an inte
 
                                       12
<PAGE>
 
 AND SECURITY PLAN
 
 IN NET ASSETS AVAILABLE
TH FUND INFORMATION
 
CEMBER 31, 1995
USANDS)
 
<TABLE>
<CAPTION>
    DFA U.S.                            AMERICAN                     EMPLOYEE STOCK
    LARGE CAP       DFA      BERGER CENTURY/TWENTIETH                OWNERSHIP PLAN
    VALUE II   INTERNATIONAL  100    CENTURY GROWTH   PARTICIPANT ----------------------
      FUND     VALUE II FUND  FUND   INVESTORS FUND      LOANS    ALLOCATED  UNALLOCATED   TOTAL
    ---------  ------------- ------ ----------------- ----------- ---------  ----------- ----------
   <S>         <C>           <C>    <C>               <C>         <C>        <C>         <C>


     $  224        $582      $3,009      $  945         $5,935    $199,491    $(28,813)  $1,182,966
     ------        ----      ------      ------         ------    --------    --------   ----------
        --          --          --          --             155         --          --        78,546


      1,156         308       2,185       1,538          3,555         --          --           494

        --          --          --          --             --       23,397         --        23,397

        --          --          --          --             --          --       24,861       24,861

        --          --          --          --             --       26,904     (26,904)         --

        --          --          --          --             --       (5,381)      5,381          --
     ------        ----      ------      ------         ------    --------    --------   ----------


      1,156         308       2,185       1,538          3,710      44,920       3,338      127,298

        161          81         826         210            508     132,087     125,572      711,094
     ------        ----      ------      ------         ------    --------    --------   ----------
      1,317         389       3,011       1,748          4,218     177,007     128,910      838,392
     ------        ----      ------      ------         ------    --------    --------   ----------

        --            3          17           3            185       7,777         --        77,739

        --          --          --          --             --          --       21,260       21,260
     ------        ----      ------      ------         ------    --------    --------   ----------


     $1,541        $968      $6,003      $2,690         $9,968    $368,721    $ 78,837   $1,922,359
     ======        ====      ======      ======         ======    ========    ========   ==========
</TABLE>
 
 
 
gral part of these financial statements.
 
                                       13
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                         NOTES TO FINANCIAL STATEMENTS
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
1. PLAN DESCRIPTION
 
GENERAL
 
  The following description of the BellSouth Savings and Security Plan (the
Plan) provides only general information. For additional information,
participants should refer to the Plan Prospectus/Summary Plan Description, as
supplemented (SPD). A copy of the SPD can be obtained by calling the BellSouth
Participant Service Center at 1-800-995-1000 or 1-615-333-9000 via company
telephone. In addition, copies of the Plan agreement and other related
documents which include details of the Plan can be obtained by writing to:
Secretary, BellSouth Savings Plan Committee, Room 13C09, 1155 Peachtree
Street, N.E., Atlanta, Georgia 30309-3610.
 
  The Plan was established by BellSouth Corporation (BellSouth) to provide a
convenient way for non-salaried employees to save for their retirement on a
long-term basis and to acquire an ownership interest in BellSouth. The Plan
consists of two parts: one is a profit sharing plan which includes a qualified
cash or deferred arrangement and which is intended to qualify as such under
sections 401(a), 401(k) and 401(m) and related sections of the Internal
Revenue Code of 1986, as amended (the Code); the second part is an employee
stock ownership plan (ESOP) which is designed as a stock bonus plan to invest
primarily in shares of BellSouth common stock and which is intended to qualify
under Sections 401(a), 401(m) and 4975(e)(7) and related sections of the Code.
All non-management employees who are active, regular full-time or part-time
employees of a BellSouth company participating in the Plan and have completed
one year of service are eligible to participate. The Plan is subject to the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
 
PLAN AMENDMENT AND RESTATEMENT
 
  Effective July 1, 1996, the Plan document was amended and restated.
Significant changes included a change in investment valuation methods (see
below) and changes to various service functions provided by the Plan's
recordkeeper and service center provider.
 
MASTER TRUST
 
  For investment purposes, the assets of the Plan are held in the BellSouth
Master Savings Trust (the Master Savings Trust). In addition, the Master
Savings Trust also holds all assets of the BellSouth Retirement Savings Plan
(BRSP) (formerly the BellSouth Management Savings and Employee Stock Ownership
Plan and the BellSouth Enterprises Retirement Savings Plan).
 
INVESTMENT OPTIONS
 
  At December 31, 1997, the Plan's assets were comprised of the following
investment vehicles: BellSouth Stock Fund, Interest Income Fund, Indexed Stock
Fund, Balanced Fund, Bond Fund and mutual funds which include the Fidelity
Growth & Income Portfolio, DFA U.S. 6-10 Value Portfolio II, Vanguard Index
Trust Growth Portfolio, T. Rowe Price Mid-Cap Growth, DFA U.S. Large Cap Value
II Fund and DFA International Value II Fund.
 
  Effective July 8, 1996, all investments are valued on a daily basis. Prior
to this date, all Plan investment funds other than the mutual funds were
valued on a monthly basis. Since they were added as investment options, the
mutual funds have been valued on a daily basis.
 
  Prior to July 8, 1996, the assets of the Berger 100 Fund, American
Century/Twentieth Century Growth Investors Fund, and the three DFA Funds were
contained within a mutual fund window account. In conjunction with the
conversion of investment valuation to a daily basis, these mutual funds were
established as separate
 
                                      14
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
1. PLAN DESCRIPTION--(CONTINUED)
 
investment funds. For further discussion, see Note 3. Also, on July 8, 1996,
the Fidelity Growth & Income Portfolio was added as a new investment option.
 
  During September 1997, the Berger 100 Fund and the American
Century/Twentieth Century Growth Investors Fund were replaced by the T. Rowe
Price Mid-Cap Growth and the Vanguard Index Trust Growth Portfolio as
investment options. All participant balances in, and subsequent contributions
to, the replaced funds were reallocated according to participant direction or
into the Interest Income Fund in the absence of such direction.
 
CONCENTRATIONS OF RISK
 
  At December 31, 1997 and 1996, the Plan's assets were significantly
concentrated in shares of BellSouth common stock, the value of which is
subject to fluctuations related to corporate, industry and economic factors.
 
VESTING
 
  Participant contributions vest immediately. Employing company matching
contributions vest upon a participant's completion of three years of service.
One year of vesting service is earned upon a participant's completion of 1,000
work hours during any year.
 
PARTICIPANT LOANS (WHOLE DOLLARS)
 
  Participants may borrow from their fund accounts a minimum of $1,000 up to
the lesser of $50,000 or 50 percent of their before-tax account balances as
defined by the Plan document and any amounts rolled over to the Plan from
other qualified plans. Loan balances are secured by the assets allocated to
the participants' accounts and bear interest at various rates which ranged
from 7.0% to 12.5% at December 31, 1997. Principal and interest are paid
ratably through periodic payroll deductions for active employees and by coupon
for nonactive employees.
 
SERVICE PROVIDER
 
  Bankers Trust Company is the Trustee for the Master Savings Trust and,
through December 31, 1997, also served as the recordkeeper and service center
provider for the Plan. Beginning January 1, 1998, Metropolitan Life Insurance
Company will serve as the recordkeeper and service center provider for the
Plan.
 
2. ACCOUNTING POLICIES
 
  The financial statements of the Plan 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.
Certain amounts in prior period financial statements have been reclassified to
conform to the current year's presentation.
 
  With respect to the statements of net assets available for plan benefits for
the years presented, allocated share of Trust net assets includes investments
at fair value, accrued interest income, accrued dividends, receivables for
investments sold, payables for investments purchased and accrued
administrative expenses of the Master Savings Trust.
 
  With respect to the statements of changes in net assets available for plan
benefits for the years presented, allocated share of Trust investment
activities includes the sum of realized gains, net of realized losses, the net
change in unrealized appreciation/(depreciation) on the fair value of the
investments, interest income, dividends, investment manager fees and other
administrative fees paid by the Master Savings Trust.
 
 
                                      15
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
2. ACCOUNTING POLICIES--(CONTINUED)
 
  The values of investments in the Master Savings Trust are determined as
follows:
 
  .  Shares of BellSouth common stock and equity securities underlying the
     Indexed Stock Fund are valued on the basis of the closing price per
     share on December 31, 1997 and 1996, as reported on the New York Stock
     Exchange or, if no sales were made on that date, at the closing price on
     the next preceding day on which sales were made;
 
  .  The values of mutual funds, all of which are traded on a national
     securities exchange, are based on published daily closing net asset
     values as reported by the respective securities exchanges;
 
  .  Over-the-counter securities and government obligations are valued based
     on the bid prices on December 31, 1997 and 1996 from published sources
     where available and, if not available, from other sources considered
     reliable; and
 
  .  Contracts with insurance companies are valued at principal plus
     reinvested interest.
 
  Purchases and sales of securities are reflected as of the trade date.
 
  Realized gains and losses on sales of investments are determined on the
basis of average cost.
 
  Dividend income is recognized on the ex-dividend date. Interest earned on
investments is recognized on the accrual basis.
 
3. MUTUAL FUNDS
 
MUTUAL FUND WINDOW
 
  During 1994, the Berger 100 Fund, the American Century/Twentieth Century
Growth Investors Fund, and the three DFA mutual funds were established as
investment options. Amounts could only be directed to these mutual funds
through transfers from the other core funds. Liquidation of these mutual funds
as a result of changing investment elections, transfers or participant
withdrawals could occur on any day. However, the five core funds in the Plan
(BellSouth Stock Fund, Interest Income Fund, Indexed Stock Fund, Balanced
Fund, and Bond Fund), were still valued on a monthly basis. As a result a
"Mutual Fund Window" or MFW was established. The MFW consisted of the five
mutual funds and a temporary holding account into which any cash generated as
the result of mutual fund liquidations during a month would be placed and held
until the end of the month. At the end of the month, transfers out of the MFW
would be effected with the five core funds, valued and recorded according to
the month-end unit value of the core fund(s).
 
  As discussed in Note 1, on July 8, 1996 the Plan converted to a daily
valuation basis for all of its investment options. This allowed transactions
between the mutual funds and the five core funds to be effected and recorded
on the same day at any time during the month. As a result, subsequent to that
date, the MFW was eliminated and separate investment accounts for each mutual
fund were established. With the elimination of the MFW, participants are
allowed to make contributions directly to the mutual funds.
 
4. UNITS OF THE PLAN
 
  Participants in the Plan can direct their contributions among 11 investment
options as described in Note 1. The interests of participants in each type of
investment of the Plan are represented by units as described in Section 8 of
the Plan document. Unit values are based on a beginning value of $1.00 as of
January 1, 1994 and are adjusted based on the performance of the underlying
investments in each period.
 
  Prior to July 8, 1996, participant accounts and the related unit values for
investments other than mutual funds were valued on a monthly basis. As
previously discussed in Notes 1 and 3, the Plan converted to a daily unit
valuation method for all participant accounts and investments on July 8, 1996.
 
                                      16
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
     (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
4. UNITS OF THE PLAN--(CONTINUED)
 
  The number and value of units for investments, other than mutual funds, as of
December 31, 1997 and  1996 were as follows:
 
<TABLE>
<CAPTION>
                               DECEMBER 31, 1997              DECEMBER 31, 1996
                         ------------------------------ ------------------------------
TYPE OF INVESTMENT       NUMBER OF UNITS VALUE PER UNIT NUMBER OF UNITS VALUE PER UNIT
------------------       --------------- -------------- --------------- --------------
<S>                      <C>             <C>            <C>             <C>
BellSouth Stock Fund....   520,097,143      $2.2379       601,614,144      $1.5659
Interest Income Fund....   268,888,234       1.2978       271,398,023       1.2177
Indexed Stock Fund......    79,366,846       2.2833        60,033,796       1.7112
Balanced Fund...........    12,824,578       1.7313        10,572,766       1.4196
Bond Fund...............     5,907,819       1.3023         5,801,441       1.1971
</TABLE>
 
  The number and value of units by quarter for each investment, other than
mutual funds, during 1997 were as follows:
 
<TABLE>
<CAPTION>
                                       BELLSOUTH STOCK FUND INTEREST INCOME FUND
                                       -------------------- --------------------
                                        NUMBER OF   VALUE    NUMBER OF   VALUE
1997                                      UNITS    PER UNIT    UNITS    PER UNIT
----                                   ----------- -------- ----------- --------
<S>                                    <C>         <C>      <C>         <C>
March................................. 566,419,422 $1.6506  274,060,866 $1.2367
June.................................. 553,720,509  1.8247  273,004,704  1.2566
September............................. 540,395,097  1.8309  263,798,745  1.2772
December.............................. 520,097,143  2.2379  268,888,234  1.2978
<CAPTION>
                                        INDEXED STOCK FUND     BALANCED FUND
                                       -------------------- --------------------
                                        NUMBER OF   VALUE    NUMBER OF   VALUE
1997                                      UNITS    PER UNIT    UNITS    PER UNIT
----                                   ----------- -------- ----------- --------
<S>                                    <C>         <C>      <C>         <C>
March.................................  67,997,078 $1.7575   11,886,630 $1.4391
June..................................  72,008,795  2.0653   12,117,010  1.5910
September.............................  77,076,223  2.2201   12,382,835  1.6768
December..............................  79,366,846  2.2833   12,824,578  1.7313
<CAPTION>
                                            BOND FUND
                                       --------------------
                                        NUMBER OF   VALUE
1997                                      UNITS    PER UNIT
----                                   ----------- --------
<S>                                    <C>         <C>      <C>         <C>
March.................................   5,813,857 $1.1917
June..................................   5,579,194  1.2310
September.............................   5,413,192  1.2681
December..............................   5,907,819  1.3023
</TABLE>
 
The values of mutual funds, all of which are traded on a national securities
exchange, are based on published daily closing net asset values as reported by
the respective securities exchanges.
 
                                       17
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
4. UNITS OF THE PLAN--(CONTINUED)
 
  At December 31, 1997, the number of participants currently enrolled within
the Plan by investment direction as described in Section 7 of the Plan
document was as follows:
 
<TABLE>
<CAPTION>
                                                                    NUMBER OF
                          FUND DESCRIPTION                         PARTICIPANTS
                          ----------------                         ------------
   <S>                                                             <C>
   Entirely in BellSouth Stock Fund...............................    11,864
   Entirely in Indexed Stock Fund.................................     2,093
   Entirely in Interest Income Fund...............................     8,836
   Equally in BellSouth Stock Fund and Indexed Stock Fund.........     1,855
   Equally in BellSouth Stock Fund and Interest Income Fund.......     4,859
   Equally in Indexed Stock Fund and Interest Income Fund.........       377
   Equally in Indexed Stock Fund and Fidelity Growth & Income
    Fund..........................................................       554
   Various fund combinations*.....................................     6,532
                                                                      ------
     Total Participants...........................................    36,970
                                                                      ======
</TABLE>
--------
* Includes all other investment directions, each having less than 1% of
   participants.
 
  Since all employing company contributions are made to the ESOP, all
employees currently contributing to the Plan are participants in the ESOP.
 
5. CONTRIBUTIONS
 
  Employee contributions to the Plan are recorded based upon authorized basic
and supplemental contributions. The maximum basic contribution rate was $55
per week for 1997 and 1996 and $50 per week for 1995. Participants may
contribute up to 15% (12% prior to January 1, 1996) of their eligible
compensation to the Plan on a before-tax basis. Total before-tax and after-tax
contributions may not exceed 15% of compensation for all periods.
 
  As discussed in Section 3 of the Plan document, participants may also
rollover amounts into the Plan from other qualified plans.
 
  The employing company makes matching contributions to the ESOP in respect of
each participant's authorized basic contribution. Employing company matching
contributions will vest upon a participant's completion of three years of
service. One year of vesting service is earned upon a participant's completion
of 1,000 work hours during any year. The rate of the employing company
matching contribution remains in effect for a twelve-month period from April 1
through March 31. The employing company makes a matching contribution that is
a percentage of the employee's basic contribution. The matching contribution
rates for the three years ended December 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                     1997      1996      1995
                                                   --------- --------- ---------
      <S>                                          <C>       <C>       <C>
      January-March............................... 71% - 76% 59% - 69%       76%
      April-December.............................. 76% - 86% 71% - 76% 59% - 69%
</TABLE>
 
6. PLAN EXPENSES
 
  Each participant in the Plan is charged a flat annual fee for Plan
administrative expenses, including record keeping, trustee and other expenses
considered reasonable by the Plan administrator. The fee is divided on a pro
rata basis among each investment option of the participant. The per-
participant fee for 1997, 1996 and 1995 was
 
                                      18
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
6. PLAN EXPENSES--(CONTINUED)
 
$31.50, $26.40 and $22.00, respectively. Additional fees are also charged to
individual participants for various services provided by the Plan's
recordkeeper and the BellSouth Participant Service Center.
 
  Investment manager fees are paid by the Master Savings Trust. Investment
manager fees included in allocated share of Trust investment activities in the
statements of changes in net assets available for plan benefits for the years
presented, were as follows:
 
<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED
                                                                DECEMBER 31,
                                                            --------------------
                                                             1997   1996   1995
                                                            ------ ------ ------
<S>                                                         <C>    <C>    <C>
Interest Income Fund....................................... $  147 $  146 $  142
Indexed Stock Fund.........................................     25     16     11
Balanced Fund..............................................     17     12      6
Bond Fund..................................................     22     21     14
                                                            ------ ------ ------
                                                            $  211 $  195 $  173
                                                            ====== ====== ======
</TABLE>
 
  For the mutual funds, investment manager fees are not paid directly from the
Master Savings Trust. However, these investments are subject to mutual fund
management fees, which reduce the overall return of the respective mutual
fund. Such fees, expressed as percentages of fund assets, which were assessed
against the mutual funds by their respective managers were as follows:
 
<TABLE>
<CAPTION>
                                                                    FOR THE
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                               -----------------
                                                               1997  1996  1995
                                                               ----- ----- -----
<S>                                                            <C>   <C>   <C>
Fidelity Growth & Income Portfolio............................ 0.75% 0.74%   --
DFA U.S. 6-10 Value Portfolio II.............................. 0.75% 0.85% 0.96%
Vanguard Index Trust Growth Portfolio*........................ 0.20%   --    --
T. Rowe Price Mid-Cap Growth*................................. 1.04%   --    --
DFA U.S. Large Cap Value II Fund.............................. 0.75% 0.82% 0.96%
DFA International Value II Fund............................... 0.75% 0.86% 0.96%
Berger 100 Fund*.............................................. 1.41% 1.42% 1.47%
American Century/Twentieth Century Growth Investors Fund*..... 1.00% 1.00% 1.00%
</TABLE>
--------
* During September 1997, the Berger 100 Fund and the American
 Century/Twentieth Century Growth Investors Fund were replaced by the T. Rowe
 Price Mid-Cap Growth and the Vanguard Index Trust Growth Portfolio. For
 additional information, see Note 1.
 
  For the three years ended December 31, 1997, no fees were paid to investment
managers for management of the BellSouth Stock Fund.
 
7. TAX STATUS
 
  The Internal Revenue Service has determined and informed BellSouth by letter
dated April 14, 1998, that the Plan and related Trust meet the requirements of
Section 401(a) of the Code, and are exempt from federal income taxes under
Section 501(a) of the Code.
 
  For information on the federal income tax effects on the employees with
respect to the Plan, participants should refer to the SPD.
 
                                      19
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
8. TERMINATION PRIORITIES
 
  BellSouth intends to continue the Plan indefinitely but reserves the right
to terminate or amend it. In the event the Plan is terminated, if BellSouth or
its subsidiaries sponsors another defined contribution plan, the participants
may elect to have their units transferred to the other plan. If BellSouth or
its subsidiaries do not sponsor such a plan, the participants would receive a
lump-sum distribution of their units.
 
9. INTEREST IN BELLSOUTH MASTER SAVINGS TRUST
 
  The assets of the Plan are held in the Master Savings Trust and are
commingled with the assets of the BRSP. Prior to April 1, 1996, the Plan's
assets were also commingled with the assets of the BellSouth Enterprises
Retirement Savings Plan, which was merged with and into the BellSouth
Retirement Savings Plan on April 1, 1996. Effective July 1, 1993, the
BellSouth Employee Stock Ownership Plan (PAYSOP) was amended to allow it to be
added as a participating plan under the Master Savings Trust. However, the
PAYSOP is a sub-trust under the Master Savings Trust and the PAYSOP assets are
not commingled with the assets of the Master Savings Trust. This sub-trust is
not included in the following Master Savings Trust information.
 
  The assets of the Master Savings Trust are allocated to the Plan based upon
the total of each individual plan participant's share of the Master Savings
Trust's assets. The Plan's allocated share of the total net assets of all
funds in the Master Savings Trust at December 31, 1997 and 1996 was 33.24611%
and 32.24280%, respectively. The Plan's allocated share of the net assets of
each fund in the Master Savings Trust at December 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                                              1997      1996
                                                            --------- ---------
   <S>                                                      <C>       <C>
   BellSouth Stock Fund.................................... 50.28189% 46.91167%
   Interest Income Fund.................................... 28.11128% 28.94570%
   Indexed Stock Fund...................................... 14.87323% 11.87296%
   Balanced Fund........................................... 17.39634% 15.46374%
   Bond Fund...............................................  6.58568%  5.50809%
   Fidelity Growth & Income Portfolio...................... 27.86083% 25.27740%
   DFA U.S. 6-10 Value Portfolio II ....................... 19.53536% 15.50804%
   Vanguard Index Trust Growth Portfolio................... 29.93390%       --
   T. Rowe Price Mid-Cap Growth ........................... 21.46665%       --
   DFA U.S. Large Cap Value II Fund........................ 26.40233% 22.27917%
   DFA International Value II Fund......................... 12.90886% 10.13969%
   Berger 100 Fund.........................................       --  27.85832%
   American Century/Twentieth Century Growth Investors
    Fund...................................................       --  27.84984%
   Participant Loans....................................... 27.53754% 23.52051%
   Other................................................... 30.41913% 23.33251%
</TABLE>
 
 
                                      20
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
     (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
9. INTEREST IN BELLSOUTH MASTER SAVINGS TRUST--(CONTINUED)
 
  The financial position of the Master Savings Trust at December 31, 1997 and
1996 was as follows:
 
<TABLE>
<CAPTION>
                                                             1997       1996
                                                             ----       ----
<S>                                                       <C>        <C>
Assets:
 Investments at value:
  BellSouth Stock Fund:
   Shares of BellSouth common stock...................... $2,284,295 $2,009,039
   Temporary cash investments............................     28,464        490
   Distributable shares..................................         69        397
  Interest Income Fund:
   Contracts.............................................  1,180,628  1,088,329
   Temporary cash investments............................     61,963     46,790
  Indexed Stock Fund:
   Equity Index Fund.....................................  1,218,854    862,465
   Temporary cash investments............................         50         86
  Balanced Fund:
   Securities............................................    114,364     86,837
   Temporary cash investments............................     12,927     10,116
  Bond Fund:
   Securities............................................    113,050    121,647
   Temporary cash investments............................      2,791      4,223
  Fidelity Growth & Income Portfolio:
   Securities............................................    222,255     75,746
   Temporary cash investments............................          1          2
  DFA U.S. 6-10 Value Portfolio II:
   Securities............................................    126,866     48,291
   Temporary cash investments............................          1          2
  Vanguard Index Trust Growth Portfolio:
   Securities............................................     66,199        --
  T. Rowe Price Mid-Cap Growth:
   Securities............................................     51,856        --
   Temporary cash investments............................          1        --
  DFA U.S. Large Cap Value II Fund:
   Securities............................................     51,246     26,424
  DFA International Value II Fund:
   Securities............................................     36,359     31,884
  Berger 100 Fund:
   Securities............................................        --      55,121
   Temporary cash investments............................        --           8
  American Century/Twentieth Century Growth Investors
   Fund:
   Securities............................................        --      20,883
 Participant Loans:
  Loans to participants..................................     83,956     73,981
  Temporary cash investments.............................         99        141
 Contribution Account+:
  Temporary cash investments.............................      8,994        123
 Distribution Account+:
  Temporary cash investments.............................     10,006      6,831
 Expense Account+:
  Temporary cash investments.............................      1,456      1,505
 Mutual Fund Window+:
  Temporary cash investments.............................        --         856
 Dividends and interest income receivable................      2,236      2,346
 Receivable for investments sold.........................     50,270     12,402
 Other receivables.......................................     20,918      2,404
 Variation margin receivable.............................         51         18
                                                          ---------- ----------
                                                           5,750,225  4,589,387
Liabilities:
 Payable for investments purchased.......................     67,167      7,182
 Variation margin payable................................         14         95
 Administrative fees payable.............................        194      1,040
                                                          ---------- ----------
 Trust net assets (excluding ESOP Trusts)................  5,682,850  4,581,070
</TABLE>
 
                                       21
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
9. INTEREST IN BELLSOUTH MASTER SAVINGS TRUST--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                             1997       1996
                                                             ----       ----
<S>                                                       <C>        <C>
Investment in ESOP Trusts:
 Shares of BellSouth common stock allocated to partici-
  pants..................................................  1,245,401    835,717
 Distributable shares....................................         77         37
 Shares of BellSouth common stock held for future alloca-
  tion...................................................    849,442    707,649
 Temporary cash investments..............................     31,588     30,035
                                                          ---------- ----------
 Total investments.......................................  7,809,358  6,154,508
Liabilities:
 Notes payable...........................................    534,436    594,334
                                                          ---------- ----------
 Trust net assets........................................ $7,274,922 $5,560,174
                                                          ========== ==========
 Investments at cost..................................... $5,298,067 $4,329,557
                                                          ========== ==========
</TABLE>
--------
+ These accounts are included as "Other" in the accompanying financial
  statements.
 
  Distributions payable in shares at year end are reclassed from BellSouth
common stock and ESOP--BellSouth common stock held for future allocation to
the respective "Distributable Shares" line.
 
  See Item 27a, BellSouth Master Savings Trust Schedule of Assets Held for
Investment Purposes.
 
  Assets in the BellSouth Stock Fund, Bond Fund, Indexed Stock Fund, mutual
funds and some of the assets in the Balanced Fund are invested in securities
which fluctuate in market value, and the values of the units fluctuate daily.
 
  Assets in the Interest Income Fund are invested in a number of investment
contracts with diversified groups of high quality financial institutions. The
value of the Interest Income Fund is based upon the principal invested and the
interest credited, and the value of the units should increase as of the end of
each day. Some of these contracts are unsecured, general obligations of such
companies. Their security is subject to the ability of the insurance companies
or other financial institutions to repay their debts generally as they come
due. Other contracts are backed specifically by high quality, fixed income
assets. Therefore, many of the new investment contracts have the underlying
assets held in a separate account of an insurance company or in a trust fund.
These assets are protected from the general creditors of the contract issuer.
 
  The contracts held by the Trust in the Interest Income Fund are considered
fully benefit-responsive in accordance with AICPA Statement of Position 94-4.
A fully benefit-responsive investment contract provides a liquidity guarantee
by a financially responsible third party of principal and previously accrued
interest for liquidations, transfers, loans or hardship withdrawals initiated
by plan participants exercising their rights to withdraw, borrow or transfer
funds under the terms of the ongoing plan. The fair value of these investment
contracts as of December 31, 1997 and 1996 was $1,226,434 and $1,098,227,
respectively.
 
  The crediting interest rate at December 31, 1997 and 1996, was 6.65% and
6.57%, respectively. The average yield for the years ended December 31, 1997
and 1996, was 6.64% and 6.52%, respectively. Interest rates are reset on a
semi-annual, quarterly, or monthly basis, whereby, such rates are reset to
move the current book value of these investments toward the projected future
market value over the life of the contract.
 
  During 1990, the BellSouth Management Savings and Employee Stock Ownership
Plan Trust and the BellSouth Savings and Security ESOP Trust (the ESOP Trusts)
issued medium-term notes in the aggregate amounts of $850 million to fund the
purchase of BellSouth common stock to be utilized at later dates to fulfill
match obligations. Shares purchased with such funds are released for
allocation to participant accounts based on a prescribed schedule coinciding
with payments on the ESOP notes.
 
                                      22
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
9. INTEREST IN BELLSOUTH MASTER SAVINGS TRUST--(CONTINUED)
 
  Assets held in the Master Savings Trust are generally unavailable to service
the ESOP debt; however, the notes are guaranteed by and are subject to direct
recourse against BellSouth. BellSouth contributes to the ESOP Trusts an amount
necessary, net of ESOP dividends and interest, to service the ESOP notes. Such
contributions are classified as Supplemental Contributions in the accompanying
Statements of Changes in Net Assets Available for Plan Benefits With Fund
Information. These contributions are subject to the claims of holders of debt
securities issued by the ESOP Trusts but are held at BellSouth and paid to the
ESOP Trusts twice yearly to fund, on a same day basis, required payments by
the ESOP Trusts on the notes. Such contributions would not remain in the Plan
Trusts unless there were a default on the debt securities by the ESOP Trustee
after having received the required contributions from BellSouth. Therefore,
holders of the debt securities should not rely on the assets of the ESOP
Trusts in arriving at an investment decision with respect to the debt
securities.
 
  In addition to Supplemental Contributions, BellSouth contributes amounts
necessary to purchase any additional shares required to meet the match
obligations after shares released by the ESOP Trusts have been used. Such
contributions are classified as Employing Company Contributions in the
accompanying Statements of Changes in Net Assets Available for Plan Benefits
With Fund Information.
 
  In lieu of dividends earned on shares of BellSouth common stock which have
been allocated to participants from the ESOP Trusts, participant accounts are
credited with equivalent shares of BellSouth common stock. Dividends on the
related ESOP shares are transferred to the Unallocated ESOP Fund and are
applied towards the service of the ESOP notes. The transfer of these earnings
is classified as Transfer of Loan Repayment in the accompanying Statements of
Changes in Net Assets Available for Plan Benefits With Fund Information.
 
  For the years ended December 31, 1997 and 1996, BellSouth made cash
contributions to the ESOP Trusts in the amount of $68,392 and $67,621,
respectively, for the purpose of servicing the guaranteed debt, and cash
contributions in the amount of $21,675 and $23,539, respectively, to purchase
additional shares to meet the match obligations.
 
  A description of each debt issue is as follows:
 
  BellSouth Management Savings and Employee Stock Ownership Plan Trust:
 
<TABLE>
<CAPTION>
                   TITLE                      AMOUNT  INTEREST RATE   DUE DATE
                   -----                     -------- ------------- ------------
<S>                                          <C>      <C>           <C>
Amortizing Medium-Term Notes, Series A...... $275,000    9.125%     July 1, 2003
Amortizing Medium-Term Notes, Series A...... $275,000    9.19%      July 1, 2003
                                             --------
  Total..................................... $550,000
                                             ========
 
  BellSouth Savings and Security ESOP Trust:
 
<CAPTION>
                   TITLE                      AMOUNT  INTEREST RATE   DUE DATE
                   -----                     -------- ------------- ------------
<S>                                          <C>      <C>           <C>
Amortizing Medium-Term Notes, Series A...... $300,000    9.125%     July 1, 2003
</TABLE>
 
  Maturities of the ESOP Trusts' long-term debt outstanding at December 31,
1997 were as follows:
 
<TABLE>
<CAPTION>
                      1998    1999    2000    2001     2002     2003    TOTAL
                     ------- ------- ------- ------- -------- -------- --------
<S>                  <C>     <C>     <C>     <C>     <C>      <C>      <C>
Maturities.......... $67,418 $75,589 $84,470 $94,128 $104,648 $108,183 $534,436
                     ======= ======= ======= ======= ======== ======== ========
</TABLE>
 
 
                                      23
<PAGE>
 
                      BELLSOUTH SAVINGS AND SECURITY PLAN
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
    (DOLLARS IN THOUSANDS, EXCEPT UNIT VALUES AND PER-PARTICIPANT AMOUNTS)
 
9. INTEREST IN BELLSOUTH MASTER SAVINGS TRUST--(CONTINUED)
 
  Investment activities of the Master Savings Trust are allocated to the Plan
based upon the total of each individual plan participant's share of the Master
Savings Trust investment activities during the period ended December 31, 1997.
 
  The Master Savings Trust investment activities for the years ended December
31, 1997, 1996 and 1995 were as follows:
 
<TABLE>
<CAPTION>
                                                    FOR THE YEAR ENDED
                                                       DECEMBER 31,
                                              --------------------------------
                                                 1997       1996       1995
                                              ----------  --------  ----------
<S>                                           <C>         <C>       <C>
Investment Activities:
 Dividends on shares of BellSouth common
  stock...................................... $  117,861  $129,554  $  123,588
 Interest Income Fund income.................     77,381    69,519      77,893
 Other interest..............................     38,778    25,723      18,523
 Net change in unrealized
  appreciation/(depreciation) on investments.    689,077  (237,602)  1,581,522
 Net realized gain on investments............    991,088   153,494      62,815
 Investment manager fees.....................     (1,308)   (1,143)     (1,017)
 Other fees..................................     (2,960)   (2,035)     (1,994)
                                              ----------  --------  ----------
Net investment activities.................... $1,909,917  $137,510  $1,861,330
                                              ==========  ========  ==========
</TABLE>
 
                                      24
<PAGE>
 
                         BELLSOUTH MASTER SAVINGS TRUST
 
                   EMPLOYER IDENTIFICATION NUMBER: 58-1533433
 
           ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1997
                                                  -------------------------------
                                                  NUMBER OF
                                                  SHARES OR
                                                  PRINCIPAL             CARRYING
        NAME OF ISSUER AND TITLE OF ISSUE          AMOUNT      COST      VALUE
        ---------------------------------         --------- ---------- ----------
                              BELLSOUTH STOCK FUND
<S>                                               <C>       <C>        <C>
SHARES OF BELLSOUTH COMMON STOCK*#--98.8%........   40,565  $1,083,898 $2,284,364
                                                            ---------- ----------
TEMPORARY CASH INVESTMENTS--1.2%.................   14,097  $   28,380 $   28,464
                                                            ---------- ----------
  Total BellSouth Stock Fund--100.0%.............           $1,112,278 $2,312,828
                                                            ---------- ----------
                              INTEREST INCOME FUND
 
ANNUITY CONTRACTS WITH INSURANCE COMPANIES--95.0%+
 Aetna Life Insurance Company
  (7.07%)........................................ $ 70,860  $   70,860 $   70,860
 Allstate Life Insurance Company
  (5.74%-6.48%).................................. $ 56,265  $   56,265 $   56,265
 BT Basic
  (7.11%)........................................ $111,987  $  111,987 $  111,987
 CDC Investment Management Corp.
  (5.96%-7.61%).................................. $ 60,381  $   60,381 $   60,381
 Commonwealth Life Insurance Co.
  (6.05%)........................................ $  1,286  $    1,286 $    1,286
 Continental Assurance
  (5.78%-5.97%).................................. $112,500  $  112,500 $  112,500
 Hartford Life
  (8.70%)........................................ $  8,781  $    8,781 $    8,781
 Jackson National Life
  (6.28%)........................................ $ 57,801  $   57,801 $   57,801
 John Hancock Mutual Life
  (4.45%-6.98%).................................. $178,087  $  178,087 $  178,087
 MBL Life Assurance Corp.
  (5.10%-9.75%).................................. $  3,651  $    3,651 $    3,651
 Massachusetts Mutual
  (6.28%-6.78%).................................. $ 31,647  $   31,647 $   31,647
 Metropolitan Life Insurance Co.
  (5.79%-6.80%).................................. $ 93,843  $   93,843 $   93,843
 New York Life Insurance Co.
  (5.46%-6.80%).................................. $ 27,607  $   27,607 $   27,607
 Peoples Security Life Insurance Co.
  (6.91%)........................................ $113,871  $  113,871 $  113,871
 Prudential Insurance Company of America
  (5.90%-9.83%).................................. $ 11,776  $   11,776 $   11,776
 Rabobank Nederland
  (6.16%-7.63%).................................. $102,221  $  102,221 $  102,221
 Sun Life Association, Canada
  (5.78%-5.79%).................................. $ 25,418  $   25,418 $   25,418
 TransAmerican Life & Annuity
  (6.58%-7.00%).................................. $ 70,841  $   70,841 $   70,841
 Union Bank of Switzerland
  (7.28%-8.30%).................................. $ 41,805  $   41,805 $   41,805
                                                            ---------- ----------
                                                            $1,180,628 $1,180,628
                                                            ---------- ----------
TEMPORARY CASH INVESTMENTS--5.0%................. $ 61,963  $   61,963 $   61,963
                                                            ---------- ----------
  Total Interest Income Fund--100.0%.............           $1,242,591 $1,242,591
                                                            ---------- ----------
</TABLE>
 
                                      S-1
<PAGE>
 
                         BELLSOUTH MASTER SAVINGS TRUST
 
                   EMPLOYER IDENTIFICATION NUMBER: 58-1533433
 
     ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES--(CONTINUED)
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1997
                                                    -------------------------------
                                                    NUMBER OF
                                                    SHARES OR
                                                    PRINCIPAL             CARRYING
         NAME OF ISSUER AND TITLE OF ISSUE           AMOUNT      COST      VALUE
         ---------------------------------          --------- ---------- ----------
 
                               INDEXED STOCK FUND
<S>                                                 <C>       <C>        <C>
BANKERS TRUST PYRAMID EQUITY INDEX FUND*#--99.9%...      537  $1,062,987 $1,218,854
                                                              ---------- ----------
TEMPORARY CASH INVESTMENTS--0.1%...................       25  $       49 $       50
                                                              ---------- ----------
    Total Indexed Stock Fund--100.0%...............           $1,063,036 $1,218,904
                                                              ---------- ----------
 
                                 BALANCED FUND
BT EQUITY INDEX FUND--54.0%........................       30  $   59,405 $   68,751
                                                              ---------- ----------
BT BROAD MARKET FIXED INCOME FUND--35.4%...........   22,381  $   38,097 $   45,034
                                                              ---------- ----------
U.S. TREASURY BILL, EXP. 01/08/98--0.5%............ $    605  $      579 $      579
                                                              ---------- ----------
TEMPORARY CASH INVESTMENTS--10.1%..................    6,403  $   12,657 $   12,927
                                                              ---------- ----------
  Total Balanced Fund--100.0%......................           $  110,738 $  127,291
                                                              ---------- ----------
 
                                   BOND FUND
U.S. GOVERNMENT TREASURY NOTES--43.0%
 U.S. Treasury Notes, 7.125%, 02/29/00............. $  1,675  $    1,785 $    1,723
 U.S. Treasury Notes, 6.875%, 03/31/00............. $  7,850  $    8,300 $    8,044
 U.S. Treasury Notes, 8.875%, 05/15/00............. $  2,550  $    2,899 $    2,729
 U.S. Treasury Notes, 6.250%, 05/31/00............. $  7,025  $    7,270 $    7,113
 U.S. Treasury Notes, 6.125%, 07/31/00............. $  8,400  $    8,707 $    8,487
 U.S. Treasury Notes, 8.750%, 08/15/00............. $    225  $      256 $      241
 U.S. Treasury Notes, 5.750%, 11/30/02............. $  5,700  $    5,709 $    5,704
 U.S. Treasury Notes, 6.500%, 08/15/05............. $  2,975  $    2,898 $    3,104
 U.S. Treasury Notes, 7.000%, 07/15/06............. $  2,300  $    2,314 $    2,483
 U.S. Treasury Notes, 6.250%, 02/15/07............. $  9,900  $    9,749 $   10,216
                                                              ---------- ----------
                                                              $   49,887 $   49,844
                                                              ---------- ----------
U.S. GOVERNMENT TREASURY BONDS--20.9%
 U.S. Treasury Bonds, 11.625%, 11/15/04............ $    600  $      799 $      796
 U.S. Treasury Bonds,  9.375%, 02/15/06............ $ 11,000  $   12,334 $   13,525
 U.S. Treasury Bonds,  7.250%, 05/15/16............ $  7,800  $    7,420 $    8,885
 U.S. Treasury Bonds,  7.500%, 11/15/16............ $    825  $      869 $      963
                                                              ---------- ----------
                                                              $   21,422 $   24,169
                                                              ---------- ----------
FEDERAL AGENCY OBLIGATIONS--14.7%
 Government Natl. Mtg. Assn., 6.5%, 10/15/23....... $  3,495  $    3,283 $    3,466
 Government Natl. Mtg. Assn., 6.5%, 11/15/23....... $  1,831  $    1,702 $    1,817
 Government Natl. Mtg. Assn., 6.5%, 12/15/23....... $  5,301  $    4,987 $    5,260
 Government Natl. Mtg. Assn., 6.5%, 01/15/24....... $  1,475  $    1,382 $    1,462
 Government Natl. Mtg. Assn., 6.5%, 02/15/24....... $  2,465  $    2,299 $    2,444
 Government Natl. Mtg. Assn., 7.0%, 07/15/24....... $  2,541  $    2,419 $    2,571
                                                              ---------- ----------
                                                              $   16,072 $   17,020
                                                              ---------- ----------
</TABLE>
 
                                      S-2
<PAGE>
 
                         BELLSOUTH MASTER SAVINGS TRUST
 
                   EMPLOYER IDENTIFICATION NUMBER: 58-1533433
 
     ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES--(CONTINUED)
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1997
                                                      ---------------------------
                                                      NUMBER OF
                                                      SHARES OR
                                                      PRINCIPAL          CARRYING
          NAME OF ISSUER AND TITLE OF ISSUE            AMOUNT     COST    VALUE
          ---------------------------------           --------- -------- --------
 
DOMESTIC CORPORATE OBLIGATIONS--19.0%
<S>                                                   <C>       <C>      <C>
 Texas Utilities
  9.50%, 08/01/99....................................  $  600   $    637 $    629
 Philadelphia Elec. Co.
  7.500%, 01/15/99...................................  $  875   $    890 $    886
 Puget Sound PWR & LT Co.
  6.500%, 09/14/99...................................  $2,000   $  2,005 $  2,017
 National Rural Utilities
  6.030%, 11/18/99...................................  $1,500   $  1,500 $  1,500
 Washington Nat. Gas
  7.080%, 01/15/99...................................  $1,000   $  1,015 $  1,011
 Philadelphia Elec. Co.
  5.375%, 08/15/98...................................  $1,300   $  1,287 $  1,296
 Virginia Elec. & Pwr. Co.
  6.350%, 06/08/98...................................  $1,000   $  1,004 $  1,002
 Union Oil
  7.24%, 04/01/99 ...................................  $1,600   $  1,635 $  1,626
 Ryder SYS Inc.
  7.50%, 04/29/98....................................  $  177   $    180 $    177
 USX Corp.
  6.375%, 07/15/98...................................  $1,850   $  1,846 $  1,853
 Columbia/HCA
  6.500%, 03/15/99...................................  $  600   $    601 $    597
 Union Pac. Corp.
  6.250%, 03/15/99...................................  $2,200   $  2,206 $  2,201
 Philip Morris
  7.375%, 02/15/99...................................  $1,150   $  1,169 $  1,164
 AT&T
  6.26%, 02/18/99....................................  $1,700   $  1,700 $  1,704
 Chrysler Finl. Corp.
  6.52%, 07/21/99....................................  $  200   $    202 $    201
 Chrysler Finl. Corp.
  9.5%, 12/15/99.....................................  $  900   $    967 $    956
 General Mtrs. Accept. Corp.
  6.050%, 10/04/99...................................  $3,200   $  3,196 $  3,197
                                                                -------- --------
                                                                $ 22,040 $ 22,017
                                                                -------- --------
TEMPORARY CASH INVESTMENTS--2.4%.....................   1,382   $  2,779 $  2,791
                                                                -------- --------
  Total Bond Fund--100.0%............................           $112,200 $115,841
                                                                -------- --------
</TABLE>
 
                                      S-3
<PAGE>
 
                         BELLSOUTH MASTER SAVINGS TRUST
 
                   EMPLOYER IDENTIFICATION NUMBER: 58-1533433
 
     ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES--(CONTINUED)
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                          DECEMBER 31, 1997
                                                   -------------------------------
                                                   NUMBER OF
                                                   SHARES OR
                                                   PRINCIPAL             CARRYING
        NAME OF ISSUER AND TITLE OF ISSUE           AMOUNT      COST      VALUE
        ---------------------------------          --------- ---------- ----------
 
                       FIDELITY GROWTH & INCOME PORTFOLIO
 
<S>                                                <C>       <C>        <C>
SHARES OF FIDELITY GROWTH & INCOME PORTFOLIO--
 99.9%...........................................     5,833  $  190,331 $  222,255
                                                             ---------- ----------
TEMPORARY CASH INVESTMENTS--0.1%.................   $     1  $        1 $        1
                                                             ---------- ----------
  Total Fidelity Growth & Income Portfolio--
   100.0%........................................            $  190,332 $  222,256
                                                             ---------- ----------
 
                        DFA U.S. 6-10 VALUE PORTFOLIO II
 
SHARES OF DIMENSIONAL FUND ADVISORS U.S. 6-10
 VALUE II--99.9%.................................     6,880  $  109,489 $  126,866
                                                             ---------- ----------
TEMPORARY CASH INVESTMENTS--0.1%.................   $     1  $        1 $        1
                                                             ---------- ----------
  Total DFA U.S. 6-10 Value Portfolio II--100.0%.            $  109,490 $  126,867
                                                             ---------- ----------
 
                     VANGUARD INDEX TRUST GROWTH PORTFOLIO
 
SHARES OF VANGUARD INDEX TRUST GROWTH PORTFOLIO--
 100.0%..........................................     2,938  $   64,830 $   66,199
                                                             ---------- ----------
  Total Vanguard Index Trust Growth Portfolio--
   100.0%........................................            $   64,830 $   66,199
                                                             ---------- ----------
 
                          T. ROWE PRICE MID-CAP GROWTH
SHARES OF T. ROWE PRICE MID-CAP GROWTH--99.9%....     1,813  $   51,072 $   51,856
                                                             ---------- ----------
TEMPORARY CASH INVESTMENTS--0.1%.................   $     1  $        1 $        1
                                                             ---------- ----------
  Total T. Rowe Price Mid-Cap Growth--100.0%.....            $   51,073 $   51,857
                                                             ---------- ----------
 
 
                        DFA U.S. LARGE CAP VALUE II FUND
SHARES OF DIMENSIONAL FUND ADVISORS U.S. LARGE
 CAP VALUE II--100.0%............................     2,849  $   43,196 $   51,246
                                                             ---------- ----------
  Total DFA U.S. Large Cap Value II Fund--100.0%.            $   43,196 $   51,246
                                                             ---------- ----------


                        DFA INTERNATIONAL VALUE II FUND 
SHARES OF DIMENSIONAL FUND ADVISORS INTERNATIONAL
 VALUE II--100.0%................................     3,547  $   38,021 $   36,359
                                                             ---------- ----------
  Total DFA International Value II Fund--100.0%..            $   38,021 $   36,359
                                                             ---------- ----------
 
 
                               PARTICIPANT LOANS
LOANS TO PARTICIPANTS (7%-12.5%)--99.9%..........   $83,956  $   83,956 $   83,956
                                                             ---------- ----------
TEMPORARY CASH INVESTMENTS--0.1%.................   $    99  $       99 $       99
                                                             ---------- ----------
  Total Loan Fund--100.0%........................            $   84,055 $   84,055
                                                             ---------- ----------
</TABLE>
 
 
                                      S-4
<PAGE>
 
                        BELLSOUTH MASTER SAVINGS TRUST
 
                  EMPLOYER IDENTIFICATION NUMBER: 58-1533433
 
    ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES--(CONTINUED)
 
                                (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1997
                                                  -------------------------------
                                                  NUMBER OF
                                                  SHARES OR
                                                  PRINCIPAL             CARRYING
        NAME OF ISSUER AND TITLE OF ISSUE          AMOUNT      COST      VALUE
        ---------------------------------         --------- ---------- ----------
 
                            CONTRIBUTION ACCOUNT++
<S>                                               <C>       <C>        <C>
TEMPORARY CASH INVESTMENTS--100.0%...............   4,454   $    8,992 $    8,994
                                                            ---------- ----------
  Total Contribution Acct.--100.0%...............           $    8,992 $    8,994
                                                            ---------- ----------
 
                            DISTRIBUTION ACCOUNT++
TEMPORARY CASH INVESTMENTS--100.0%...............   4,956   $    9,993 $   10,006
                                                            ---------- ----------
  Total Distribution Acct.--100.0%...............           $    9,993 $   10,006
                                                            ---------- ----------
 
                               EXPENSE ACCOUNT++
TEMPORARY CASH INVESTMENTS--100.0%...............     721   $    1,425 $    1,456
                                                            ---------- ----------
  Total Expense Acct.--100.0%....................           $    1,425 $    1,456
                                                            ---------- ----------
 
                         EMPLOYEE STOCK OWNERSHIP PLAN
SHARES OF BELLSOUTH COMMON STOCK*#--98.5%........  37,202   $1,024,701 $2,094,920
                                                            ---------- ----------
TEMPORARY CASH INVESTMENTS--1.5%.................  15,644   $   31,116 $   31,588
                                                            ---------- ----------
  Total Employee Stock Ownership Fund--100.0%....           $1,055,817 $2,126,508
                                                            ---------- ----------
  TOTAL INVESTMENTS..............................           $5,298,067 $7,803,258
                                                            ========== ==========
</TABLE>
--------
NOTES
Percentages represent the percentage of the investments of each fund of the
Master Savings Trust.
 
 * This investment is a security issued by a party-in-interest to the Plan.
 # Investment represents 5% or more of the Net Assets of the Master Savings
   Trust.
 + The contracts with these insurance companies (interest rates indicated in
   parentheses) guarantee the repayment of principal and the crediting of
   interest resulting in a composite effective annual interest rate of 6.64%
   for the year 1997. The timing of the remittance of participating employee
   contributions and other participating employee-directed transactions may
   cause the actual yield to vary from this rate. The composite interest rate
   is subject to annual adjustment.
++ These accounts are included as "other" in the Plan's Financial Statements.
 
                                      S-5