<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, 1998

                                       or

              [_] Transition Report Pursuant to Section 15(d)
                  of the Securities Exchange Act of 1934

 For the transition                                         Commission file
 period from __ to ___                                       number 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
----                                                                        ----

<S>                                                                         <C>
1. Financial Statements

   Report of Independent Accountants.......................................   2

   Consent of Independent Accountants......................................   3

   Statement of Net Assets Available for Benefits With Fund
    Information as of December 31, 1998....................................   4

   Statement of Net Assets Available for Benefits With Fund
    Information as of December 31, 1997....................................   6

   Statement of Changes in Net Assets Available for Benefits With Fund
    Information for the Year ended December 31, 1998.......................   8

   Statement of Changes in Net Assets Available for Benefits With Fund
    Information for the Year ended December 31, 1997.......................  10

   Statement of Changes in Net Assets Available for Benefits With Fund
    Information for the Year ended December 31, 1996.......................  12

   Notes to Financial Statements...........................................  14

2. Supplemental Schedule

   Item 27a--Schedule of Assets Held for Investment Purposes............... S-1
</TABLE>

                                       1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Participants and Administrator of
The BellSouth Savings and Security Plan:

In our opinion, the accompanying statements of net assets available for
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available
for benefits of the BellSouth Savings and Security Plan (the "Plan") at
December 31, 1998 and 1997, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

Our audits were conducted 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 but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The fund information in the statements of net assets
available for benefits and the statements of changes in net assets available
for benefits is presented for purposes of additional analysis rather than to
present the net assets available for benefits and changes in net assets
available for benefits of each fund. This supplemental schedule and fund
information are the responsibility of the Plan's management. 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.

PricewaterhouseCoopers LLP
Atlanta, Georgia

June 25, 1999

                                       2
<PAGE>

                      CONSENT OF INDEPENDENT ACCOUNTANTS

  We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-38265) of BellSouth Corporation of our report
dated June 25, 1999 relating to the financial statements of the BellSouth
Savings and Security Plan, which appears in this Form 11-K.

PricewaterhouseCoopers LLP
Atlanta, Georgia

June 25, 1999

                                       3
<PAGE>

                                                              BELLSOUTH SAVINGS

                                              STATEMENT OF NET ASSETS AVAILABLE

                                                                       December
                                                                         (In Tho

<TABLE>
<CAPTION>

                                                                       Fidelity
                          BellSouth  Indexed  Interest                  Growth
                            Stock     Stock    Income   Bond  Balanced & Income
                             Fund      Fund     Fund    Fund    Fund   Portfolio
         ASSETS           ---------- -------- -------- ------ -------- ---------
<S>                       <C>        <C>      <C>      <C>    <C>      <C>
Allocated share of Trust
 net assets.............  $2,035,771 $184,669 $340,629 $8,980 $23,904   $67,786
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......   2,035,771  184,669  340,629  8,980  23,904    67,786
Contributions
 receivable.............       1,673      448      676     33      69       167
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 receivable--net........      20,762      --       --     --      --        --
                          ---------- -------- -------- ------ -------   -------
 Total Assets...........   2,058,206  185,117  341,305  9,013  23,973    67,953
                          ---------- -------- -------- ------ -------   -------
      LIABILITIES
Distributions payable...         167        2      126    --      --          7
Fund, BellSouth
 Retirement Savings Plan
 and other transfers
 payable--net...........         --       992   18,938    355      77       110
Notes payable...........         --       --       --     --      --        --
                          ---------- -------- -------- ------ -------   -------
 Total Liabilities......         167      994   19,064    355      77       117
                          ---------- -------- -------- ------ -------   -------
Net Assets Available for
 Benefits...............  $2,058,039 $184,123 $322,241 $8,658 $23,896   $67,836
                          ========== ======== ======== ====== =======   =======
</TABLE>


                                             The accompanying notes are an integ

                                       4
<PAGE>

 AND SECURITY PLAN

 FOR BENEFITS WITH FUND INFORMATION

 31, 1998
 usands)

<TABLE>
<CAPTION>
     Vanguard
       Index                T. Rowe DFA  U.S.      DFA                             Employee Stock
       Trust     DFA U.S.    Price  Large Cap International                        Ownership Plan
      Growth    6-10 Value  Mid-Cap Value II    Value II    Participant        ----------------------
     Portfolio Portfolio II Growth    Fund        Fund         Loans    Other  Allocated  Unallocated   Total
     --------- ------------ ------- --------- ------------- ----------- ------ ---------- ----------- ----------
<S>  <C>       <C>          <C>     <C>       <C>           <C>         <C>    <C>        <C>         <C>

      $45,761    $13,460    $14,114  $10,564     $4,473       $29,927   $3,699 $      --   $    --    $2,783,737






          --         --         --       --         --            --       --   1,075,796       --     1,075,796


          --         --         --       --         --            --       --         --    410,315      410,315

          --         --         --       --         --            --       --       8,418     7,677       16,095
      -------    -------    -------  -------     ------       -------   ------ ----------  --------   ----------
       45,761     13,460     14,114   10,564      4,473        29,927    3,699  1,084,214   417,992    4,285,943

          124         48         44       26         15           --       --         --        --         3,323



          --         --          17      --         --             99      --         --        --        20,878
      -------    -------    -------  -------     ------       -------   ------ ----------  --------   ----------
       45,885     13,508     14,175   10,590      4,488        30,026    3,699  1,084,214   417,992    4,310,144
      -------    -------    -------  -------     ------       -------   ------ ----------  --------   ----------

            4        --           4      --         --            --     2,400        126       --         2,836



          252         67        --       272        318           --     1,299         21       --        22,701
          --         --         --       --         --            --       --         --    153,896      153,896
      -------    -------    -------  -------     ------       -------   ------ ----------  --------   ----------
          256         67          4      272        318           --     3,699        147   153,896      179,433
      -------    -------    -------  -------     ------       -------   ------ ----------  --------   ----------

      $45,629    $13,441    $14,171  $10,318     $4,170       $30,026   $  --  $1,084,067  $264,096   $4,130,711
      =======    =======    =======  =======     ======       =======   ====== ==========  ========   ==========
</TABLE>


ral part of these financial statements.

                                       5
<PAGE>

                                                              BELLSOUTH SAVINGS

                                               STATEMENT OF NET ASSETS AVAILABLE

                                                                       December
                                                                         (In Tho

<TABLE>
<CAPTION>

                                                                          Fidelity
                             BellSouth  Indexed  Interest                  Growth
                               Stock     Stock    Income   Bond  Balanced & Income
                                Fund      Fund     Fund    Fund    Fund   Portfolio
            ASSETS           ---------- -------- -------- ------ -------- ---------
<S>                          <C>        <C>      <C>      <C>    <C>      <C>
   Allocated share of Trust
    net assets.............  $1,162,928 $181,838 $349,378 $7,754 $22,155   $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  181,838  349,378  7,754  22,155    62,019
   Contributions receiv-
    able...................       1,625      496    1,133     39      72       159
   Fund, BellSouth
    Retirement Savings Plan
    and other transfers
    receivable--net........       2,424       39      433    --      142       183
                             ---------- -------- -------- ------ -------   -------
    Total Assets...........   1,166,977  182,373  350,944  7,793  22,369    62,361
                             ---------- -------- -------- ------ -------   -------
         LIABILITIES
   Distributions payable...         165       48       94    --      --         97
   Fund, BellSouth
    Retirement Savings Plan
    and other transfers
    payable--net...........         --       --       --      30     --        --
   Notes payable ..........         --       --       --     --      --        --
                             ---------- -------- -------- ------ -------   -------
    Total Liabilities......         165       48       94     30     --         97
                             ---------- -------- -------- ------ -------   -------
   Net Assets Available for
    Benefits...............  $1,166,812 $182,325 $350,850 $7,763 $22,369   $62,264
                             ========== ======== ======== ====== =======   =======
</TABLE>


                                             The accompanying notes are an integ

                                       6
<PAGE>

AND SECURITY PLAN

FOR BENEFITS WITH FUND INFORMATION

31, 1997
usands)

<TABLE>
<CAPTION>
Vanguard
  Index                 T. Rowe DFA U.S.       DFA                            Employee Stock
  Trust      DFA U.S.    Price  Large Cap International                       Ownership Plan
 Growth     6-10 Value  Mid-Cap Value II    Value II    Participant        ---------------------
Portfolio  Portfolio II Growth    Fund        Fund         Loans    Other  Allocated Unallocated   Total
---------  ------------ ------- --------- ------------- ----------- ------ --------- ----------- ----------
<S>        <C>          <C>     <C>       <C>           <C>         <C>    <C>       <C>         <C>

 $19,712     $24,737    $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
 -------     -------    -------  -------     ------       -------   ------ --------   --------   ----------
  19,712      24,737     11,154   13,583      4,725        23,121    6,222  587,863    287,046    2,764,235

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



     154         233        --        59        --             19      --       --         --         3,686
 -------     -------    -------  -------     ------       -------   ------ --------   --------   ----------
  19,922      25,037     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
 -------     -------    -------  -------     ------       -------   ------ --------   --------   ----------

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


ral part of these financial statements.

                                       7
<PAGE>

                                                              BELLSOUTH SAVINGS

                                                           STATEMENT OF CHANGES
                                                                   FOR BENEFITS

                                                                 Year Ended Dec
                                                                         (In Tho

<TABLE>
<CAPTION>

                                                                             Fidelity
                             BellSouth  Indexed   Interest                    Growth
                               Stock     Stock     Income    Bond  Balanced  & Income
                                Fund      Fund      Fund     Fund    Fund    Portfolio
                             ---------- --------  --------  ------ --------  ---------
   <S>                       <C>        <C>       <C>       <C>    <C>       <C>
   Net Assets Available for
    Benefits,
    December 31, 1997......  $1,166,812 $182,325  $350,850  $7,763 $22,369    $62,264
                             ---------- --------  --------  ------ -------    -------
   Employee contributions..      37,009   13,190    19,815     782   2,021      5,075
   Transfer of
    participants'
    balances--net..........      79,815  (46,967)  (28,214)    177  (3,263)   (11,553)
   Employing company
    contributions..........         --       --        --      --      --         --
   Supplemental
    contributions..........         --       --        --      --      --         --
   Allocation of shares to
    participants...........         --       --        --      --      --         --
   Transfer for loan
    repayment..............         --       --        --      --      --         --
                             ---------- --------  --------  ------ -------    -------
   Total Contributions,
    Allocations and
    Transfers..............     116,824  (33,777)   (8,399)    959  (1,242)    (6,478)
   Allocated share of Trust
    investment activities..     877,915   46,165    20,699     712   4,465     16,272
                             ---------- --------  --------  ------ -------    -------
   Total Additions.........     994,739   12,388    12,300   1,671   3,223      9,794
                             ---------- --------  --------  ------ -------    -------
   Less: Distributions to
         participants......     103,512   10,590    40,909     776   1,696      4,222
         Interest on notes
         payable...........         --       --        --      --      --         --
                             ---------- --------  --------  ------ -------    -------
   Net Assets Available for
    Benefits,
    December 31, 1998......  $2,058,039 $184,123  $322,241  $8,658 $23,896    $67,836
                             ========== ========  ========  ====== =======    =======
</TABLE>


                                            The accompanying notes are an integ

                                       8
<PAGE>

 AND SECURITY PLAN

 IN NET ASSETS AVAILABLE
 WITH FUND INFORMATION

ember 31, 1998
usands)

<TABLE>
<CAPTION>
      Vanguard
        Index                T. Rowe DFA U.S.                                       Employee Stock
        Trust     DFA U.S.    Price  Large Cap      DFA                             Ownership Plan
       Growth    6-10 Value  Mid-Cap Value II  International Participant        -----------------------
      Portfolio Portfolio II Growth    Fund    Value II Fund    Loans    Other  Allocated   Unallocated   Total
      --------- ------------ ------- --------- ------------- ----------- -----  ----------  ----------- ----------
 <S>  <C>       <C>          <C>     <C>       <C>           <C>         <C>    <C>         <C>         <C>


       $19,922    $25,037    $11,069  $13,679     $4,711       $23,140   $--    $  592,278   $109,087   $2,591,306
       -------    -------    -------  -------     ------       -------   ----   ----------   --------   ----------
         2,941      1,677      1,267      850        432           --     --           --         --        85,059


        12,526    (10,901)       103   (4,758)    (1,211)        5,922   (688)      (4,304)       --       (13,316)

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

           --         --         --       --         --            --     --           --      24,413       24,413

           --         --         --       --         --            --     --        59,763    (59,763)         --

           --         --         --       --         --            --     --        (8,214)     8,214          --
       -------    -------    -------  -------     ------       -------   ----   ----------   --------   ----------


        15,467     (9,224)     1,370   (3,908)      (779)        5,922   (688)      47,245    (27,136)      96,156

        11,780     (1,150)     2,358    1,298        604         2,141    688      476,989    197,854    1,658,790
       -------    -------    -------  -------     ------       -------   ----   ----------   --------   ----------
        27,247    (10,374)     3,728   (2,610)      (175)        8,063    --       524,234    170,718    1,754,946
       -------    -------    -------  -------     ------       -------   ----   ----------   --------   ----------

         1,540      1,222        626      751        366         1,177    --        32,445        --       199,832

           --         --         --       --         --            --     --           --      15,709       15,709
       -------    -------    -------  -------     ------       -------   ----   ----------   --------   ----------


       $45,629    $13,441    $14,171  $10,318     $4,170       $30,026   $--    $1,084,067   $264,096   $4,130,711
       =======    =======    =======  =======     ======       =======   ====   ==========   ========   ==========
</TABLE>


ral part of these financial statements.

                                       9
<PAGE>

                                                              BELLSOUTH SAVINGS

                                                           STATEMENT OF CHANGES
                                                              FOR BENEFITS WITH

                                                                  Year Ended Dec
                                                                         (In Tho

<TABLE>
<CAPTION>
                                                                                      Vanguard
                                                                            Fidelity    Index
                             BellSouth   Indexed  Interest                   Growth     Trust
                               Stock      Stock    Income   Bond   Balanced & Income   Growth
                                Fund       Fund     Fund    Fund     Fund   Portfolio Portfolio
                             ----------  -------- -------- ------  -------- --------- ---------
   <S>                       <C>         <C>      <C>      <C>     <C>      <C>       <C>
   Net Assets Available for
    Benefits,
    December 31, 1996......  $  946,336  $103,144 $331,389 $6,978  $15,085   $19,377   $   --
                             ----------  -------- -------- ------  -------   -------   -------
   Employee contributions..      36,523    13,185   23,987    847    2,159     3,967       485
   Transfer of
    participants'
    balances--net..........    (108,974)   33,567   14,010    (80)   2,287    30,214    18,920
   Employing company
    contributions..........         --        --       --     --       --        --        --
   Supplemental
    contributions..........         --        --       --     --       --        --        --
   Allocation of shares to
    participants...........         --        --       --     --       --        --        --
   Transfer for loan
    repayment..............         --        --       --     --       --        --        --
                             ----------  -------- -------- ------  -------   -------   -------
   Total Contributions,
    Allocations and
    Transfers..............     (72,451)   46,752   37,997    767    4,446    34,181    19,405
   Allocated share of Trust
    investment activities..     370,107    39,525   21,201    581    3,667    10,896       728
                             ----------  -------- -------- ------  -------   -------   -------
   Total Additions.........     297,656    86,277   59,198  1,348    8,113    45,077    20,133
                             ----------  -------- -------- ------  -------   -------   -------
   Less: Distributions to
         participants......      77,180     7,096   39,737    563      829     2,190       211
         Interest on notes
         payable...........         --        --       --     --       --        --        --
                             ----------  -------- -------- ------  -------   -------   -------
   Net Assets Available for
    Benefits,
    December 31, 1997......  $1,166,812  $182,325 $350,850 $7,763  $22,369   $62,264   $19,922
                             ==========  ======== ======== ======  =======   =======   =======
</TABLE>


                                             The accompanying notes are an integ

                                       10
<PAGE>

 AND SECURITY PLAN

IN NET ASSETS AVAILABLE
 FUND INFORMATION

ember 31, 1997
usands)


<TABLE>
<CAPTION>
                  T. Rowe DFA U.S.       DFA                   American                            Employee Stock
       DFA U.S.    Price  Large Cap International Berger   Century/Twentieth                       Ownership Plan
      6-10 Value  Mid-Cap Value II    Value II      100     Century Growth   Participant        ----------------------
     Portfolio II Growth    Fund        Fund       Fund     Investors Fund      Loans    Other  Allocated  Unallocated   Total
     ------------ ------- --------- ------------- -------  ----------------- ----------- -----  ---------  ----------- ----------
<S>  <C>          <C>     <C>       <C>           <C>      <C>               <C>         <C>    <C>        <C>         <C>


       $ 7,361    $   --   $ 5,964     $3,230     $13,632       $5,780         $17,733   $ 127  $391,975    $ 43,020   $1,911,131
       -------    -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------
         1,202        310      615        387         627          222             --      --        --          --        84,516


        13,600     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          --
       -------    -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------


        14,802     10,982    5,644      1,792     (17,745)      (7,417)          4,463    (356)   47,204      (6,441)     124,025

         3,508        248    2,430       (159)      4,531        1,813           1,481     239   173,364      90,257      724,417
       -------    -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------
        18,310     11,230    8,074      1,633     (13,214)      (5,604)          5,944    (117)  220,568      83,816      848,442
       -------    -------  -------     ------     -------       ------         -------   -----  --------    --------   ----------

           634        161      359        152         418          176             537      10    20,265         --       150,518

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


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


ral part of these financial statements.

                                       11
<PAGE>

                                                              BELLSOUTH SAVINGS

                                                           STATEMENT OF CHANGES
                                                              FOR BENEFITS WITH

                                                                   Year Ended De
                                                                         (In Tho

<TABLE>
<CAPTION>
                                                                             Fidelity
                             BellSouth   Indexed  Interest                    Growth     DFA U.S.
                               Stock      Stock    Income    Bond   Balanced & Income   6-10 Value
                                Fund       Fund     Fund     Fund     Fund   Portfolio Portfolio II
                             ----------  -------- --------  ------  -------- --------- ------------
   <S>                       <C>         <C>      <C>       <C>     <C>      <C>       <C>
   Net Assets Available for
    Benefits,
    December 31, 1995......  $1,051,289  $ 56,642 $329,289  $6,730  $ 8,360   $   --      $1,321
                             ----------  -------- --------  ------  -------   -------     ------
   Employee contributions..      43,544    10,683   28,475   1,206    2,262       550        139
   Transfer of
    participants'
    balances--net..........     (54,318)   24,124  (18,290)   (773)   3,560    17,970      4,918
   Employing company
    contributions..........         --        --       --      --       --        --         --
   Supplemental
    contributions..........         --        --       --      --       --        --         --
   Allocation of shares to
    participants...........         --        --       --      --       --        --         --
   Transfer for loan
    repayment..............         --        --       --      --       --        --         --
                             ----------  -------- --------  ------  -------   -------     ------
   Total Contributions,
    Allocations and
    Transfers..............     (10,774)   34,807   10,185     433    5,822    18,520      5,057
   Allocated share of Trust
    investment activities..     (37,102)   15,610   20,060     254    1,467     1,008      1,043
                             ----------  -------- --------  ------  -------   -------     ------
   Total Additions.........     (47,876)   50,417   30,245     687    7,289    19,528      6,100
                             ----------  -------- --------  ------  -------   -------     ------
   Less: Distributions to
     participants..........      57,077     3,915   28,145     439      564       151         60
     Interest on notes
      payable..............         --        --       --      --       --        --         --
                             ----------  -------- --------  ------  -------   -------     ------
   Net Assets Available for
    Benefits,
    December 31, 1996......  $  946,336  $103,144 $331,389  $6,978  $15,085   $19,377     $7,361
                             ==========  ======== ========  ======  =======   =======     ======
</TABLE>


                                             The accompanying notes are an integ

                                       12
<PAGE>

 AND SECURITY PLAN

IN NET ASSETS AVAILABLE
 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>


ral 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. 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.
Substantially 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.

Plan Amendment and Restatement

  Effective July 1, 1996, the Plan was amended and restated. Significant
changes included a change in investment valuation methods and changes to
various service functions provided by the Plan's recordkeeper and service
center provider. Subsequent amendments resulted in changes associated with the
withdrawal of funds by retired participants, the increments in which fund
transfers and investment directions may be processed and installment payment
flexibility.

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).

Investment Options

  At December 31, 1998, the Plan's assets were comprised of the following
investment vehicles: BellSouth Stock Fund, Indexed Stock Fund, Interest Income
Fund, Bond Fund, Balanced Fund and the following mutual funds: Fidelity Growth
& Income Portfolio, Vanguard Index Trust Growth Portfolio, DFA U.S. 6-10 Value
Portfolio II, T. Rowe Price Mid-Cap Growth, DFA U.S. Large Cap Value II Fund
and DFA International Value II Fund. All investments are valued on a daily
basis.

  During 1997, the T. Rowe Price Mid-Cap Growth and the Vanguard Index Trust
Growth Portfolio replaced the Berger 100 Fund and the American
Century/Twentieth Century Growth Investors Fund 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.

                                      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)


Concentrations of Risk

  At December 31, 1998 and 1997, 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.

  The Plan's other investment options include a variety of stocks, bonds,
fixed income securities, mutual funds and other investment securities.
Investment securities subject participants to various risks, such as interest
rate, market and credit risks. Due to the level of risk associated with
certain investment securities, it is at least reasonably possible that changes
in the values of investment securities will occur in the near term and that
such changes could materially affect participants' account balances and the
amounts reported in the Statements of Net Assets Available for Benefits with
Fund Information.

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 participant's accounts and bear interest at various rates which ranged
from 7.0% to 10.0% at December 31, 1998. Principal and interest are paid
ratably through periodic payroll deductions for active employees and by coupon
for nonactive employees.

Service Provider

  During 1998, Bankers Trust Company served as the Trustee for the Master
Savings Trust and, through December 31, 1997, also served as the recordkeeper
and service center provider for the Plan. Effective January 1, 1998,
Metropolitan Life Insurance Company became the recordkeeper and service center
provider for the Plan. Beginning May 1, 1999, State Street Bank & Trust
Company will serve as the Trustee for the Master Savings Trust.

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.

  With respect to the Statements of Net Assets Available for Benefits with
Fund Information 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
Benefits with Fund Information 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, 1998 and 1997 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, 1998 and 1997 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. 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 and the expense of the Plan in each period.


                                      16

<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

     (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

3. Units of the Plan--(continued)

  The number and value of units for investments, other than mutual funds, as of
December 31, 1998 and  1997 were as follows:

<TABLE>
<CAPTION>
                               December 31, 1998              December 31, 1997
                         ------------------------------ ------------------------------
Type of Investment       Number of Units Value per unit Number of Units Value per Unit
------------------       --------------- -------------- --------------- --------------
<S>                      <C>             <C>            <C>             <C>
BellSouth Stock Fund....   525,354,166      $3.9143       520,097,143      $2.2379
Indexed Stock Fund......    62,506,348       2.9385        79,366,846       2.2833
Interest Income Fund....   232,788,579       1.3814       268,888,234       1.2978
Bond Fund...............     6,075,607       1.4203         5,907,819       1.3023
Balanced Fund...........    11,376,691       2.0944        12,824,578       1.7313
</TABLE>

  The number and value of units by quarter for each investment, other than
mutual funds, during 1998 were as follows:

<TABLE>
<CAPTION>
                                        BellSouth Stock Fund Indexed Stock Fund
                                        -------------------- -------------------
                                         Number of   Value   Number of   Value
1998                                       Units    per Unit   Units    per Unit
----                                    ----------- -------- ---------- --------
<S>                                     <C>         <C>      <C>        <C>
March.................................. 512,473,965 $2.6895  79,007,124 $2.6008
June................................... 520,940,141  2.6744  76,409,557  2.6869
September.............................. 489,508,884  2.9872  74,066,978  2.4218
December............................... 525,354,166  3.9143  62,506,348  2.9385
<CAPTION>
                                        Interest Income Fund      Bond Fund
                                        -------------------- -------------------
                                         Number of   Value   Number of   Value
1998                                       Units    per Unit   Units    per Unit
----                                    ----------- -------- ---------- --------
<S>                                     <C>         <C>      <C>        <C>
March.................................. 259,864,148 $1.3184   6,591,807 $1.3200
June................................... 235,388,344  1.3393   6,075,642  1.3490
September.............................. 291,178,396  1.3606   8,185,184  1.4262
December............................... 232,788,579  1.3814   6,075,607  1.4203
<CAPTION>
                                           Balanced Fund
                                        --------------------
                                         Number of   Value
1998                                       Units    per Unit
----                                    ----------- --------
<S>                                     <C>         <C>
March..................................  12,774,142 $1.8732
June...................................  12,645,142  1.9298
September..............................  12,509,023  1.8775
December...............................  11,376,691  2.0944
</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)

3. Units of the Plan--(continued)

  At December 31, 1998, 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...............................    12,657
   Entirely in Indexed Stock Fund.................................     1,492
   Entirely in Interest Income Fund...............................     6,869
   Equally in BellSouth Stock Fund and Indexed Stock Fund.........     1,754
   Equally in BellSouth Stock Fund and Interest Income Fund.......     3,859
   Equally in Indexed Stock Fund and Fidelity Growth & Income
    Portfolio.....................................................       396
   Various fund combinations*.....................................     7,889
                                                                      ------
     Total Participants...........................................    34,916
                                                                      ======
</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.

4. 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 1998, 1997 and 1996. Participants may contribute up to 15% 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 and varies from company to company. The employing company
makes a matching contribution that is a percentage of the employee's basic
contribution. The range of matching contribution rates for the three years
ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                                     1998      1997      1996
                                                   --------- --------- ---------
      <S>                                          <C>       <C>       <C>
      January-March............................... 76% - 86% 71% - 76% 59% - 69%
      April-December.............................. 76% - 81% 76% - 86% 71% - 76%
</TABLE>

5. 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 1998, 1997 and 1996 was

                                      18
<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

    (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

5. Plan Expenses--(continued)

$33.00, $31.50 and $26.40, 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 Benefits with Fund
Information for the years presented, were as follows:

<TABLE>
<CAPTION>
                                                             For the Year Ended
                                                                December 31,
                                                            --------------------
                                                             1998   1997   1996
                                                            ------ ------ ------
<S>                                                         <C>    <C>    <C>
Indexed Stock Fund......................................... $   32 $   25 $   16
Interest Income Fund.......................................    141    147    146
Bond Fund..................................................     21     22     21
Balanced Fund..............................................     22     17     12
                                                            ------ ------ ------
                                                            $  216 $  211 $  195
                                                            ====== ====== ======
</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.
These 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,
                                                               -----------------
                                                               1998  1997  1996
                                                               ----- ----- -----
<S>                                                            <C>   <C>   <C>
Fidelity Growth & Income Portfolio............................ 0.71% 0.75% 0.74%
Vanguard Index Trust Growth Portfolio*........................ 0.20% 0.20%   --
DFA U.S. 6-10 Value Portfolio II.............................. 0.45% 0.75% 0.85%
T. Rowe Price Mid-Cap Growth*................................. 0.91% 1.04%   --
DFA U.S. Large Cap Value II Fund.............................. 0.39% 0.75% 0.82%
DFA International Value II Fund............................... 0.55% 0.75% 0.86%
Berger 100 Fund*..............................................   --  1.41% 1.42%
American Century/Twentieth Century Growth Investors Fund*.....   --  1.00% 1.00%
</TABLE>
--------
* During 1997, the T. Rowe Price Mid-Cap Growth and the Vanguard Index Trust
 Growth Portfolio replaced the Berger 100 Fund and the American
 Century/Twentieth Century Growth Investors Fund. For additional information,
 see Note 1.

  For the three years ended December 31, 1998, no fees were paid to investment
managers for management of the BellSouth Stock Fund.

6. Tax Status

  The Internal Revenue Service has determined and informed BellSouth by a
favorable determination 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.


  As discussed in Note 1, the Plan has been amended subsequent to the
determination letter referred to above. BellSouth believes that the Plan, in
its current form, will maintain its tax exempt status. Therefore, no provision
for income taxes has been included in the Plan's financial statements.

  The federal income tax effects on participants with respect to the Plan are
described in the SPD.

                                      19
<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

    (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

7. 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 and if BellSouth
or its subsidiaries sponsor 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.

8. 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. 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, 1998 and 1997 was 35.47823% and 33.24611%, respectively. The
Plan's allocated share of the net assets of each fund in the Master Savings
Trust at December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                               1998      1997
                                                             --------- ---------
   <S>                                                       <C>       <C>
   BellSouth Stock Fund..................................... 47.98565% 50.28189%
   Indexed Stock Fund....................................... 14.31319% 14.87323%
   Interest Income Fund..................................... 26.38463% 28.11128%
   Bond Fund................................................  6.96505%  6.58568%
   Balanced Fund............................................ 17.30202% 17.39634%
   Fidelity Growth & Income Portfolio....................... 27.36477% 27.86083%
   Vanguard Index Trust Growth Portfolio.................... 26.15788% 29.93390%
   DFA U.S. 6-10 Value Portfolio II ........................ 16.55757% 19.53536%
   T. Rowe Price Mid-Cap Growth ............................ 19.81992% 21.46665%
   DFA U.S. Large Cap Value II Fund......................... 25.43601% 26.40233%
   DFA International Value II Fund.......................... 12.02709% 12.90886%
   Participant Loans........................................ 33.46392% 27.53754%
   Other.................................................... 30.19514% 30.41913%
</TABLE>


                                      20

<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

     (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

8. Interest in BellSouth Master Savings Trust--(continued)

  The financial position of the Master Savings Trust at December 31, 1998 and
1997 was as follows:

<TABLE>
<CAPTION>
                                                             1998       1997
                                                             ----       ----
<S>                                                       <C>        <C>
Assets:
 Investments at value:
  BellSouth Stock Fund:
   Shares of BellSouth Common Stock#..................... $4,203,286 $2,284,295
   Temporary cash investments............................    129,190     28,464
   Distributable shares..................................         84         69
  Indexed Stock Fund:
   Equity Index Fund#....................................  1,287,238  1,218,854
   Temporary cash investments............................         28         50
  Interest Income Fund:
   Contracts.............................................  1,197,686  1,180,628
   Temporary cash investments............................     92,759     61,963
  Bond Fund:
   Securities............................................    144,785    113,050
   Temporary cash investments............................      2,555      2,791
  Balanced Fund:
   Securities............................................    127,085    114,364
   Temporary cash investments............................     11,050     12,927
  Fidelity Growth & Income Portfolio:
   Securities............................................    247,529    222,255
   Temporary cash investments............................          6          1
  Vanguard Index Trust Growth Portfolio:
   Securities............................................    174,581     66,199
   Temporary cash investments............................          4        --
  DFA U.S. 6-10 Value Portfolio II:
   Securities............................................     81,518    126,866
   Temporary cash investments............................        --           1
  T. Rowe Price Mid-Cap Growth:
   Securities............................................     71,251     51,856
   Temporary cash investments............................          1          1
  DFA U.S. Large Cap Value II Fund:
   Securities............................................     40,975     51,246
  DFA International Value II Fund:
   Securities............................................     36,986     36,359
   Temporary cash investments............................          3        --
 Participant Loans:
  Loans to participants..................................     89,430     83,956
  Temporary cash investments.............................        --          99
 Contribution Account+:
  Temporary cash investments.............................        155      8,994
 Distribution Account+:
  Securities.............................................      1,075        --
  Temporary cash investments.............................      8,496     10,006
 Expense Account+:
  Temporary cash investments.............................      2,524      1,456
 Dividends and interest income receivable................      2,206      2,236
 Receivable for investments sold.........................      4,310     50,270
 Other receivables.......................................      5,934     20,918
 Variation margin receivable.............................        --          51
                                                          ---------- ----------
                                                           7,962,730  5,750,225
Liabilities:
 Payable for investments purchased.......................    115,408     67,167
 Variation margin payable................................        892         14
 Administrative fees payable.............................        102        194
                                                          ---------- ----------
 Trust net assets (excluding ESOP Trusts)................  7,846,328  5,682,850
</TABLE>

                                       21

<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

    (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

8. Interest in BellSouth Master Savings Trust--(continued)

<TABLE>
<CAPTION>
                                                            1998        1997
                                                            ----        ----
<S>                                                      <C>         <C>
Investment in ESOP Trusts:
 Shares of BellSouth Common Stock allocated to partici-
  pants#................................................   2,333,414  1,245,401
 Distributable shares...................................         107         77
 Shares of BellSouth Common Stock held for future allo-
  cation#...............................................   1,259,180    849,442
 Temporary cash investments.............................      34,783     31,588
                                                         ----------- ----------
 Total investments......................................  11,473,812  7,809,358
Liabilities:
 Notes payable..........................................     467,018    534,436
                                                         ----------- ----------
 Trust net assets....................................... $11,006,794 $7,274,922
                                                         =========== ==========
 Investments at cost.................................... $ 6,453,240 $5,298,067
                                                         =========== ==========
</TABLE>
--------
# Represents an individual investment which is 5% or more of the Net Assets of
  the Master Savings Trust.
+ These accounts are included as "Other" in the accompanying financial
  statements.

  Distributions from the BellSouth Stock Fund and the ESOP Trusts that are
payable in shares of BellSouth Common Stock are separated from the "Shares of
BellSouth Common Stock" and "Shares of BellSouth Common Stock allocated to
participants" lines and reflected as "Distributable shares" instead.

  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 contracts
with different interest rates and maturities issued by insurance companies and
other 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 Master Savings 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, 1998 and 1997 was
$1,197,686 and $1,180,628, respectively.

  The crediting interest rate at December 31, 1998 and 1997 was 6.49% and
6.65%, respectively. The average yield for the years ended December 31, 1998
and 1997 was 6.13% and 6.64%, 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 amount 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)

8. 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 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 ESOP
Trusts unless there was 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 Benefits With
Fund Information.

  In lieu of receiving cash 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 for Loan Repayment in the
accompanying Statements of Changes in Net Assets Available for Benefits With
Fund Information.

  For the years ended December 31, 1998, 1997 and 1996, BellSouth made cash
contributions to the ESOP Trusts in the amount of $71,857, $68,393 and
$67,621, respectively, for the purpose of servicing the guaranteed debt and
cash contributions in the amount of $8,322, $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,
1998 were as follows:

<TABLE>
<CAPTION>
                               1999    2000    2001     2002     2003    Total
                              ------- ------- ------- -------- -------- --------
<S>                           <C>     <C>     <C>     <C>      <C>      <C>
Maturities................... $75,589 $84,470 $94,128 $104,648 $108,183 $467,018
                              ======= ======= ======= ======== ======== ========
</TABLE>


                                      23
<PAGE>

                      BELLSOUTH SAVINGS AND SECURITY PLAN

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

    (Dollars in Thousands, Except Unit Values and Per-Participant Amounts)

8. 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, 1998.

  The Master Savings Trust investment activities for the years ended December
31, 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                    For the Year Ended
                                                       December 31,
                                              --------------------------------
                                                 1998        1997       1996
                                              ----------  ----------  --------
<S>                                           <C>         <C>         <C>
Investment Activities:
 Dividends on shares of BellSouth Common
  Stock...................................... $  110,822  $  117,861  $129,554
 Interest Income Fund income.................     78,395      77,381    69,519
 Other interest..............................     46,717      38,778    25,723
 Net change in unrealized
  appreciation/(depreciation) on investments.  2,617,133     689,077  (237,602)
 Net realized gain on investments............  1,161,504     991,088   153,494
 Investment manager fees.....................     (1,198)     (1,308)   (1,143)
 Other fees..................................     (3,262)     (2,960)   (2,035)
                                              ----------  ----------  --------
Net investment activities.................... $4,010,111  $1,909,917  $137,510
                                              ==========  ==========  ========
</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, 1998
                                                    -------------------------------
                                                    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*#--97.0%..........   84,278  $2,214,809 $4,203,370
                                                              ---------- ----------
Temporary Cash Investments--3.0%...................   60,757  $  129,141 $  129,190
                                                              ---------- ----------
  Total BellSouth Stock Fund--100.0%...............           $2,343,950 $4,332,560
                                                              ---------- ----------

                               INDEXED STOCK FUND
Bankers Trust Pyramid Equity Index Fund*#--99.9%...      441  $  894,758 $1,287,238
                                                              ---------- ----------
Temporary Cash Investments--0.1%...................       13  $       27 $       28
                                                              ---------- ----------
    Total Indexed Stock Fund--100.0%...............           $  894,785 $1,287,266
                                                              ---------- ----------

                              INTEREST INCOME FUND

Annuity Contracts with Insurance Companies+--92.8%
 Aetna Life Insurance Company
  (6.97%).......................................... $ 50,669  $   50,669 $   50,669
 Allstate Life Insurance
  (6.39%).......................................... $ 71,544  $   71,544 $   71,544
 Bankers Trust
  (7.15%).......................................... $119,672  $  119,672 $  119,672
 CDC Investment
  (5.85%-7.61%).................................... $127,649  $  127,649 $  127,649
 Continental Assurance
  (5.57%-5.96%).................................... $108,039  $  108,039 $  108,039
 Jackson National Life
  (6.21%).......................................... $ 50,958  $   50,958 $   50,958
 John Hancock Mutual Life
  (4.45%-6.87%).................................... $192,027  $  192,027 $  192,027
 MBL Life Assurance Corp.
  (5.10%-9.75%).................................... $  3,949  $    3,949 $    3,949
 Massachusetts Mutual
  (6.18%-6.81%).................................... $ 24,738  $   24,738 $   24,738
 Metropolitan Life Insurance Co.
  (5.79%-6.20%).................................... $ 64,523  $   64,523 $   64,523
 Monumental Life Insurance Co.
  (5.55%-6.79%).................................... $131,404  $  131,404 $  131,404
 New York Life Insurance Co.
  (5.62%-6.80%).................................... $ 25,451  $   25,451 $   25,451
 Prudential Insurance Company of America
  (8.23%-9.95%).................................... $  8,607  $    8,607 $    8,607
 Rabobank Nederland
  (6.23%-7.58%).................................... $ 86,163  $   86,163 $   86,163
 State Street Bank & Trust
  (4.42%).......................................... $ 10,122  $   10,122 $   10,122
 Sun Life Association, Canada
  (5.78%).......................................... $  6,615  $    6,615 $    6,615
 TransAmerican Life & Annuity
  (6.41%-6.70%).................................... $ 75,423  $   75,423 $   75,423
 United Bank of Switzerland
  (7.38%-8.30%).................................... $ 40,133  $   40,133 $   40,133
                                                              ---------- ----------
                                                              $1,197,686 $1,197,686
                                                              ---------- ----------
</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, 1998
                                                 --------------------------------
                                                 Number of
                                                 Shares or
                                                 Principal              Carrying
       Name of Issuer and Title of Issue          Amount      Cost       Value
       ---------------------------------         --------- ----------- ----------
<S>                                              <C>       <C>         <C>
Temporary Cash Investments--7.2%
 IBM Commercial Paper, 01/04/99.................  $10,000  $     9,992 $    9,992
 BT Pyramid Directed Cash Fund*.................   82,767  $    82,767 $   82,767
                                                           ----------- ----------
                                                           $    92,759 $   92,759
                                                           ----------- ----------
  Total Interest Income Fund--100.0%............           $ 1,290,445 $1,290,445
                                                           ----------- ----------
                                   BOND FUND
U.S. Government Treasury Notes--9.8%
 U.S. Treasury Notes, 3.625%, 07/15/02..........  $ 3,000  $     3,016 $    3,049
 U.S. Treasury Notes, 7.500%, 02/15/05..........  $10,000  $    11,419 $   11,450
                                                           ----------- ----------
                                                           $    14,435 $   14,499
                                                           ----------- ----------
U.S. Government Treasury Bonds--15.7%
 U.S. Treasury Bonds,  8.750%, 05/15/17.........  $ 1,000  $     1,404 $    1,391
 U.S. Treasury Bonds,  8.875%, 02/15/19.........  $   500  $       717 $      712
 U.S. Treasury Bonds, 11.125%, 08/15/03.........  $ 4,450  $     5,619 $    5,616
 U.S. Treasury Bonds, 11.625%, 11/15/04.........  $   600  $       799 $      808
 U.S. Treasury Bonds, 12.000%, 08/15/13.........  $ 9,600  $    14,531 $   14,657
                                                           ----------- ----------
                                                           $    23,070 $   23,184
                                                           ----------- ----------
Other U.S. Government--2.5%
 Stripped U.S. Treasury Bonds, 8.750%, 05/15/17.  $10,100  $     3,541 $    3,670
                                                           ----------- ----------
                                                           $     3,541 $    3,670
                                                           ----------- ----------
Federal Agency Obligations--6.7%
 Government Natl. Mtg. Assn., 6.500%, 12/20/28..  $ 5,000  $     4,802 $    4,816
 U.S. Dept. Veterans Affairs, 6.500%, 05/15/25..  $ 5,000  $     5,039 $    5,070
                                                           ----------- ----------
                                                           $     9,841 $    9,886
                                                           ----------- ----------
Other Federal Agencies--7.7%
 F.H.L.M. Corp., 02/15/27.......................  $11,104  $    11,177 $   11,149
 F.H.L. Banks Discount Note, 01/20/99...........  $   200  $       199 $      200
                                                           ----------- ----------
                                                           $    11,376 $   11,349
                                                           ----------- ----------
</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, 1998
                                                      ---------------------------
                                                      Number of
                                                      Shares or
                                                      Principal          Carrying
          Name of Issuer and Title of Issue            Amount     Cost    Value
          ---------------------------------           --------- -------- --------

Domestic Corporate Obligations--55.8%
<S>                                                   <C>       <C>      <C>
 Associates Corp. North Amer.
  5.750%, 11/01/03...................................  $ 5,000  $  4,998 $  5,045
 Chrysler Finl. Corp.
  6.52%, 07/21/99....................................  $   200  $    202 $    201
 Chrysler Finl. Corp.
  9.5%, 12/15/99.....................................  $   900  $    967 $    935
 Citicorp Mtg. Secs Inc.
  6.500%, 11/25/27...................................  $10,000  $ 10,050 $ 10,078
 Columbia/HCA
  6.500%, 03/15/99...................................  $   600  $    601 $    599
 Ford Motor Credit Company
  7.750%, 11/15/02...................................  $ 5,000  $  5,317 $  5,385
 General Mtrs. Accept. Corp.
  5.750%, 11/10/03...................................  $ 5,000  $  4,981 $  5,039
 General Mtrs. Accept. Corp.
  6.750%, 02/07/02...................................  $ 6,000  $  6,134 $  6,215
 Norwest Asset Secs Corp.
  6.750%, 05/25/28...................................  $ 8,000  $  7,813 $  7,912
 Philadelphia Elec. Co.
  5.625%, 11/01/01...................................  $ 5,000  $  4,938 $  5,002
 Philip Morris
  7.250%, 01/15/03...................................  $   300  $    311 $    318
 Residential Fdg. Mtg. Secs I Inc.
  7.000%, 11/25/27...................................  $ 5,000  $  5,052 $  5,086
 Residential Fdg. Mtg. Secs I Inc.
  7.500%, 04/25/27...................................  $ 6,394  $  6,510 $  6,546
 Texas Utilities
  9.50%, 08/01/99....................................  $   600  $    637 $    613
 Union Oil
  7.24%, 04/01/99 ...................................  $ 1,600  $  1,635 $  1,610
 Union Pac. Corp.
  6.250%, 03/15/99...................................  $ 2,600  $  2,607 $  2,603
 United Telecommunications Inc.
  9.440%, 08/15/01...................................  $10,000  $ 10,932 $ 10,911
 USA Waste Svcs. Inc.
  6.125%, 07/15/01...................................  $ 3,000  $  2,994 $  3,019
 Worldcom Inc. GA
  6.125%, 08/15/01...................................  $ 5,000  $  4,995 $  5,080
                                                                -------- --------
                                                                $ 81,674 $ 82,197
                                                                -------- --------
Temporary Cash Investments--1.7%
 General Electric Cap. Corp. Comm. Paper, 01/29/99 ..  $ 1,100  $  1,095 $  1,095
 Bankers Trust Pyramid Cash Plus*....................      686  $  1,458 $  1,460
                                                                -------- --------
                                                                $  2,553 $  2,555
                                                                -------- --------
  Total Bond Fund--100.0%............................           $146,490 $147,340
                                                                -------- --------
</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, 1998
                                                              -----------------------------
                                                              Number of
                                                              Shares or
                                                              Principal           Carrying
             Name of Issuer and Title of Issue                 Amount     Cost      Value
             ---------------------------------                --------- --------- ---------
<S>                                                           <C>       <C>       <C>
                       BALANCED FUND
BT Equity Index Fund*--56.2%................................        27  $  52,637 $  77,664
                                                                        --------- ---------
BT Broad Market Fixed Income Fund*--35.5%...................    22,325  $  39,064 $  48,973
                                                                        --------- ---------
U.S. Treasury Bill, Exp. 01/07/99--0.3%.....................   $   470  $     448 $     448
                                                                        --------- ---------
Temporary Cash Investments--8.0%............................     5,197  $  10,884 $  11,050
                                                                        --------- ---------
  Total Balanced Fund--100.0%...............................            $ 103,033 $ 138,135
                                                                        --------- ---------

             FIDELITY GROWTH & INCOME PORTFOLIO
Shares of Fidelity Secs Growth & Income Com. Stk.--99.9%....     5,400  $ 183,847 $ 247,529
                                                                        --------- ---------
Temporary Cash Investments--0.1%............................         3  $       5 $       6
                                                                        --------- ---------
  Total Fidelity Growth & Income Portfolio--100.0%..........            $ 183,852 $ 247,535
                                                                        --------- ---------



           VANGUARD INDEX TRUST GROWTH PORTFOLIO
Shares of Vanguard Index--99.9%.............................     5,513  $ 140,738 $ 174,581
                                                                        --------- ---------
Temporary Cash Investments--0.1%............................         2  $       4 $       4
                                                                        --------- ---------
  Total Vanguard Index Trust Growth Portfolio--100.0%.......            $ 140,742 $ 174,585
                                                                        --------- ---------

              DFA U.S. 6-10 VALUE PORTFOLIO II
Shares of Dimensional Invt Grp Small Cap Val. Com. Stk.--
 100.0%.....................................................     5,370  $  86,079 $  81,518
                                                                        --------- ---------
  Total DFA U.S. 6-10 Value Portfolio II--100.0%............            $  86,079 $  81,518
                                                                        --------- ---------



                T. ROWE PRICE MID-CAP GROWTH
Shares of T. Rowe Price Mid-Cap Growth--99.9%...............     2,091  $  61,179 $  71,251
                                                                        --------- ---------
Temporary Cash Investments--0.1%............................         1  $       1 $       1
                                                                        --------- ---------
  Total T. Rowe Price Mid-Cap Growth--100.0%................            $  61,180 $  71,252
                                                                        --------- ---------



              DFA U.S. LARGE CAP VALUE II FUND
Shares of Dimensional Invt Grp Inc Lrge Cap Val. Com. Stk.--
 100.0%                                                          2,198  $  35,542 $  40,975
                                                                        --------- ---------
  Total DFA U.S. Large Cap Value II Fund--100.0%............            $  35,542 $  40,975
                                                                        --------- ---------



              DFA INTERNATIONAL VALUE II FUND
Shares of Dimensional Invt Grp Intl Com. Stk.--99.9%........     3,242  $  35,870 $  36,986
                                                                        --------- ---------
Temporary Cash Investments--0.1%............................         1  $       3 $       3
                                                                        --------- ---------
  Total DFA International Value II Fund--100.0%.............            $  35,873 $  36,989
                                                                        --------- ---------

                     PARTICIPANT LOANS
Loans to Participants (7.0%-11.0%)--100.0%..................   $89,430  $  89,430 $  89,430
                                                                        --------- ---------
  Total Loan Fund--100.0%...................................            $  89,430 $  89,430
                                                                        --------- ---------
</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, 1998
                                                 --------------------------------
                                                 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%..............      73   $      155 $       155
                                                           ---------- -----------
  Total Contribution Acct.--100.0%..............           $      155 $       155
                                                           ---------- -----------

                            DISTRIBUTION ACCOUNT++
Shares of BellSouth Common Stock*--11.2%........      22   $      347 $     1,075
                                                           ---------- -----------
Temporary Cash Investments--88.8%...............   3,996   $    8,488 $     8,496
                                                           ---------- -----------
  Total Distribution Acct.--100.0%..............           $    8,835 $     9,571
                                                           ---------- -----------

                               EXPENSE ACCOUNT++
Temporary Cash Investments--100.0%..............   1,187   $    2,473 $     2,524
                                                           ---------- -----------
  Total Expense Acct.--100.0%...................           $    2,473 $     2,524
                                                           ---------- -----------

                         EMPLOYEE STOCK OWNERSHIP PLAN
Shares of BellSouth Common Stock*#--99.0%.......  72,036   $  996,178 $ 3,592,701
                                                           ---------- -----------
Temporary Cash Investments--1.0%................  16,358   $   34,198 $    34,783
                                                           ---------- -----------
  Total Employee Stock Ownership Fund--100.0%...           $1,030,376 $ 3,627,484
                                                           ---------- -----------
  TOTAL INVESTMENTS.............................           $6,453,240 $11,577,764
                                                           ========== ===========
</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.
 # Represents an individual investment which is 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 6.13%
   for the year 1998. 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