BELLSOUTH CORP, DEF 14A, 1994-03-14

BELLSOUTH CORP
DEF 14A, 1994-03-14
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[BELLSOUTH LOGO]
NOTICE
OF 1994
ANNUAL MEETING

PROXY
STATEMENT

ANNUAL
FINANCIAL
STATEMENTS
AND REVIEW
OF OPERATIONS

March 14, 1994

DEAR SHAREHOLDERS:

It is a pleasure to invite you to attend the 1994 Annual Meeting of
Shareholders, which will be held at the Georgia World Congress Center in
Atlanta, Georgia on Monday, April 25, 1994 at 9:30 a.m., Eastern Daylight Time
(EDT). A map showing the location of the meeting has been provided on the back
of the proxy card.

Each item of business described in the accompanying Notice of Annual Meeting
and Proxy Statement will be discussed during the meeting and shareholders will
have the opportunity to ask questions. A report on the business operations of
the Company will also be presented.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING. We urge you to carefully review the proxy statement and to vote
your choices on the enclosed card. Please sign, date and return your proxy card
in the envelope provided as soon as possible. If you do attend the meeting, your
proxy can be revoked at your request in the event you wish to vote in person.

We look forward to seeing you at the meeting.

Sincerely,

John L. Clendenin
Chairman of the Board and Chief Executive Officer
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
---------
<S> <C>
Notice of Annual Meeting........................................................................................ 1
Proxy Statement
Voting of Shares....................................................................................... 2
Board of Directors..................................................................................... 3
Director Compensation.................................................................................. 4
Election of Directors (Item A on Proxy Card)........................................................... 5
Stock Ownership of Directors and Executive Officers.................................................... 8
Ratification of Appointment of Independent Auditors (Item B on Proxy Card)............................. 8
Other Matters to Come Before the Meeting............................................................... 9
Nominating and Compensation Committee Report on Executive Compensation................................. 9
Comparison of Five Year Cumulative Total Return........................................................ 13
Executive Compensation................................................................................. 14
Director Nominees or Other Business for Presentation at the Annual Meeting............................. 18
Compliance with Section 16(a) of the Securities Exchange Act of 1934................................... 18
Shareholder Proposals for the 1995 Proxy Statement..................................................... 19
Other Information...................................................................................... 19
Solicitation of Proxies................................................................................ 19
Appendix:
Annual Financial Statements and Review of Operations
Selected Financial and Operating Data.................................................................. A-1
Management's Discussion and Analysis of Results of Operations and Financial Condition.................. A-2
Report of Management................................................................................... A-14
Audit Committee Chairman's Letter...................................................................... A-15
Report of Independent Accountants...................................................................... A-15
Consolidated Statements of Income...................................................................... A-16
Consolidated Balance Sheets............................................................................ A-17
Consolidated Statements of Shareholders' Equity........................................................ A-18
Consolidated Statements of Cash Flows.................................................................. A-19
Notes to Consolidated Financial Statements............................................................. A-20
Market and Dividend Data............................................................................... A-37
Domestic Cellular and Paging Operations Proportionate Operating Data................................... A-38
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

BellSouth Corporation will hold its Annual Meeting of Shareholders on April
25, 1994 at 9:30 a.m., Eastern Daylight Time, at the Georgia World Congress
Center, Room 255, West Concourse, 285 International Boulevard, N.W., Atlanta,
Georgia, for the following purposes:

1. To elect six directors for a term of three years; one director for a
term of two years, and one director for a term of one year.

2. To ratify the appointment of Coopers & Lybrand, certified public
accountants, as the Company's independent auditors for the year
1994.

3. To act upon other matters that may properly come before the meeting.

The Board of Directors has fixed March 7, 1994 as the record date for the
determination of the shareholders entitled to notice of, and to vote at, this
meeting or any adjournment.

Arlen G. Yokley
Vice President, Secretary and Treasurer

March 14, 1994

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BELLSOUTH CORPORATION
1155 PEACHTREE STREET, N. E.
ATLANTA, GEORGIA 30309-3610
PROXY STATEMENT

VOTING OF SHARES

This proxy statement and the accompanying proxy card are being mailed to
shareholders, beginning March 14, 1994, in connection with the solicitation of
proxies on behalf of the Board of Directors of BellSouth Corporation
("BellSouth" or the "Company") for the 1994 Annual Meeting of Shareholders.
Proxies are solicited to give all shareholders of record on March 7, 1994 an
opportunity to vote on matters to be presented at the annual meeting. Shares can
be voted at the meeting only if the shareholder is present or represented by
proxy.

Each share of Common Stock represented at the annual meeting is entitled to
one vote on each matter properly brought before the meeting. Please specify your
choices by marking the appropriate boxes on the enclosed proxy card and signing
it. Directors are elected by a plurality of the votes cast by the shares
entitled to vote at a meeting at which a quorum is present. A plurality means
that the nominees with the largest number of votes are elected as directors up
to the maximum number of directors to be chosen at the meeting. All other
matters submitted at the meeting shall be determined by a majority of the votes
cast. Shares represented by proxies which are marked "withhold authority" with
respect to the election of one or more nominees for election as directors,
proxies which are marked "abstain" on other proposals, and proxies which are
marked to deny discretionary authority on other matters will not be counted in
determining whether a majority vote was obtained in such matters. If no
directions are given and the signed card is returned, the members of the
Directors' Proxy Committee will vote the shares for the election of all listed
nominees, in accordance with the directors' recommendations on the other
subjects listed on the proxy card, and at their discretion any other matter that
may properly come before the meeting. In instances where brokers are prohibited
from exercising discretionary authority for beneficial owners who have not
returned proxies to the brokers (so-called "broker non-votes"), those shares
will not be included in the vote totals and, therefore, will have no effect on
the vote. Shareholders voting by proxy may revoke that proxy at any time before
it is voted at the meeting by delivering to the Company a proxy bearing a later
date or by attending in person and casting a ballot.

If a shareholder is a participant in the BellSouth Shareholder Dividend
Reinvestment and Stock Purchase Plan, the proxy card represents a voting
instruction as to the number of full shares in the plan account as well as
shares held directly by the shareholder. If a shareholder is a participant in
the payroll-based BellSouth Employee Stock Ownership Plan ("PAYSOP"), the
BellSouth Management Savings and Employee Stock Ownership Plan ("MSP"), the
BellSouth Savings and Security Plan ("SSP") or the BellSouth Enterprises
Retirement Savings Plan ("RSP"), and the accounts are registered in the same
name, the proxy card will also serve as a voting instruction for the trustees of
those plans. The MSP, the SSP and the RSP provide that the trustee shall vote
plan shares represented by cards which are not signed and returned in the same
proportion as shares for which signed cards are returned. Shares in the PAYSOP
are not voted unless the card is signed and returned.

YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO
YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON. HIGHLIGHTS OF THE MEETING AND THE VOTING RESULTS WILL BE INCLUDED IN THE
SECOND QUARTER REPORT TO SHAREHOLDERS.

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If a shareholder wishes to assign a proxy to someone other than the
Directors' Proxy Committee, all three names appearing on the proxy card must be
crossed out and the name(s) of another person or persons (not more than three)
inserted. The signed card and a ballot must be presented at the meeting by the
person(s) representing the shareholder.

If you plan to attend the meeting, please retain the admission ticket and
map provided and mark the appropriate box on the proxy card. Shareholders who do
not have admission tickets, including beneficial owners whose shares are held of
record by brokers or other institutions, will be admitted upon presentation of
proper identification at the door.

Shareholders with multiple accounts may receive more than one Summary Annual
Report. You may direct us to discontinue mailing future Summary Annual Reports
on the accounts you select by marking the appropriate box on the proxy card for
those accounts. You must leave at least one account unmarked to receive a
Summary Annual Report. Eliminating these duplicate mailings will not affect your
receipt of future proxy statements and proxy cards. To resume the mailing of a
Summary Annual Report to an account, call the BellSouth Shareholder Services
number, 1-800-631-6001.

At January 31, 1994 BellSouth Corporation had issued 501,565,115 shares of
Common Stock, which includes shares issued to certain grantor trusts, which
shares are not considered outstanding for financial reporting purposes. The
Company does not know of any shareholder who beneficially owned more than five
percent of its issued stock as of that date. Shareholders of record on March 7,
1994 are entitled to one vote for each share of Common Stock owned by them on
the record date on all matters properly brought before the meeting.

BOARD OF DIRECTORS

The business affairs of BellSouth are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them each month, through operating and financial
reports routinely presented at Board and committee meetings by the Chairman and
other officers, and through other means.

The Board held thirteen meetings in 1993. The average attendance of all
directors for Board and committee meetings was ninety-seven (97%) percent.

During 1993, the following standing committees assisted the Board in
carrying out its duties: Audit, Corporate Public Policy, Executive, Finance,
Nominating and Compensation, and Strategic Planning. The Board has also
designated a Directors' Proxy Committee which votes the shares represented by
proxies at the Annual Meeting of Shareholders. Biographical information on the
director nominees and the directors serving unexpired terms begins on page 6.

The AUDIT COMMITTEE has four members, all of whom are independent,
non-employee directors. Members of the committee are Messrs. Williams (Chair),
Codina, Davidson, and Spangler. The Audit Committee considers the adequacy of
the internal controls of BellSouth and the objectivity of financial reporting;
meets with the independent certified public accountants, appropriate BellSouth
financial personnel and internal auditors about these matters; and recommends to
the Board the appointment of the independent certified public accountants. The
Audit Committee met five times in 1993.

The CORPORATE PUBLIC POLICY COMMITTEE has four members, one of whom is an
executive officer of BellSouth Telecommunications, Inc., a subsidiary. Members
of the Committee are Messrs. Medlin (Chair), Ackerman, Brimmer, and Mrs. Davis.
This Committee monitors matters related to corporate governance, business
conduct and external affairs. The Corporate Public Policy Committee met five
times in 1993.

The EXECUTIVE COMMITTEE has seven members, one of whom is an executive
officer of BellSouth. Members of the Committee are Messrs. Clendenin (Chair),
Criser (Alt. Chair), Davidson, Medlin, Spangler, Terry, and Williams. This
Committee meets on call by the Chairman of the Board and has all the authority
of the Board, subject to the limitations imposed by law, the By-laws or the
Board of Directors, during the intervals between Board meetings. The Executive
Committee did not meet in 1993.

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The FINANCE COMMITTEE has five members, one of whom is an executive officer
of BellSouth. Members of the Committee are Mr. Terry (Chair), Mrs. Davis, and
Messrs. Brimmer, McCoy, and Wilson. This Committee reviews financial plans,
oversees financial management practices, and provides general oversight as to
the fiscal affairs of BellSouth. The Finance Committee met seven times in 1993.

The NOMINATING AND COMPENSATION COMMITTEE has four members, all of whom are
independent, non-employee directors. Members of the Committee are Messrs.
Davidson (Chair), Codina, Criser, and Williams. This Committee selects nominees
to be proposed for election as directors; recommends candidates to the Board for
election as officers; monitors and makes recommendations to the Board with
respect to compensation programs for directors and officers; administers
compensation plans for executive officers; and provides oversight with respect
to employee benefit plans. The Nominating and Compensation Committee met seven
times in 1993. Its report on executive compensation is set forth on page 9.

The STRATEGIC PLANNING COMMITTEE has five members, all of whom are
independent, non-employee directors. Members of the Committee are Messrs.
Spangler (Chair), Criser, Medlin, Terry, and Wilson. This Committee reviews
strategy, allocation of corporate resources, and business development. The
Strategic Planning Committee met five times in 1993.

Effective February 1, 1994, the Board of Directors approved a reorganization
of the standing committees of the Board. On that date, the functions of the
Strategic Planning and Finance Committees were combined and a new committee, the
Finance/Strategic Planning Committee, was created. In addition, the Corporate
Public Policy Committee was dissolved and its functions were reallocated among
the remaining committees. The corporate governance function is now performed by
the Nominating and Compensation Committee. The oversight of business conduct is
now performed by the Audit Committee and the oversight and approval of the
conduct of external affairs is now performed by the Finance/Strategic Planning
Committee. As a result of the reorganization of the committees, the members of
the Board were given new committee assignments, also effective February 1, 1994.
The membership of the new committees is as follows: Audit Committee: Messrs.
Criser (Chair), Anderson, Medlin and Terry; Finance/Strategic Planning
Committee: Messrs. Wilson (Chair), Ackerman, Brimmer, Brown, McCoy and Mrs.
Davis; Nominating and Compensation Committee: Messrs. Codina (Chair), Blanchard,
Davidson, Spangler and Williams; and Executive Committee: Messrs. Clendenin
(Chair), Criser (Alt. Chair), Codina and Wilson. In connection with the
reorganization of the committee structure, the Board also changed the number of
its regularly scheduled meetings to six, with one being a multiple day strategic
planning meeting. Special issues will continue to be addressed at
specially-called meetings. These scheduling changes will allow longer Board and
committee meetings, at which the directors will be able to undertake more in
depth analysis of issues facing the Company during these years of tremendous
change in this industry. It is also anticipated that the changes will result in
an increase in pre-meeting study and preparation because the same
responsiblities and issues will now have to be addressed at fewer regularly
scheduled meetings.

Directors who are officers of BellSouth do not participate in any action of
the Board relating to any executive compensation plan described in this proxy
statement.

Shareholders who wish to suggest qualified candidates for consideration as
directors of BellSouth by the Nominating and Compensation Committee should write
to: Secretary, BellSouth Corporation, 1155 Peachtree Street, N. E., Room 14B06,
Atlanta, Georgia 30309-3610, stating in detail the qualifications of such
persons.

DIRECTOR COMPENSATION

Directors who are also employees of BellSouth or its subsidiaries receive no
compensation in their capacities as directors. During 1993, directors who were
not employees of BellSouth received an annual retainer of $25,000, a fee of
$1,000 for each board or committee meeting attended and an annual retainer of
$4,000 for each committee chairmanship. An ad hoc committee is performing a
special assignment which has required substantial time commitments by its
members. For this service, directors serving on the committee are paid an
additional retainer of $2,000 monthly, a fee of $1,000 for each meeting
attended, and

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an additional monthly retainer of $300 for the chairperson. Directors may elect
to defer the receipt of all or a part of their fees and retainers through the
BellSouth Non-qualified Deferred Compensation Plan. The Company also maintains a
retirement plan for non-employee directors who have served on the Board or a
subsidiary board for at least five years and have reached the age of 55.
Eligible directors receive an annual retirement benefit based upon tenure up to
a maximum of 100 percent of the retainer with ten years or more service.

Effective February 1, 1994, the Board of Directors approved a change in
compensation for the directors. Directors who are not employees of the Company
will receive an annual retainer of $30,000, a fee of $1,800 for each board
meeting attended, a fee of $1,500 for each committee meeting attended, and an
annual retainer of $5,000 for each committee chairmanship. The change in
compensation reflects the increased demands which will be made on the members of
the Board as a result of the committee reorganization and the additional time
and attention that will be required to analyze the issues and chart BellSouth's
course in these evolutionary times.

The BellSouth Corporation Non-employee Directors Stock Option Plan provides
for grants to each non-employee director on the date of each annual meeting of
shareholders of non-qualified stock options to purchase 1,000 shares of Common
Stock, together with tandem Stock Appreciation Rights ("SARs") in a number equal
to the number of options granted, at an exercise price per share equal to the
fair market value of the stock on the grant date. One-third of each grant
becomes exercisable each year on the anniversary of the grant date. The ten
eligible directors were each granted options in 1993 to purchase 1,000 shares of
Common Stock at a per share grant price of $53.63. Directors realize value from
options only to the extent that the price of BellSouth stock exceeds the grant
price.

Non-employee directors are eligible to participate in the Directors
Charitable Contribution Program. This program is designed to acknowledge the
service of Company directors and to benefit and recognize the mutual interest of
directors and the Company in supporting worthy institutions. BellSouth will
contribute up to $1,000,000 to an educational or cultural organization or
organizations designated by non-employee directors, payable over a five year
period from the date the director retires from the Board. Directors must have
five years of service on the Board or on the board of a subsidiary to
participate in this program, with the maximum contribution payable after ten
years of service. All charitable deductions accrue solely to the Company and the
individual directors derive no financial benefit from the program. The Company
has purchased life insurance on the directors, naming the Company as
beneficiary, which is expected to recover, over time, the costs of the
contributions and the premium payments. The average cost of the yearly premium
paid by the Company for life insurance to fund the Charitable Contribution
Program was $47,665 per director in 1993.

Non-employee directors are also provided certain telecommunications services
and death benefits and, while on BellSouth business, travel accident insurance.
The cost of such benefits was approximately $1,362 per director in 1993.

ELECTION OF DIRECTORS (ITEM A ON PROXY CARD)

The Board of Directors of BellSouth consists of 16 members, thirteen of whom
are non-employee directors. Included on the Board are the Chairman and Chief
Executive Officer, the Vice Chairman, and the President and Chief Executive
Officer of BellSouth Telecommunications, Inc. The Board is divided into three
classes with staggered terms so that the term of one class expires at each
annual meeting of shareholders.

The following nominees have been selected by the Nominating and Compensation
Committee and approved by the Board for submission to the shareholders: J. Hyatt
Brown, John L. Clendenin, Marshall M. Criser, Gordon B. Davidson, Phyllis Burke
Davis, and Thomas R. Williams, to serve a three year term expiring at the 1997
Annual Meeting; Reuben V. Anderson, to serve a two year term expiring at the
1996 Annual Meeting; and James H. Blanchard, to serve a one year term expiring
at the 1995 Annual Meeting.

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The Board has no reason to expect that any of these nominees will be unable
to stand for election. In the event a vacancy among the original nominees occurs
prior to the meeting, the shares represented by proxies in favor of such
nominees will be voted for the remaining nominees and for any substitute nominee
or nominees named by the Board upon the recommendation of the Nominating and
Compensation Committee. If you do not wish your shares to be voted for
particular nominees, please so indicate on the proxy card.

A brief listing of the principal occupation, other major affiliations and
age of each nominee and each director serving an unexpired term follows.

NOMINEES FOR ELECTION AT THIS MEETING TO TERMS EXPIRING IN 1997:

J. HYATT BROWN, President and Chief Executive Officer, Poe & Brown, Inc., an
insurance services company. Director since February 1994. Director of BellSouth
Telecommunications, Inc., March 1984-
February 1994. Director of FPL Group; International Speedway Corporation;
Rock-Tenn Company; and SunTrust Banks Inc. Age 56.

JOHN L. CLENDENIN, Chairman of the Board, President and Chief Executive
Officer. Director since 1983; Chairman of the Board, Southern Bell, November
1982-December 1983; President, April 1981-October 1982. Director of Southern
Bell, March 1981-December 1983. Director of Capital Holding Corp.; Coca-Cola
Enterprises, Inc.; Equifax, Inc.; The Kroger Company; National Service
Industries, Inc.; New York Stock Exchange, Inc.; Springs Industries, Inc.; and
Wachovia Corporation. Age 59.

MARSHALL M. CRISER, Chairman, Mahoney Adams & Criser, P.A., a law firm.
President Emeritus, University of Florida; President, 1984-1989. Director since
1983; Director of Southern Bell, January 1974-October 1983; Director of Barnett
Banks, Inc.; Barnett Banks Trust Co.; CSR America, Inc.; Flagler System, Inc.;
FPL Group, Inc.; and Perini Corporation. Age 65.

GORDON B. DAVIDSON, Chairman of Executive Committee, Wyatt, Tarrant & Combs,
a law firm. Director since 1988; Director of South Central Bell, June
1986-January 1988. Director of Alliant Health System, Inc.; Duff & Phelps
Utilities Income, Inc.; Hermitage Farm, Inc.; South Williamson Land Co., Inc.;
Williamson Mining & Manufacturing Co., Inc.; and Trustee, Centre College of
Kentucky. Age 67.

PHYLLIS BURKE DAVIS, Retired Senior Vice President, Avon Products, Inc.
Director since 1985; Director of Eaton Corporation; The TJX Companies, Inc., and
Trustee of various mutual funds in the Fidelity Group. Age 62.

THOMAS R. WILLIAMS, President, The Wales Group, Inc., a private investment
company. Director since 1983. Director of Southern Bell, August 1980-October
1983. Retired Chairman of the Board, First Wachovia Corporation. Director of
American Software, Inc.; AppleSouth, Inc.; ConAgra, Inc.; Georgia Power Co.;
National Life Insurance Co. of Vermont; and Trustee of various mutual funds in
the Fidelity Group. Age 65.

NOMINEE FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 1996:

REUBEN V. ANDERSON, Partner, Phelps Dunbar, a law firm. Mississippi Supreme
Court Justice, 1985-1990. Director since February 1994. Director of The Kroger
Company; and Trustmark National Bank. Age 51.

NOMINEE FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 1995:

JAMES H. BLANCHARD, Chairman of the Board, Synovus Financial Corporation, a
bank holding company. Director since February 1994. Director of BellSouth
Telecommunications, Inc., November 1988-February 1994. Director of Synovus
Financial Corporation; and Total System Services, Inc. Age 52.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES

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DIRECTORS WHOSE TERMS CONTINUE UNTIL 1995:

ANDREW F. BRIMMER, President, Brimmer & Company, Inc., an economic and
financial consulting firm. Director since December 1984. Director of BankAmerica
Corporation and Bank of America; BlackRock Investment Income Trust, Inc.;
Connecticut Mutual Life Insurance Co.; E.I. du Pont de Nemours & Co.; Gannett
Co., Inc.; Navistar International Corp.; PHH Corporation; and UAL Corporation,
Inc. Age 67.

ARMANDO M. CODINA, Chairman of the Board and Chief Executive Officer, Codina
Bush Group, Inc., a real estate development company. Director since 1992.
Director of BellSouth Telecommunications, March 1989-February 1992. Director of
American Bankers Insurance Group, Inc.; Barnett Banks, Inc.; CSR America, Inc.;
and Winn-Dixie Stores, Inc. Age 47.

WILLIAM O. MCCOY, Vice Chairman of the Board. President and Chief Executive
Officer, BellSouth Enterprises. Director since 1983. Vice Chairman - Finance,
Strategy and Administration, BellSouth, April 1984-September 1986; Vice Chairman
of the Board and Chief Financial Officer, October 1983-March 1984. Vice Chairman
of the Board and Chief Financial Officer, South Central Bell, November
1982-December 1983. Director of South Central Bell, April 1980-December 1983.
Director of First American Corp.; and Liberty Corp. Age 60.

J. TYLEE WILSON, Retired Chairman of the Board and Chief Executive Officer,
RJR Nabisco, Inc. Director since 1985. Director of Southern Bell, October
1983-February 1985. Director of Carolina Power & Light Company. Age 62.

DIRECTORS WHOSE TERMS CONTINUE UNTIL 1996:

F. DUANE ACKERMAN, President and Chief Executive Officer and Director,
BellSouth Telecommunications. Director since 1993 and from February 1989-April
1991. President and Chief Operating Officer, BellSouth Telecommunications,
December 1991-October 1992; Vice Chairman and Group President, March
1991-November 1991. Vice Chairman - Finance and Administration, BellSouth, April
1989-February 1991. Executive Vice President - Marketing, Network and Planning,
BellSouth Services Incorporated, April 1985-March 1989. Vice President -
Corporate Planning and Development, BellSouth, January 1984-March 1985. Director
of South Central Bell, January 1984-April 1985. Director of American Business
Products, Inc.; American Heritage Life Insurance Company; and Wachovia Bank of
Georgia, N.A. Age 51.

JOHN G. MEDLIN, JR., Chairman of the Board, Wachovia Corporation. Director
since 1988. Director of Media General, Inc.; National Service Industries, Inc.;
RJR Nabisco, Inc.; and USAir Group, Inc. Age 60.

C. DIXON SPANGLER, JR., President, University of North Carolina. Director
since 1987. President, C. D. Spangler Construction Co., 1958-1986 and Golden
Eagle Industries, Inc., 1968-86. Director of C. D. Spangler Construction Co.;
Golden Eagle Industries, Inc.; and National Gypsum Co. Age 62.

RONALD A. TERRY, Chairman of the Boards and Chief Executive Officer, First
Tennessee National Corp. and First Tennessee Bank National Association. Director
since 1987. Director of South Central Bell, January 1984-February 1987. Director
of The Promus Companies Incorporated and St. Jude Children's Research Hospital.
Trustee, University of Tennessee. Age 63.

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STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth beneficial ownership of Common Stock by each
director, by each executive officer named in the Summary Compensation Table (p.
14), and by all directors and executive officers as a group, representing in the
aggregate less than one percent of the outstanding shares, as of March 1, 1994.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS
OF
MARCH 1, 1994
-------------------------
SHARES SUBJECT
NAME TOTAL TO OPTIONS*
- --------------------------------------------------- --------- --------------
<S> <C> <C> <C>
F. Duane Ackerman 31,342 22,042
Walter H. Alford 17,213 9,915
Reuben V. Anderson 250 --
James H. Blanchard 1,500 --
Andrew F. Brimmer 2,455 1,999
J. Hyatt Brown 2,100 --
John L. Clendenin 82,789 39,913
Armando M. Codina 1,999 999
Marshall M. Criser 4,555** 1,999
Gordon B. Davidson 6,115 1,999
Phyllis Burke Davis 3,307 1,999
H. C. Henry, Jr. 14,057 8,355
Harvey R. Holding 43,185 36,834
William O. McCoy 41,069 30,454
John G. Medlin, Jr. 2,499 1,999
C. Dixon Spangler, Jr. 2,999 1,999
Ronald A. Terry 2,399 1,999
Thomas R. Williams 2,792 1,999
J. Tylee Wilson 4,999 1,999
Directors and Executive Officers as a group 358,711 236,526
</TABLE>

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* Shares, included in total, subject to acquisition through exercise of stock
options within 60 days. Options are granted at the market price on the date
of grant and are not discounted. Directors and officers realize value from
options when sold and only to the extent that the price of BellSouth stock
exceeds the grant price.

** Includes 500 shares held in a pension trust by Mr. Criser's wife for Mr.
Criser, for which beneficial ownership is disclaimed, and 550 shares owned
solely by Mr. Criser's wife, for which beneficial ownership is disclaimed.

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (ITEM B ON PROXY CARD)

The Board of Directors, acting upon the recommendation of the Audit
Committee, has appointed the firm of Coopers & Lybrand, certified public
accountants, as independent auditors to make an examination of the accounts of
BellSouth and its subsidiaries for the year 1994. Coopers & Lybrand has audited
the accounts and records of BellSouth and its subsidiaries since 1984.

BellSouth has been informed by Coopers & Lybrand that neither such firm nor
any of its partners has any financial interest in BellSouth and its
subsidiaries, other than as described above.

Representatives of Coopers & Lybrand will attend the Annual Meeting and have
the opportunity to make a statement if they desire, and will also be available
to answer questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL

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OTHER MATTERS TO COME BEFORE THE MEETING

If any matter not described herein should properly come before the meeting,
the Directors' Proxy Committee will vote the shares represented by it in
accordance with its best judgment. At the time this proxy statement went to
press, the Company knew of no other matters which might be presented for
shareholder action at the Annual Meeting.

NOMINATING AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

OVERALL POLICY

The Nominating and Compensation Committee of the Board of Directors (the
"Committee") is responsible for oversight and administration of executive
compensation and also reviews the Company's overall compensation program and
monitors it throughout the year. In so doing, the Committee takes into account
current market data and compensation trends for comparable companies, compares
corporate performance to that of a selected peer group, gauges achievement of
corporate and individual objectives, and considers the overall effectiveness of
the program. The Committee, composed entirely of independent, non-employee
directors, bases the compensation program on the following principles:

- Compensation levels for executive officers are benchmarked to
the outside market, based upon general industry surveys
conducted by outside consultants. From these surveys, data from
a group of companies with annual revenues of $6 billion or more
with which BellSouth could expect to compete for products,
services, customers, and talent to manage the business, as well
as the companies included in the performance graph contained in
this proxy statement, with which the Company could expect to
compete for investors, is used to make compensation decisions.

- The total compensation opportunity is targeted to the mid-range
of these companies; incremental amounts may be earned above or
below that level depending upon corporate and individual
performance. The Committee considers it essential to the
vitality of the Company that the total compensation opportunity
for senior executive officers remains competitive with similar
companies, in order to attract and retain the talent needed to
manage and build the Company's business.

- Compensation is tied to performance. A significant part of the
total compensation opportunity is at risk, to be earned only if
specific goals are met. In addition, the Committee periodically
reviews the status of each plan for which the executive
officers of BellSouth are eligible.

- The compensation program has three elements: basic annual
salary; possible annual short term incentive awards, which are
based on annual operating and service results; and a long term
incentive program, which is based on stock performance as
compared to a peer group of companies. The Committee has
approved these elements of compensation to ensure that
BellSouth's total compensation program is comparable to and
competitive with that of other companies of similar size.

- Incentive compensation is designed to reinforce the
implementation of both short and long term corporate
objectives.

- The interests of shareholders and executives are linked so that
executives are rewarded as shareholders benefit.

The compensation program and a specific discussion as to the compensation of
the Chief Executive Officer are set out in detail below.

ANNUAL COMPENSATION
Each executive is assigned to a tier of compensation, based upon his/her job
responsibilities. For each tier, a position rate is used to indicate the
mid-range of pay for jobs in that tier. The Committee establishes annual salary
levels between 80% and 120% of the position rate after considering the
recommendations for

9
<PAGE>
pay treatment and performance input submitted by the Chief Executive Officer.
These recommendations are derived after an evaluation of individual performance
and contribution to the business is conducted by the Chief Executive Officer and
each executive's supervising executive. No formal performance ratings are
assigned as a result of this performance evaluation process.

Executives are also eligible for annual incentive awards, designed to place
a significant part of an executive's annual compensation at risk. The
combination of annual base salary plus the targeted short term incentive award
is intended to provide the opportunity to earn total annual cash compensation
comparable to the mid-range of the executive marketplace.

Annual incentive awards are paid after measuring the day-to-day
effectiveness of each executive in managing the business in two categories:
corporate performance (measured by revenue growth, expense control, net income,
and customer satisfaction) and individual achievement of strategic objectives.
Corporate performance objectives are set by the Committee at the beginning of
each year to ensure measurement based on the achievement of corporate goals. The
weights given to each of these performance components varies, depending upon the
executive's particular job assignment. Efforts are made to tie the measurements
and objective performance levels for each executive to the business entity with
which he/she is most closely associated.

For 1993, the typical corporate headquarters officer's award, excluding the
Chief Executive Officer's, was weighted as follows: 60% financial results; 15%
customer satisfaction results; and 25% individual strategic results. The overall
award payments can range from 0% to 187.5% of the target. For 1993, the Company
exceeded its financial targets; achieved 100% of its established service
objectives; and executive officers received an average individual strategic
award of 130%. The method used to determine the Chief Executive Officer's annual
incentive award is discussed below in the section on 1993 Compensation for the
Chief Executive Officer.

For the named executive officers, the targeted award level ranged from 42%
to 58% of the executive's base salary, with the latter number applicable only to
the Chief Executive Officer. Actual awards approved by the Committee for 1993
performance for the named executive officers, including the Chief Executive
Officer, ranged from 122% to 146% of the targeted award level. These awards were
above the target award levels because the actual achievement of revenue growth,
expense control, net income, customer satisfaction and strategic goals were at
or above target.

For 1993, the Committee approved an overall 4.6% increase in cash
compensation levels. This decision was based upon published projections of
executive cash compensation increases by well-known consulting firms and
compensation associations.

LONG TERM INCENTIVE PROGRAM
The Company continues its practice of maintaining long term incentive plans
based upon the performance of BellSouth stock. Under the BellSouth Corporation
Stock Option Plan, annual stock option grants at market price on the date of
grant may be made to executive officers. The Company does not issue options at
less than fair market value at the date of grant and the officer only receives
benefits from such grants if the stock price appreciates.

Under the 1990-1992 BellSouth Corporation Executive Long Term Incentive
Plan, executive officers received grants of units, each of which was equivalent
to one share of stock. In addition, on each dividend payment date for BellSouth
shareholders, an amount equivalent to that dividend was credited to each
executive for each unit granted under the plan. The value credited from these
dividend equivalents was then translated into additional units, each equivalent
to one share of stock. At the end of 1992, the maximum of 150% of the units
granted for this performance period and the additional units credited from
dividend equivalents was earned as shares, based solely on the fact that
BellSouth's actual return on capital exceeded the targeted return on capital,
indexed against Treasury bill rates. These amounts are reported in the Summary
Compensation Table on page 14 as 1992 amounts.

In 1991, another grant was made under the BellSouth Corporation Executive
Long Term Incentive Plan for the 1991-1995 performance period, the last one to
be administered under this plan. The measurement was changed to provide that
shares of stock could be earned within a range of 0% to 150% of the number of
units granted and credited from dividend equivalents solely based on a
comparison of BellSouth's total shareholder return (stock price appreciation
plus dividends) to that of the peer group of companies reflected in the
performance graph. A 1992 grant was not made under this plan.

10
<PAGE>
The current long term incentive plan, the Shareholder Return Cash Plan, was
introduced in 1993 with a new performance period running from 1993-1997. Under
the Shareholder Return Cash Plan, executives may be awarded cash units which may
pay out annually an amount equal to 0-100% of the annual dividend on a share of
stock, depending upon the results of a comparison of BellSouth's total
shareholder return (stock price appreciation plus dividends) to that of the peer
group of companies included on the performance graph. Payouts under this plan
are totally dependent on this one performance factor -- relative shareholder
return. The plan is designed to encourage management to balance long term
development with the need for reasonable current return.

The number of stock options and shareholder return cash units granted during
1993 was determined based on mid-range market data on annual competitive grant
levels and by using the Black-Scholes option pricing model. The mid-range market
data was found in surveys of long term programs published by two well-known
consulting firms, in proxy statements disclosing grants given to comparable
positions in the performance graph peer group, and in a customized
telecommunications survey conducted by a consulting firm.

Each individual executive receives a grant based upon his/her assigned tier
of compensation. Because the Committee establishes the number of options and
cash units granted based on annual competitive data, as described above, it does
not consider awards outstanding or previously granted to a particular executive
officer.

During 1993, the Committee periodically utilized the services of an
independent executive compensation consultant. The Committee relied on advice
given by the consultant regarding long term incentive plan design and approved
1993 grants of stock options and shareholder return cash plan units within
limits indicated by the consultant's assessment of market competitive grant
levels.

BellSouth's long term program is intended to focus the executive group on
the achievement of corporate goals. Executive officers must carefully weigh the
short and long term benefits or consequences of their decisions and manage the
business to effectively grow and compete in a rapidly changing
telecommunications marketplace. Recognizing the dynamic convergence of
industries such as telecommunications, entertainment and cable which will
continue throughout the next decade, the Committee wants to motivate BellSouth
executives to take the risks necessary to secure a strong foothold for BellSouth
in this extremely competitive new marketplace.

During 1993, BellSouth greatly expanded operations in Germany, receiving the
license for its consortium to build and operate the largest digital cellular
network of its kind in the world; formed an innovative partnership with Prime
Management Company to pursue a broad array of new interactive entertainment and
communications for customers nationwide; and entered into a joint venture with
Cox Communications to develop and market a family of new electronic information
services based on newspaper classified and Yellow Pages advertising. Although
ventures of this type may cause near term reduction in reported earnings and
dilution of earnings per share, the Committee strongly feels that these actions
are in the best long term interest of the shareholders and the Company and will
result, over time, in an increase in BellSouth's stock price.

1993 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER

In setting the 1993 salary and standard incentive award levels for the Chief
Executive Officer, the Committee reviewed BellSouth's positive financial
performance during 1992 with respect to revenue growth, expense control, net
income, and earnings per share compared to other telecommunications companies.
During 1992, BellSouth grew its revenues 5.2% and controlled the increase in
expenses to 3.5%, resulting in a 9.9% increase in net income; increased earnings
per share 8.6% or $.26 per share; and grew telephone access lines by 614,900,
continuing to exceed growth in other major telecommunications companies. The
number of domestic cellular customers grew at a rate of 44.4% and the number of
international cellular customers grew by 198.5%. In addition to reviewing this
financial information, the Committee also reviewed base salary data for chief
executive officers in the performance graph peer group.

In consideration of these positive performance factors, in recognition of
the fact that the Chief Executive Officer's salary rate had not changed for
twenty-four months, and in an effort to establish a base salary position within
the range of the base salaries of the peer group companies, considering the
relative performance of BellSouth, the Committee decided that the Chief
Executive Officer's performance merited a

11
<PAGE>
4% increase in salary, as indicated in the Summary Compensation Table on page
14. Prior to this increase, the Chief Executive Officer's base salary was at
105% of his assigned position rate; after the increase, the salary is at 106% of
the 1993 position rate.

In determining the Chief Executive Officer's short term incentive award for
1993 performance, the Committee reviewed BellSouth's 1993 financial performance
with respect to the standard plan measurements of revenue growth, expense
control, net income and 1993 customer satisfaction. BellSouth's financial
performance exceeded established targets and the Company met its established
customer satisfaction objectives. In addition, the Committee considered the
strategic positioning moves achieved by BellSouth during 1993 and reviewed data
on the annual incentive award levels for chief executive officers of the
companies in the performance graph peer group.

Under the Chief Executive Officer's leadership in 1993, BellSouth took
several strategic steps which will position it to compete in the ever changing
global marketplace of the future. The Company entered into an agreement with QVC
Network, Inc. which will give it an opportunity to participate in the future
market for interactive communications. It also entered into the partnership with
Prime Management Company and expanded its international wireless operations to
Germany, as discussed above, and within Australia and Latin America.

The Committee felt the Chief Executive Officer's participation in these
projects contributed significantly to their success. Based on these factors, the
Committee felt the Chief Executive Officer had exceeded expectations for
providing strategic direction to the Company. Since there was no pre-established
formula for determining the annual incentive award for the Chief Executive
Officer, the Committee analyzed the factors described above and exercised its
judgment in awarding the Chief Executive Officer the overall short term
incentive award shown in the Summary Compensation Table.

The Committee also approved certain long term incentive compensation
payments. First, it approved a payment of shares to the Chief Executive Officer
for the 1990-1992 performance period under the BellSouth Corporation Executive
Long Term Incentive Plan. BellSouth's average return on capital exceeded the
target return on capital, indexed against Treasury bill rates, for the three
years of the performance period. In accordance with a pre-established matrix
which determines the percentage of the units granted and credited from dividend
equivalents to be paid based upon performance, the Chief Executive Officer was
awarded 150% of these units. The value of these units is shown in the Summary
Compensation Table as a 1992 amount.

The Committee also approved payment to the Chief Executive Officer of an
amount of cash shown in the Summary Compensation Table from cash units granted
under the Shareholder Return Cash Plan. For 1993, BellSouth's total shareholder
return (stock price appreciation plus dividends) was compared to the median
shareholder return of the peer group shown in the performance graph, resulting
in a payment of 58.25% of the cash units granted.

OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION

It is the responsibility of the Committee to address the issues raised by
the recent change in the tax laws which made certain non-performance-based
compensation to executives of public companies in excess of $1,000,000
non-deductible to the Company beginning in 1994. In this regard, the Committee
must determine whether any actions with respect to this new limit should be
taken by the Company. At this time, it is not anticipated that any BellSouth
executive officer will receive any such compensation in excess of this limit
during 1994. Therefore, during 1993, the Committee did not take any action to
comply with the new limit. The Committee will continue to monitor this situation
and will take appropriate action if it is warranted in the future.

Armando M. Codina, Chairman
Gordon B. Davidson
C. Dixon Spangler, Jr.
Thomas R. Williams

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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Until February 1, 1994, the Nominating and Compensation Committee consisted
of Messrs. Davidson (Chair), Codina, Criser and Williams, none of whom are
former or current officers or employees of the Company or any of its
subsidiaries. Effective February 1, 1994, the Nominating and Compensation
Committee consists of Messrs. Codina (Chair), Davidson, Spangler, and Williams,
none of whom are former or current officers or employees of the Company or any
of its subsidiaries. No executive officer of the Company serves as an officer,
director or member of a compensation committee of any entity, an executive
officer or director of which is a member of the Nominating and Compensation
Committee of the Company. Mr. Davidson is senior counsel of the law firm of
Wyatt, Tarrant & Combs, located in Louisville, Kentucky. During 1993, BellSouth
Telecommunications, Inc., a subsidiary of the Company, retained Wyatt, Tarrant &
Combs with regard to a variety of legal matters. Mr. Criser is a partner in the
law firm of Mahoney, Adams & Criser, P.A., located in Jacksonville, Florida.
During 1993, BellSouth Telecommunications, Inc. retained Mahoney, Adams &
Criser, P.A. with regard to a variety of legal matters.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

Comparison of Five Year Cumulative Total Return
Among BellSouth, S&P500 Index and Peer Group*

Assumes $100 invested on Jan. 1, 1989, with reinvestment of dividends. End of
period prices.

*Peer group: Ameritech, Bell Atlantic, NYNEX, Pacific Telesis Group,
Southwestern Bell, U S West and GTE. Peer return weighted by market
capitalization.

13
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth, for the years ending December 31, 1993, 1992
and 1991, the cash compensation paid by BellSouth and its subsidiaries, as well
as other compensation paid or accrued for these years, to each of the six named
executive officers of BellSouth.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
($000)
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) SARS (#) ($)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 1993 785.0 705.5 12.0 25,600 0 451.9
Chairman & CEO 1992 755.0 609.0 9.4 35,388 838.6 451.8
1991 755.0 600.5 -- 29,864 0 --
W. O. McCoy 1993 469.0 328.7 9.4 11,300 0 286.9
Vice Chairman 1992 445.0 325.5 6.9 15,619 446.4 256.1
1991 445.0 297.5 -- 13,001 0 --
F. D. Ackerman 1993 428.0 324.2 9.2 11,300 0 115.7
CEO and President of 1992 400.0 282.5 8.4 15,619 446.4 99.0
BellSouth 1991 375.0 242.0 -- 13,001 0 --
Telecommunications, Inc.
W. H. Alford 1993 328.0 181.0 12.2 6,200 0 136.2
Executive Vice President 1992 297.5 159.5 6.3 8,523 226.2 126.0
and General Counsel 1991 285.0 133.5 -- 7,205 0 --
H. C. Henry, Jr. 1993 293.0 179.5 7.4 6,200 0 44.4
Executive Vice President 1992 275.0 180.0 7.0 8,523 226.2 41.5
- Corporate Relations 1991 260.0 153.0 -- 7,205 0 --
H. R. Holding (5) 1993 261.3 318.2 19.8 11,300 0 1,227.9
Retired Vice Chairman - 1992 354.5 288.5 6.3 15,619 373.0 136.5
Finance & Administration 1991 305.8 226.0 -- 7,205 0 --
<FN>
(1) Included for 1993 are amounts earned under the Short Term Incentive Plan,
$664.3, $310.5, $306.0, $171.0, $169.5, and $300.0, respectively, and
amounts earned under the Shareholder Return Cash Plan, $41.2, $18.2, $18.2,
$10.0, $10.0, and $18.2, respectively, which is more fully described under
Long Term Incentive Plan Awards in Fiscal Year 1993, on page 16.
(2) Tax "gross-up" for financial counseling and use of motor vehicle. Under the
proxy rules, this information will be phased in over three years and is not
required for 1991. Additionally, in 1993, Mr. Holding realized earnings of
$13.2 on payment of an incentive award previously deferred.
(3) Amounts reported have been earned under the Executive Long Term Incentive
Plan ("ELTIP"). Payouts are made every three years upon final determination
of the performance results and are shown in the last year of the performance
period. The ELTIP is more fully described in the Nominating and Compensation
Committee Report on Executive Compensation.
</TABLE>

14
<PAGE>
<TABLE>
<S> <C>
(4) Amounts for 1993 include for the six named executive officers (a)
contributions under the Management Savings Plan, $10.1, $7.2, $9.7, $7.0,
$3.5 and $9.9, respectively; (b) above-market interest earned on cash
deferrals under the Nonqualified Deferred Compensation Plan, $387.2, $247.1,
$87.3, $113.9, $29.6 and $112.9, respectively (benefits under the
Nonqualified Deferred Compensation Plan are provided for by either grantor
trusts or the general funds of the Company. BellSouth has established and
funded grantor trusts to provide for the payment of benefits under the plan.
Although the trusts are irrevocable and assets contributed to the trusts can
only be used to pay such benefits with certain exceptions, the benefits
under the plan remain obligations of BellSouth and its subsidiaries. The
Company has purchased corporate-owned life insurance policies on the lives
of certain participants estimated to be sufficient to recover, over time,
the cost of the benefits provided plus the cost of insurance.); (c) recovery
of Company matching contributions on Management Savings Plan contributions
denied certain participants by reason of Internal Revenue Code limitations
on qualified plan benefits, or on amounts deferred from compensation, $21.1,
$12.8, $7.4, $6.0, $5.7 and $1.0, respectively; and (d) value of benefits
from premiums paid under the BellSouth Life Insurance Program, $33.5, $19.8,
$11.3, $9.3, $5.6 and $20.1, respectively. The Company will recover the cost
of premium payments from the cash value of the policies. BellSouth uses the
Present Value Ratio Method in determining the portion of each premium dollar
attributable to the executive and paid by the Company. Under the proxy
rules, this information will be phased in over three years and is not
required for 1991.
(5) During 1993, Mr. Holding, Vice Chairman of the Board from March 1, 1991
until August 31, 1993, retired from BellSouth under terms of a succession
agreement. These agreements permit long range succession planning for senior
management. Pursuant to the agreement, Mr. Holding retired prior to normal
retirement age and received payment of two times annual base pay and a full
year's annual bonus, totaling $784.0 and $300.0, respectively.
</TABLE>

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

The following table contains information concerning the grant of stock
options and tandem stock appreciation rights ("SARs") to the six named executive
officers of the Company.

OPTION/SAR GRANTS IN 1993

<TABLE>
<CAPTION>
NUMBER OF INDIVIDUAL GRANTS(1)
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS GRANT DATE
SARS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES BASE PRICE EXPIRATION VALUE(2)
NAME (#) IN FISCAL YEAR ($/SH) DATE ($000)
<S> <C> <C> <C> <C> <C>
J. L. Clendenin 25,600 3.05 54.31 01/26/03 224.0
W. O. McCoy 11,300 1.34 54.31 01/26/03 98.9
F. D. Ackerman 11,300 1.34 54.31 01/26/03 98.9
W. H. Alford 6,200 0.07 54.31 01/26/03 54.3
H. C. Henry, Jr. 6,200 0.07 54.31 01/26/03 54.3
H. R. Holding 11,300 1.34 54.31 01/26/03 98.9
<FN>
(1) The BellSouth Corporation Stock Option Plan provides for the grant of stock
options and related stock appreciation rights ("SARs") to key employees, as
determined by the Board of Directors, to purchase shares of BellSouth Common
Stock within prescribed periods at prices equal to the fair market value of
the stock on the date of the grant. SARs entitle an optionee to surrender
unexercised stock options for cash or stock equal to the excess of the fair
market value of the surrendered shares over the option price of such shares.
Options granted in 1993 become vested only at the end of the five year
vesting period, as determined from the date of grant. No SARs were granted
in 1993.
</TABLE>

15
<PAGE>
<TABLE>
<S> <C>
(2) The estimated fair value of stock options is measured at the date of grant
under the Black-Scholes option pricing model. There are four assumptions
used in developing the grant valuations: expected volatility of 19.5% based
on the closing price of BellSouth Common Stock for the last six fiscal
years; expected term to exercise of seven years; interest rates equal to
the U.S. Treasury Note rates in effect at the date of the grant (6.26%)
for the expected term of the option; and a dividend yield of 5.26% based on
the average annual yield since 1988. The actual value, if any, an executive
may realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised. Consequently, there is no
assurance the value realized by an executive will be at or near the value
estimated above. These amounts should not be used to predict stock
performance.
</TABLE>

OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning the exercise of options and/or SARs during 1993
and unexercised options and SARs held on December 31, 1993.

AGGREGATED OPTION/SAR EXERCISES IN 1993
AND FISCAL YEAR-END OPTION/SAR VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
VALUE OPTIONS/SARS AT AT FISCAL YEAR-END
SHARES ACQUIRED REALIZED FISCAL YEAR-END (#) ($000) ($000)
NAME ON EXERCISE (#) ($000) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 0 0 10,049 90,852 0 452.0
W. O. McCoy 0 0 17,453 39,920 256.9 198.9
F. D. Ackerman 0 0 9,041 39,920 67.8 198.9
W. H. Alford 6,414 108.8 2,710 21,928 0 109.0
H. C. Henry, Jr. 1,000 1.4 1,150 21,928 0 109.0
H. R. Holding 0 0 36,834 0 179.7 0
</TABLE>

LONG TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1993

The following table provides information concerning awards made to the named
executive officers during 1993 under the BellSouth Shareholder Return Cash Plan,
a long term incentive plan. Each performance unit awarded represents the
contingent right to receive an annual amount of cash based upon BellSouth's
total shareholder return relative to the performance of the total shareholder
return of other selected telecommunications companies ("the performance group").
Under this plan, if BellSouth's total shareholder return is 90 percent of the
performance group's median total shareholder return, 100 percent of the award is
paid. This represents the maximum amount that can be paid under the plan. If
BellSouth's total shareholder return is 75 percent of the performance group's
median, 25 percent will be paid. If BellSouth's total shareholder return is less
than 75 percent of the performance group's median, no award will be paid. Also,
no payout will be made if BellSouth's total shareholder return is less than the
lowest member of the performance group. If, during the remaining life of the
award, BellSouth's total shareholder return improves relative to the performance
group, further payments of previously unpaid amounts would be made up to, but
not in excess of, the original value of the award. Amounts which are not paid
out during the five-year life of the award are forfeited.

For officers of the Company, the Board of Directors prescribes the number of
units to be awarded to each individual based on the management level of that
officer at the time of the award. The value of an award unit is determined
annually based on the annual amount of dividends paid per share of common stock.
The awards are payable solely in cash and may not be deferred. Unpaid awards
which are carried forward for possible payout do not earn interest. Plan
participants may not sell, assign or otherwise transfer the awards.

16
<PAGE>
LONG TERM INCENTIVE PLANS -- AWARDS IN 1993

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
NUMBER OF
SHARES, UNITS OR PERFORMANCE OR OTHER
OTHER RIGHTS PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME (#) MATURATION OR PAYOUT ($) ($)(1) ($)(1)
<S> <C> <C> <C> <C> <C>
J. L. Clendenin 25,600 1994-1998 $ 70,656 $282,624 $282,624
W. O. McCoy 11,300 1994-1998 $ 31,188 $124,752 $124,752
F. D. Ackerman 11,300 1994-1998 $ 31,188 $124,752 $124,752
W. H. Alford 6,200 1994-1998 $ 17,112 $ 68,448 $ 68,448
H. C. Henry, Jr. 6,200 1994-1998 $ 17,112 $ 68,448 $ 68,448
H. R. Holding 11,300 1994-1998 $ 31,188 $124,752 $124,752
<FN>
(1) Since the Plan provides for payment not to exceed 100% of the units granted,
the target award amount and the maximum award amount are the same.
</TABLE>

PENSION AND OTHER RETIREMENT BENEFITS

The following table shows the estimated annual pension benefits payable to
participants upon retirement on a single straight life annuity basis in
specified remuneration classes and years of credited service, under the
BellSouth Personal Retirement Account Pension Plan, as well as the BellSouth
Supplemental Executive Retirement Plan, which provides benefits that would
otherwise be denied participants by reason of certain Internal Revenue Code
limitations on qualified plan benefits. The amounts set forth as payable at
retirement in the table below have been reduced by an amount equal to 100% of
the Social Security Primary Insurance amount determined in 1993 to be payable at
age 65 in accordance with the Plan.

PENSION PLAN TABLE
YEARS OF SERVICE
($)

<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
200,000 45,664 65,664 80,664 95,664 105,664 115,664 125,664
400,000 105,664 145,664 175,664 205,664 225,664 245,664 265,664
600,000 165,664 225,664 270,664 315,664 345,664 375,664 405,664
800,000 225,664 305,664 365,664 425,664 465,664 505,664 545,664
1,000,000 285,664 385,664 460,664 535,664 585,664 635,664 685,664
1,500,000 435,664 585,664 698,164 810,664 885,664 960,664 1,035,664
1,600,000 465,664 625,664 745,664 865,664 945,664 1,025,664 1,105,664
</TABLE>

17
<PAGE>
The calculation of remuneration specified above is based on eligible salary
and bonus actually paid to each individual. Since the compensation used to
calculate pension and other retirement benefits is the average over the five
year period preceding retirement, and is based on amounts paid versus amounts
accrued by the Company, the amount used in the calculation differs from the
totals set forth in the Summary Compensation Table (p. 14) and is stated below
together with the credited years of service achieved in 1993.

<TABLE>
<CAPTION>
COVERED COMPENSATION YEARS OF SERVICE
NAME ($) (#)
<S> <C> <C>
J. L. Clendenin 1,365,260 38
W. O. McCoy 725,600 34
F. D. Ackerman 630,400 29
W. H. Alford 434,200 29
H. C. Henry, Jr. 403,133 28
H. R. Holding 502,333 45
</TABLE>

RETIREMENT ARRANGEMENT

In 1988 the Board of Directors authorized the Company to enter into long
range succession planning arrangements with officers at the first tier below the
chief executive officer. If the Company offers the arrangement to a first tier
officer, and the officer accepts that offer, he or she would be required to
retire prior to the normal retirement age of 65. In order to compensate the
officer for amounts he or she would have received had he or she remained with
the Company until the age of 65, the officer would receive a payment equal to
the amount of two times annual base pay and a full year's annual bonus, and
would also receive credit for a total of 45 years of service in the calculation
of retirement benefits. Such an agreement was entered into with Mr. Ackerman in
1989. Mr. Holding retired on August 31, 1993 under terms of such an agreement.

DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION AT THE ANNUAL MEETING

Shareholders who wish to present director nominations or other business at
the annual meeting are required to notify the Secretary of their intent at least
60 days but not more than 120 days before the meeting and the notice must
provide information as required in the By-laws. A copy of these By-law
requirements will be provided upon request by writing to Secretary, BellSouth
Corporation, 1155 Peachtree St., N.E., Room 14B06, Atlanta, Georgia 30309-3610.
This requirement does not affect the deadline for submitting shareholder
proposals for inclusion in the proxy statement, nor does it apply to questions a
shareholder may wish to ask at the meeting.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than ten percent
of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1993, all such Section
16(a) filing requirements were complied with, except that the initial filing on
Form 3 by Mr. Earle Mauldin, Executive Vice President and Chief Financial
Officer, inadvertently omitted certain shares of stock distributed to him
pursuant to the BellSouth Corporation Executive Long Term Incentive Plan and was
amended to reflect such shares, and one Form 4 report filed by Mr. C. Dixon
Spangler, Jr. a director, regarding 97 shares of BellSouth stock inherited by
his wife and subsequently sold by her, was filed 20 days late.

18
<PAGE>
SHAREHOLDER PROPOSALS FOR THE 1995 PROXY STATEMENT

Any shareholder satisfying the Securities and Exchange Commission
requirements and wishing to submit a proposal to be included in the 1995 Proxy
Statement should submit the proposal in writing to Secretary, BellSouth
Corporation, 1155 Peachtree Street, N.E., Room 14B06, Atlanta, Georgia
30309-3610. BellSouth must receive a proposal by November 14, 1994 in order to
consider it for inclusion in the 1995 Proxy Statement.

OTHER INFORMATION

Consolidated financial statements for BellSouth Corporation are attached as
an appendix to this proxy statement and are included in the report on Form 10-K
to be filed with the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the New York, Boston, Chicago, Pacific and
Philadelphia stock exchanges.

A copy of the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission for the year 1993 (excluding exhibits) will be furnished,
without charge, by writing to Secretary, BellSouth Corporation, 1155 Peachtree
Street, N.E., Room 14B06, Atlanta, Georgia 30309-3610.

SOLICITATION OF PROXIES

The cost of soliciting proxies will be borne by BellSouth. BellSouth has
retained Morrow & Co., Inc. to solicit proxies, by mail, in person, or by
telephone, at an estimated cost of $17,000, plus reimbursement of reasonable
out-of-pocket expenses. In addition, employees of BellSouth may likewise solicit
proxies.

The above Notice of Annual Meeting and Proxy Statement are sent by order of
the BellSouth Board of Directors.

Arlen G. Yokley
Vice President, Secretary and Treasurer
Dated: March 14, 1994

19
<PAGE>
[THE FOLLOWING REPORT SENT TO SECURITY HOLDERS IS PROVIDED TO THE COMMISSION
SOLELY AS INFORMATION AND IS NOT DEEMED "SOLICITING MATERIAL" OR TO BE "FILED"
WITH THE COMMISSION EXCEPT TO THE EXTENT THAT THE COMPANY HAS INCORPORATED
INFORMATION INCLUDED IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1992.]

BELLSOUTH CORPORATION
ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS

SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues.................................... $ 15,880 $ 15,202 $ 14,445 $ 14,345 $ 13,996
Operating Expenses (1)................................ 13,593 12,041 11,636 11,318 11,008
----------- ----------- ----------- ----------- -----------
Operating Income...................................... 2,287 3,161 2,809 3,027 2,988
Interest Expense...................................... 689 746 802 774 776
Other Income, net..................................... 8 178 253 157 241
Provision for Income Taxes............................ 572 934 753 778 758
Extraordinary Loss, net of tax........................ (87) (41) -- -- (22)
Accounting Change, net of tax......................... (67) -- (35) -- 68
----------- ----------- ----------- ----------- -----------
Net Income.......................................... $ 880 $ 1,618 $ 1,472 $ 1,632 $ 1,741
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings Per Share.................................... $ 1.77 $ 3.30 $ 3.04 $ 3.38 $ 3.64
Dividends Declared Per Common Share................... $ 2.76 $ 2.76 $ 2.76 $ 2.68 $ 2.52
Book Value Per Share.................................. $ 27.20 $ 27.94 $ 26.93 $ 26.28 $ 27.21
Return to Average Common Equity....................... 6.3% 11.9% 11.3% 12.8% 13.7%
Weighted Average Common Shares Outstanding............ 496.1 490.8 484.3 482.4 477.7
Return on Average Total Capital....................... 6.1% 9.8% 9.4% 10.4% 11.2%
Total Assets.......................................... $ 32,873 $ 31,463 $ 30,942 $ 30,207 $ 30,050
Capital Expenditures.................................. $ 3,486 $ 3,189 $ 3,102 $ 3,191 $ 3,223
Long-Term Debt........................................ $ 7,381 $ 7,360 $ 7,677 $ 7,781 $ 7,055
Debt Ratio at End of Period........................... 40.2% 39.0% 41.3% 40.7% 38.0%
Ratio of Earnings to Fixed Charges (2)................ 2.98 4.00 3.47 3.68 3.85
Total Employees....................................... 95,084 97,112 96,084 101,945 101,230
Telephone Employees................................... 81,415 82,866 82,245 85,967 86,728
Business Volumes (In Millions): (3)
Network Access Lines in Service:
Residence........................................... 13.7 13.3 12.9 12.6 12.2
Business............................................ 5.4 5.1 4.8 4.6 4.4
Other............................................... .2 .2 .3 .3 .3
----------- ----------- ----------- ----------- -----------
Total............................................. 19.3 18.6 18.0 17.5 16.9
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Access Minutes of Use:
Interstate.......................................... 53,345.0 50,546.4 47,255.3 44,903.3 41,464.2
Intrastate.......................................... 15,260.9 13,994.2 13,237.7 12,119.5 11,252.7
Toll Messages......................................... 1,251.0 1,280.3 1,387.1 1,457.5 1,462.3
Cellular Customers (In Thousands): (4)
Domestic............................................ 1,559.1 1,118.1 774.2 498.3 311.4
International....................................... 192.2 77.6 26.0 5.1 .6
----------- ----------- ----------- ----------- -----------
Total............................................. 1,751.3 1,195.7 800.2 503.4 312.0
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<FN>
- ------------------------
(1) Operating Expenses for 1993 include a charge for restructuring of $1,136.4,
which reduced net income by $696.6. See Note K to the Consolidated Financial
Statements.
(2) For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, interest expense and such portion of rental
expense representative of the interest factor on such rentals; (ii) fixed
charges are comprised of total interest expense and such portion of rental
expense representative of the interest factor on such rentals.
(3) Prior period operating data are revised at later dates to reflect the most
current information. The above information reflects the latest data
available for the periods indicated.
(4) Equity Basis.
</TABLE>

A-1
<PAGE>
BELLSOUTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

BellSouth Corporation ("BellSouth") is a holding company headquartered in
Atlanta, Georgia whose operating telephone company subsidiary, BellSouth
Telecommunications, Inc. ("BellSouth Telecommunications") serves, in the
aggregate, approximately two-thirds of the population and one-half of the
territory within Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange and toll communications services within 38
court-defined geographic areas, called Local Access and Transport Areas
("LATAs"), and network access services to enable interLATA communications using
the long-distance facilities of interexchange carriers. BellSouth Enterprises,
Inc. ("BellSouth Enterprises"), another wholly-owned subsidiary, owns businesses
providing domestic wireless and international communications services and
advertising and publishing services and products.

Prior to January 1, 1992, the majority of the operations of BellSouth
Telecommunications was conducted through South Central Bell Telephone Company
("South Central Bell") and Southern Bell Telephone and Telegraph Company
("Southern Bell"). Effective at midnight December 31, 1991, South Central Bell
merged with and into Southern Bell and Southern Bell's name was changed to
BellSouth Telecommunications.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
PERCENT CHANGE
-----------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Income.......................................... $ 880.1 $ 1,617.7 $ 1,471.5 (45.6%) 9.9%
Earnings Per Share.................................. $ 1.77 $ 3.30 $ 3.04 (46.4%) 8.6%
</TABLE>

Net Income and Earnings Per Share for 1993 decreased $737.6 and $1.53,
respectively, compared to the previous year. The decreases were due primarily to
a charge of $696.6 ($1.40 per share) for restructuring of BellSouth's telephone
operations (see Note K). Other charges in 1993 that contributed to the decreases
were $86.6 ($.17 per share) for debt refinancings by BellSouth
Telecommunications (see Note E), $67.4 ($.14 per share) for the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 112 (see Notes H and
N), $47 ($.09 per share) for the initial impact of a regulatory settlement in
Florida, approximately $45 ($.09 per share) related to the increase in the
Federal statutory income tax rate for corporations, exclusive of the tax benefit
associated with the restructuring charge, and approximately $25 ($.05 per share)
associated with severe weather conditions during first quarter 1993. The
decreases were also attributable in part to the inclusion in 1992's results of
gains of $39.5 ($.08 per share) and $32.9 ($.07 per share), respectively, from
the settlement of a Federal income tax matter and the settlement of prior year
regulatory issues. The 1993 decreases were partially offset by overall growth of
operating revenues, driven by an improvement in key business volumes, and the
inclusion in 1992 of charges for debt refinancing and Hurricane Andrew.

Net Income and Earnings Per Share for 1992 increased $146.2 and $.26,
respectively, compared to 1991. Factors contributing to these increases include
the gains from the settlement of a Federal income tax matter and the settlement
of prior year regulatory issues, expense reductions attributable to salary
savings since implementation of an early retirement program, the inclusion in
1991 of a charge associated with the early retirement program and the inclusion
in 1991 of a one-time charge for the cumulative effect of the change in
accounting principle for cellular service sales commissions (see Note N). Also
contributing to the increases were growth in business volumes at BellSouth
Telecommunications, partially offset by rate reductions, and in the wireless
businesses at BellSouth Enterprises. The 1992 increases were partially

A-2
<PAGE>
offset by charges of $40.7 ($.08 per share) associated with refinancing at lower
interest rates of certain long-term debt issues at BellSouth Telecommunications
(see Note E) and approximately $28 ($.06 per share) associated with Hurricane
Andrew, and costs attributable to investments in certain start-up operations.

OPERATING REVENUES

Total Operating Revenues increased $678.7 (4.5%) during 1993, compared to an
increase of $756.1 (5.2%) during 1992. Both increases resulted from growth in
revenues from BellSouth's wireline telephone businesses, coupled with a
significant increase in revenues from wireless communications businesses.
Traditionally, BellSouth's local, access and toll services offered by BellSouth
Telecommunications have primarily accounted for increases in operating revenues.
BellSouth, however, continues to experience an increasing shift in the relative
contributions of its revenue sources.

See "Volumes of Business."

Local Service revenues reflect amounts billed to customers for local
exchange services, which include connection to the network and secondary central
office feature services, such as custom calling features and custom dialing
packages. Local Service revenues for 1993 increased $341.3 (5.5%) compared to an
increase of $389.8 (6.7%) in 1992. The 1993 increase was primarily attributable
to an increase of 683,000 access lines since December 31, 1992 and a $42.0
increase from secondary central office services. In addition, as discussed
below, the effects of a $27.9 refund in Florida during 1992 and changes in and
the expansion of local area calling plans, including a plan implemented in
Louisiana in 1992, contributed to the increase in 1993.

The increase in 1992 was attributable to the addition of 614,900 access
lines during the year, revenue shifts from toll to local due to expanded local
area calling plans and an increase in secondary central office services of $51.4
over 1991. The increase in revenues from local area calling plans is primarily
attributable to access line growth. In addition, the implementation of a new
expanded local area calling plan in Louisiana, effective March 1992, positively
impacted 1992 Local Service revenue (see "Toll"). The increase was also due in
part to the inclusion in 1991 of a $63.9 refund in Florida which had previously
been deferred in Other Services revenues. The increase in 1992 was partially
offset by a related refund of $27.9 in 1992 pertaining to amounts set aside in
1991 for disposition by the Florida Public Service Commission. Since these
deferred and set aside amounts were originally accrued in Other Services, there
was no impact on net income.

Interstate Access revenues result from the provision of access services to
interexchange carriers to provide telecommunications services between states.
Interstate access revenues increased $45.6 (1.5%) compared to an increase of
$87.5 (3.1%) in 1992.

The increase for 1993 reflects increased rates effective July 1, 1993 in
conjunction with BellSouth Telecommunications' selection of a 3.3% productivity
offset factor under the Federal Communications Commission's ("FCC") price cap
plan, growth in minutes of use and increases in end user charges attributable to
growth in the number of access lines in service. The effect of these increases
was substantially offset by decreased net settlements with the National Exchange
Carriers Association and revenue deferrals under the FCC's price cap plan. Since
BellSouth Telecommunications' earnings are currently in the sharing range of the
FCC's price cap plan and because of other factors, significant revenue growth in
this category is not likely.

For 1992, the increase in interstate access revenues was primarily
attributable to growth in minutes of use and an increase in end user charges
attributable to access line growth. The effect of these increases was

A-3
<PAGE>
partially offset by rate reductions since December 31, 1991, including the
implementation of lower tariff rates, effective July 1, 1992, associated with
BellSouth Telecommunications' selection of a 4.3% productivity offset factor,
which reduced interstate revenues under the FCC's price cap plan.

See "Operating Environment and Trends of the Business."

Intrastate Access revenues result from the provision of access services to
interexchange carriers which provide telecommunications services between LATAs
within a state. Revenues increased $10.1 (1.2%) in 1993 compared to an increase
of $5.1 (0.6%) in 1992. Both increases, due primarily to growth in minutes of
use over the respective prior year, were substantially offset by rate reductions
in 1993 and 1992.

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Toll.......................................... $ 1,219.5 $ 1,248.8 $ 1,373.7 (2.3%) (9.1%)
</TABLE>

Toll revenues are received from the provision of long-distance services
within (but not between) LATAs. These services include intraLATA service beyond
the local calling area; Wide Area Telecommunications Service ("WATS" or "800"
services) for customers with highly concentrated demand; and special services,
such as transport of voice, data and video. Toll revenues decreased $29.3 (2.3%)
in 1993 compared to a decrease of $124.9 (9.1%) in 1992.

The decrease in 1993 reflects rate reductions since December 31, 1992 and a
decline in toll message volumes largely attributable to the expansion of local
area calling plans which have the effect of shifting revenues from Toll to Local
Service. The decrease was partially offset by revenue increases due to optional
calling plans and independent company settlements.

The 1992 decrease resulted from rate reductions since December 31, 1991 and
a decrease in toll messages due to competition and expanded local area calling
plans, including a plan implemented in Louisiana in 1992.

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

Directory Advertising and Publishing revenues include revenues derived from
publishing, printing and selling advertising in, and performing related services
concerning, alphabetical and classified telephone directories. Directory
Advertising and Publishing revenues increased $55.6 (3.8%) in 1993 compared to a
$33.5 (2.3%) increase in 1992.

The increase for 1993 was primarily attributable to increases in the prices
and volume of advertising sold. For 1992, the increase was due primarily to
growth in the volume of independent directory contracts.

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

A-4
<PAGE>
Wireless Communications revenues increased $357.8 (29.9%) in 1993, compared
to an increase of $421.1 (54.4%) in 1992. For 1993, the increase resulted from
continued growth of the customer base for wireless services in both domestic and
international markets. The increase in 1992 resulted from growth of the customer
base, acquisitions made in late 1991 and increases in roamer revenues.

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Other Services....................................... $ 1,141.6 $ 1,244.0 $ 1,300.0 (8.2%) (4.3%)
</TABLE>

Other Services revenues are principally comprised of revenues from customer
premises equipment sales and maintenance services, billing and collection
services and other nonregulated services (primarily inside wire services)
offered by BellSouth Telecommunications. Other Services revenues decreased
$102.4 (8.2%) in 1993 compared to a decrease of $56.0 (4.3%) in 1992.

The decrease in 1993 was attributable to the effect of reclassifying in 1992
a $27.9 Florida refund to ratepayers from Other Services to Local Service, the
inclusion in 1992 of $52.7 for the settlement of prior year regulatory issues
and the sale of a subsidiary in late 1992. The decrease was partially offset by
increased revenues from nonregulated services due in part to higher demand. In
addition, billing and collection revenues increased due to the effect of
nonrecurring adjustments; however, such revenues are expected to decline over
the long term due to interexchange carriers' assuming more direct billing for
their own services.

The decrease in 1992 was partially attributable to a decrease of $18.6 due
to the dissolution of a business in 1991 and the reclassification in 1991 of a
revenue deferral of $63.9 in Florida, partially offset by certain Florida set
aside amounts totaling $27.9 for prior years which were included as Local
Service rate reductions in 1992; these deferral and set aside amounts were
initially recorded as reductions to Other Services revenues prior to 1992 (see
"Local Service"). Also contributing to the 1992 decrease was a $34.3 decrease in
billing and collection revenues and decreased revenues for certain BellSouth
Enterprises subsidiaries. The decrease was partially offset by the settlement of
prior year regulatory issues not related to the services described above but
which were required to be recorded in Other Services, resulting in a one-time
increase of $52.7.

OPERATING EXPENSES

Operating expenses increased $1,552.3 (12.9%) during 1993 compared to an
increase of $405.1 (3.5%) during 1992. For 1993, the increase was primarily
attributable to a pre-tax charge of $1,136.4 for restructuring of BellSouth's
telephone operations. Adjusted for the effect of the restructuring charge,
operating expenses increased $415.9 (3.5%) during 1993. The increase, as
adjusted, was due to expenses associated with improved business volumes at
BellSouth Telecommunications and in the wireless businesses at BellSouth
Enterprises, higher levels of salaries and wages, a regulatory settlement in
Florida, and expenses attributable to severe weather conditions in the first
quarter of 1993. The increase was partially offset by decreased overtime
compensation and the inclusion in 1992 of expenses related to Hurricane Andrew.

The 1992 increase was due to expenses associated with higher business
volumes, higher levels of salaries and wages, a portion of which resulted from a
new three-year working agreement with the Communications Workers of America
("CWA") in 1992, Hurricane Andrew and remedial actions related to underground
fuel storage tanks. The increase for 1992 was partially offset by the inclusion
in 1991 of expenses associated with an early retirement program and 1992 expense
reductions attributable to salary savings since implementation of that program.

A-5
<PAGE>

Cost of Services and Products includes operating expenses associated with
network support and maintenance of BellSouth Telecommunications' property, plant
and equipment, material and supplies expense, cost of tangible goods sold and
other expenses associated with the cost of providing services. Cost of Services
and Products increased $183.8 (3.2%) in 1993 compared to a decrease of $57.9
(1.0%) in 1992.

The increase in 1993 was due to increased expenses associated with volume
growth in the wireline, wireless communications and directory businesses,
approximately $40 of expenses related to severe weather conditions during first
quarter 1993, network service improvement activities, higher levels of base
salary and wage expenses resulting from annual increases for management and
craft employees and an increase in employee benefits expense. The increase in
employee benefits expense was driven by the higher overall cost of medical
services and an increase of $38 due to the adoption of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," partially offset by
a $46 decrease in pension expense. Pension expense is expected to decrease
further in 1994 due primarily to the effect of modifying the benefit level under
the recently adopted cash balance pension plan for management employees and
reevaluating certain actuarial assumptions (see Note H). Other postretirement
benefit expenses for 1994 are expected to increase due to the effect of changes
in certain actuarial assumptions. The overall expense increase for 1993 was
partially offset by reduced expenses for overtime compensation, rents, software
license fees, the sale of a subsidiary in late 1992 and expenses related to
Hurricane Andrew reflected in 1992.

For 1992, the decrease was due to the reclassification of $224.0 of expenses
of certain businesses within BellSouth Enterprises to Selling, General and
Administrative. After adjusting for the effect of the reclassification, Cost of
Services and Products increased $166.1 (2.9%) during 1992 compared to 1991. As
adjusted, the 1992 increase was attributable to growth in volumes of business at
BellSouth Telecommunications, growth in the wireless communications customer
base, including the effect of the acquisition of wireless businesses in 1991,
higher levels of salary and wage expenses, a portion of which resulted from a
new three-year working agreement with the CWA in 1992, increased pension and
benefit expenses and approximately $45 of expenses (net of insurance recovery
and state regulatory deferrals) related to Hurricane Andrew. Also contributing
were increased expenses for rents and contracted services. The adjusted increase
was partially offset by expense reductions attributable to salary savings from
implementation of an early retirement program in 1991 and the inclusion in 1991
of $20.1 in inventory write-downs.

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Depreciation....................................... $ 3,103.8 $ 3,032.2 $ 2,965.4 2.4% 2.3%
</TABLE>

Depreciation expense increased $71.6 (2.4%) in 1993 compared to a $66.8
(2.3%) increase in 1992.

In 1993, the increase was partially attributable to higher levels of
property, plant and equipment since December 31, 1992 resulting from continued
growth in the customer base and approximately $20 of additional depreciation
expense related to extraordinary property retirements in conjunction with a
regulatory settlement in Florida. Higher intrastate depreciation rates for
Mississippi and higher interstate depreciation rates for Alabama, Kentucky,
Louisiana, Mississippi and Tennessee, all retroactive to January 1, 1993, also
contributed to the increase. The 1993 increase was partially offset by the
continued expiration of inside wire and reserve deficiency amortizations and
reduced depreciation expense in Florida and Alabama resulting from
represcription.

The 1992 increase was also due, in part, to higher levels of property, plant
and equipment since December 31, 1991 resulting primarily from growth in the
customer base. Also contributing to the increase were new interstate
depreciation rates, retroactive to January 1, 1992, for Florida, Georgia, North
Carolina and South Carolina, new intrastate depreciation rates in North Carolina
and South Carolina, both also

A-6
<PAGE>
retroactive to January 1, 1992, and additional reserve deficiency amortization
approved in North Carolina. The increase for 1992 was partially offset by the
expiration of inside wire and reserve deficiency amortizations.

Selling, General and Administrative expenses include operating expenses
related to sales activities such as salaries, commissions, benefits, travel,
marketing and advertising expenses. Also included are amortization of
intangibles, research and development costs and provision for uncollectibles.
Selling, General and Administrative increased $160.5 (4.8%) in 1993 and $396.2
(13.5%) in 1992.

The increase in 1993 was primarily attributable to increased expenses
associated with growth in the wireless communications customer base,
approximately $55 for the initial impact of a regulatory settlement in Florida,
higher levels of salaries, wages and taxes other than income taxes and an
increase of $11 due to the adoption of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The 1993 increase was partially offset by a decrease
in advertising expense at BellSouth Telecommunications.

For 1992, the increase was due to the reclassification of $224 of expenses
of certain businesses within BellSouth Enterprises from Cost of Services and
Products. After adjusting for the effect of the reclassification, Selling,
General and Administrative increased $172.2 (5.9%) during 1992 compared to 1991.
As adjusted, the 1992 increase was attributable to growth in business volumes at
BellSouth Telecommunications, growth in the wireless communications customer
base, including the effect of the acquisition of wireless businesses in 1991,
higher levels of salary and wage expenses, a portion of which resulted from a
new three-year working agreement with the CWA in 1992, increased pension and
benefit expenses and approximately $24.1 of expenses for remedial actions
related to underground fuel storage tanks. The adjusted increase was partially
offset by a decrease in the provision for uncollectibles, the inclusion in 1991
of $68.6 of expenses associated with an early retirement program and expense
reductions in 1992 attributable to salary savings since implementation of that
program.

During 1993, BellSouth recognized a business restructuring charge of
$1,136.4. The restructuring is being undertaken to redesign and streamline the
fundamental processes and work activities in BellSouth Telecommunications'
telephone operations to better respond to an increasingly competitive business
environment. The restructuring is expected to improve overall responsiveness to
customer needs, permit more rapid introduction of new products and services and
reduce costs. As a part of the restructuring, BellSouth plans to consolidate and
centralize its existing operations. BellSouth plans to establish a single point
of contact and accountability for the receipt, analysis and resolution of
customer installation, repair activities and service activation. As a result,
288 existing operations centers will be consolidated into 80 locations. Data
management centers used to support company operations will be reduced from 11 to
6. In addition, customer service processes and systems will be designed to
provide one-number access, specific appointment times, on-line and real-time
access to customer records and immediate service activation where facilities are
already in place.

The material components of the $1,136.4 charge relate to the downsizing of
the existing workforce by 10,200 employees through 1996. These components
include $368.2 for separation payments and relocations of remaining employees,
$342.8 for the consolidation and elimination of certain operations facilities
and $425.4 for enabling changes to information systems, primarily those used to
provide services to existing customers.

BellSouth Telecommunications reduced its overall workforce by approximately
1,300 employees in 1993 following implementation of the restructuring plan.
Workforce reductions for 1994, 1995 and 1996 are expected to be approximately
3,700, 2,900 and 2,300, respectively. BellSouth expects that the restructuring

A-7
<PAGE>
will result in cost savings beginning in 1994 due to the initial workforce
reductions. The specific future financial impacts on BellSouth's earnings are
uncertain and will depend upon the regulatory treatment of the restructuring
charge and the related cost savings. Once the restructuring is completed, annual
cost savings are expected to be approximately $600 due primarily to reduced
employee-related expenses.

<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Interest Expense.................................... $ 689.0 $ 746.4 $ 802.1 (7.7%) (6.9%)
</TABLE>

Interest Expense includes interest on debt, certain other accrued
liabilities and capital leases, offset by an allowance for funds used during
construction, which is capitalized as a cost of installing equipment and
constructing plant. Interest expense decreased $57.4 (7.7%) in 1993 and $55.7
(6.9%) in 1992. The decreases for 1993 and 1992 were due primarily to declines
in interest rates on borrowings, both short and long term, including the impact
of refinancings of long-term debt at lower interest rates. Both decreases were
partially offset by higher average levels of short-term borrowings. (See Notes E
and L.)

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Other Income, net.................................. $ 7.6 $ 177.6 $ 252.7 (95.7%) (29.7%)
</TABLE>

Other Income includes interest income, dividend income and earnings and
losses from unconsolidated subsidiaries, business ventures and partnerships,
minority interests and gains and losses from the sale of miscellaneous ventures.

Other Income decreased $170.0 (95.7%) during 1993 and $75.1 (29.7%) during
1992. The 1993 decrease resulted in part from a decline of $80.8 in interest and
dividend income due to the inclusion in 1992 of $56.6 attributable to a tax
settlement with the Internal Revenue Service and lower interest rates. Minority
interests contributed $11.6 to the decrease and overall earnings from
unconsolidated affiliates also decreased by $65.7 due primarily to costs and
expenses associated with investments in certain new operations, including a
cellular venture in Germany, a business venture with RAM Broadcasting
Corporation, and Optus Communications Pty. Ltd. For the year 1993, earnings per
share were reduced by approximately $.27 per share as a result of these and
other business ventures.

The decrease in 1992 was attributable to a $55.6 decrease in earnings from
unconsolidated affiliates due in part to investments in several start-up
operations, a $33.8 increase related to minority interests and the inclusion in
1991 of $40.0 in gains from certain directory and wireless operations sold. The
decrease was partially offset by a $46.2 increase in interest and dividend
income which reflects the settlement of an Internal Revenue Service summary tax
assessment that resulted in $56.6 of interest income and lower interest rates.

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Provision for Income Taxes......................... $ 571.6 $ 933.5 $ 753.4 (38.8%) 23.9%
</TABLE>

Income tax expense decreased $361.9 (38.8%) in 1993 compared to an increase
of $180.1 (23.9%) in 1992. The decrease in 1993 was due to the impact of the
restructuring charge, which reduced tax expense by $439.8. The decrease was
partially offset by the impact of the Omnibus Budget Reconciliation Act of 1993,
including the increase in the Federal statutory income tax rate for
corporations, which, exclusive of the tax benefit associated with the
restructuring charge, increased tax expense by approximately $45.

BellSouth's effective tax rates were 35.6%, 36.0% and 33.3% in 1993, 1992
and 1991, respectively. A reconciliation of the Federal statutory income tax
rates to these effective tax rates is provided in Note M. A discussion of the
adoption of SFAS No. 109, "Accounting for Income Taxes," also is included
therein.

The increase in 1992 was attributable to an increase in income before income
taxes and higher effective tax rates resulting from decreasing investment tax
credit amortization.

A-8
<PAGE>
FINANCIAL CONDITION

BellSouth used the net cash generated from its operations and short-term
financing to fund capital expenditures, to pay dividends and to invest in and
operate new business ventures. BellSouth believes that funds provided from
operations, in addition to its readily available sources of external financing,
will be sufficient to meet the needs of its business for the foreseeable future.

Although 1993 net income decreased by 45.6% due primarily to the
restructuring charge, BellSouth's cash flow from operations decreased by only
3.2% in 1993 to $4,786.2 from $4,946.8 in 1992. For 1993, the impact of
restructuring on cash flow from operations was minimal. However, substantially
all of the restructuring charge is expected to require cash payments in future
periods. Exclusive of capital requirements, cash payments related to
restructuring for 1994, 1995 and 1996 are expected to be approximately $500,
$350 and $220, respectively. In addition, future capital expenditures associated
with the overall restructuring are estimated to be approximately $650. The cash
requirements associated with the restructuring activities, including related
capital expenditures, will be provided primarily from BellSouth's operations
and, if necessary, from external sources. BellSouth's primary use of capital
funds continues to be for capital expenditures to support network development
activities. Capital expenditures for all BellSouth companies increased 9.3% to
$3,485.9 from $3,189.3 in 1992. Substantially all funds supporting construction
activity were provided internally and this trend is expected to continue through
1994. Expenditures are projected to be approximately $3,500 in 1994.

Cash used for investments in and advances to unconsolidated affiliates in
1993 decreased to $319.5 from $562.5 in 1992. Approximately 70% of such cash was
invested in ventures with RAM Broadcasting Corporation and Optus Communications
Pty. Ltd.

BellSouth plans to aggressively pursue a corporate strategy of expanding its
offerings beyond traditional businesses. Such new offerings may include
information services, interactive communications and cable television and other
entertainment services. Significant capital would be required in order to
execute this strategy. BellSouth believes that financing for such future
investing activities can be provided from funds generated through internal
operations and from BellSouth's access to external sources.

In an effort to pursue opportunities in interactive programming, television
shopping and other advanced services, BellSouth had agreed to invest
approximately $2,000 in QVC Network, Inc. ("QVC"), contingent on QVC
successfully completing its acquisition of Paramount Communications, Inc.
("Paramount"), and had also received an option to acquire approximately $500 of
QVC stock at a purchase price of $60 per share in the event QVC was unsuccessful
in its proposed acquisition of Paramount. QVC's bid for Paramount was terminated
on February 14, 1994, and BellSouth has six months thereafter to determine
whether to exercise the option.

Cash dividends paid to BellSouth's common shareholders totaled $1,307.4 in
1993 compared to $1,082.5 in 1992. The increase was due to the fact that during
1993, the common shares issued in lieu of cash dividends under the Shareholder
Dividend Reinvestment and Stock Purchase Plan ("DRSPP") were increasingly
purchased on the open market rather than from new issuances by BellSouth. For
1993, new common shares issued in lieu of cash dividends under DRSPP were $66.4
compared to $268.9 for 1992.

During 1993, BellSouth Telecommunications refinanced $2,760 of long-term
debt at more favorable interest rates. As such, BellSouth expects that the
refinancings will have a positive impact on future cash flows. BellSouth's debt
to total capitalization ratio increased to 40.2% at December 31, 1993 compared
to 39.0% at December 31, 1992. The increase was due to higher levels of debt,
primarily short term, and a decrease in Shareholders' Equity.

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

REGULATORY ENVIRONMENT. In providing telecommunications services, BellSouth
Telecommunications is subject to regulation by both state and federal regulators
with respect to rates, services and other issues. While the states in BellSouth
Telecommunications' service area currently provide for some form of regulation
of earnings, as discussed below, BellSouth believes that the existing regulatory
framework is not appropriate for the increasingly competitive telecommunications
environment. Accordingly, BellSouth's primary regulatory focus continues to be
directed toward modifying the regulatory process to one that is more closely
aligned with changing market conditions and overall public policy objectives. As
an alternative to the current regulatory process, BellSouth believes that price
regulation, whereby prices of basic local

A-9
<PAGE>
exchange service are directly regulated and prices for other products and
services are based on market factors, is a logical progression in regulatory
flexibility and is fair to consumers. As such, BellSouth Telecommunications
intends to pursue implementation of price regulation plans through filings with
state regulatory commissions or through legislative initiatives.

STATE REGULATION

Seven of the nine states in which BellSouth Telecommunications operates are
now under some alternative form of regulation other than traditional rate of
return regulation. The seven states are Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi and Tennessee. These state plans are designed to provide
BellSouth Telecommunications with economic incentives to improve cost controls
and general efficiency in the form of shared earnings over benchmark rates of
return. The plans in Georgia and Kentucky are scheduled to expire in 1994.
BellSouth Telecommunications attained the earnings sharing range in Alabama,
Kentucky, Louisiana and Mississippi at certain times during 1993.

For a part of 1993, South Carolina also operated under a form of alternative
regulation. However, in August 1993, the South Carolina Supreme Court ruled that
the South Carolina Public Service Commission (the "SCPSC") lacked the statutory
authority to approve incentive regulation plans of the type under which
BellSouth Telecommunications had been operating since 1992. Legislation has been
proposed in South Carolina which would permit the SCPSC to adopt alternative
forms of regulation including price regulation. In the interim, traditional rate
of return regulation is in effect in South Carolina.

In January 1994, the Florida Public Service Commission approved a settlement
reached by BellSouth Telecommunications and Florida's Office of Public Counsel
related to pending rate proceedings initially filed by BellSouth
Telecommunications in July 1992 and other consolidated matters. This settlement
ended outstanding rate case and consolidated issues in Florida and extended the
incentive regulation plan through at least 1996. Under the terms of the
settlement, BellSouth Telecommunications was required to recognize in 1993
business all remaining deferred expenses related to Hurricane Andrew and to
record expenses associated with extraordinary asset retirements, also related to
Hurricane Andrew. The aggregate impact of these items was approximately $75,
which reduced BellSouth's net income for 1993 by approximately $47 ($.09 per
share). The terms of the settlement also required BellSouth Telecommunications
to reduce rates by $55 in February 1994 and will require reductions of an
additional $60 in July 1994, $80 in October 1995 and $84 in October 1996. The
settlement provides for other changes in service offerings and tariffs including
approximately $21 in revenue reductions or increased expenses. Certain other
service rates have been capped at their current levels through 1997, and
BellSouth Telecommunications has agreed not to propose any local measured
service on a statewide basis through the same time period.

FEDERAL REGULATION

At the national level, BellSouth Telecommunications has been operating under
price cap regulation since January 1, 1991. In contrast to regulation which
limits the rate of return that can be achieved, price cap regulation limits the
prices telephone companies can charge for use of their services. The current FCC
plan allows for the sharing of earnings over a benchmark range of earnings. This
benchmark is dependent upon the productivity offset factor chosen annually by
the carrier. During the price cap plan's annual election period in 1993,
BellSouth Telecommunications selected a productivity offset factor of 3.3% which
increased access rates more than they would otherwise have been had the 4.3%
factor been selected; however, selection of this lower productivity factor
provides for a lower allowed return before sharing is required. As of December
31, 1993, BellSouth's recorded liability for estimated sharing was $45.6.

In February 1994, the FCC initiated its review of the current price cap
plan. Under a notice of proposed rulemaking, the FCC identified for examination
three broad sets of issues including those related to the basic goals of price
cap regulation, the operation of price caps, and the transition of local
exchange services to a fully competitive market. BellSouth believes and will
advocate that a revised price cap plan should be structured to provide increased
pricing flexibility for services as competition evolves in the
telecommunications markets. Any changes to the current plan are expected to be
effective January 1, 1995 or soon thereafter.

ECONOMY. The nine-state region served by BellSouth Telecommunications'
wireline telephone business, as a whole, posted solid economic gains in 1993,
while continuing economic slumps on the West Coast and in the Northeast kept the
national economy sluggish for much of the year. Employment growth averaged 2.1%
in the region in 1993, slower than the 4% annual rate experienced in the 1980's,
but still

A-10
<PAGE>
above the national average of 1.6%. Manufacturing employment in the region grew
slightly during 1993 while the nation lost approximately 180,000 manufacturing
jobs. Services employment increased about 4% to lead the region's growth.
Employment growth is expected to improve further in 1994. Residential
construction growth moved back above pre-recession levels with housing starts in
the region up 12% over the year. Housing demand is expected to remain strong in
1994. The region's relatively strong economy along with its attractive climate
have kept net in-migration near 400,000 per year, boosting the demand for
telecommunications services. However, increasing competition being faced by
BellSouth Telecommunications and the growing percentage of revenues from
BellSouth Enterprises makes BellSouth's financial performance more susceptible
to changes in the economy than previously, as its operations reflect the more
competitive environment and greater elasticity in demands for its products and
services.

VOLUMES OF BUSINESS.

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

<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Residence............................................ 13,691.4 13,298.3 12,914.9 3.0% 3.0%
Business............................................. 5,388.3 5,088.1 4,840.3 5.9% 5.1%
Other................................................ 252.9 263.2 279.5 (3.9%) (5.8%)
---------- ---------- ----------
Total.......................................... 19,332.6 18,649.6 18,034.7 3.7% 3.4%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The total number of access lines in service increased by 683,000 over 1992,
representing a 3.7% increase, an improvement over the 3.4% rate of increase for
1992 over 1991. The overall increase, led by growth in Florida, Georgia, North
Carolina and Tennessee, was primarily attributable to continued economic
improvement, including expanding employment in BellSouth Telecommunications'
nine-state region and an increase in the number of second lines in residences.
While the overall growth rate for residence lines remained constant, the growth
rate for business lines continued to increase, reaching 5.9% in 1993, compared
to 5.1% in 1992.

Access Minutes of Use (Millions):

<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interstate........................................... 53,345.0 50,546.4 47,255.3 5.5% 7.0%
Intrastate........................................... 15,260.9 13,994.2 13,237.7 9.1% 5.7%
---------- ---------- ----------
Total.......................................... 68,605.9 64,540.6 60,493.0 6.3% 6.7%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and intrastate, using
BellSouth Telecommunications' local facilities. Total access minutes of use
increased by 4,065.3 million (6.3%) in 1993 compared to a 6.7% increase in 1992.
The 1993 increase in access minutes of use was partially attributable to access
line growth and also to intraLATA toll competition, which has the effect of
increasing access minutes of use while reducing toll messages carried over
BellSouth Telecommunications' facilities. The growth rate in total minutes of
use continues to be negatively impacted by the effects of bypass and the
migration of interexchange carriers to categories of service (e.g., special
access) that have a fixed charge as opposed to a volume-driven charge and to
high capacity services, which causes a decrease in minutes of use.

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Toll Messages (Millions)............................. 1,251.0 1,280.3 1,387.1 (2.3%) (7.7%)
</TABLE>

Toll messages, comprised of Message Telecommunications Service and Wide Area
Telecommunications Service, decreased 29.3 million (2.3%) compared to a 7.7%
decrease in 1992. The lower rate of decrease for 1993 was attributable to the
inclusion of the impact of the Louisiana area calling plan in both 1992
(beginning in March) and 1993. Competition in the intraLATA toll market and the
effects of expanded local area calling plans continue to have an adverse impact
on toll message volumes. These plans and the effects

A-11
<PAGE>
of competition have the effect of shifting calls from toll to local service and
access, respectively, but the corresponding revenues are not generally shifted
at commensurate rates. The decline in toll message volumes is expected to
continue for the foreseeable future.

Wireless Customers (Equity Basis):

<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1993 VS. 1992 VS.
1993 1992 1991 1992 1991
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Domestic Cellular Customers..................... 1,559,100 1,118,100 774,200 39.4% 44.4%
International Cellular Customers................ 192,200 77,600 26,000 147.7% 198.5%
Domestic Paging Customers....................... 1,232,200 977,200 920,300 26.1% 6.2%
</TABLE>

BellSouth's wireless communications businesses continue to be a significant
contributor to the company's operations, primarily due to the continued
expansion of the customer base for mobile communications services. Domestic
cellular customers increased by 441,000 (39.4%) to 1,559,100 since December 31,
1992. While the rate of increase has declined since 1992, the overall
penetration rate (number of customers as a percentage of the total population in
the service territory) increased from 2.98% at December 31, 1992 to 4.01% at
December 31, 1993. Total minutes of use have also continued to increase,
although average minutes of use per cellular customer have declined since 1992
due to the trend of increased penetration into lower-user market segments. Also,
domestic paging customers increased 255,000 (26.1%) to 1,232,200 since December
31, 1992 due to a successful retail distribution program and aggressive pricing
strategies in the reseller market.

The number of international cellular customers grew to 192,200, an increase
of 114,600 (147.7%) since December 31, 1992. Growth in minutes of use for
international cellular properties remained strong due in part to demand
stimulated by competitive programs, enhanced services and underdeveloped
land-line service.

COMPETITION. Recent developments in the telecommunications marketplace
indicate that a technological convergence is occurring in the telephone, cable
and broadcast television, computer, entertainment and information services
industries. The technologies utilized and being developed in these industries
will enable multiple communications offerings. Several large companies have
recently announced proposed acquisitions or business alliances that, if
consummated, could intensify and expand competition for local communications and
other services currently provided over BellSouth's networks. Other competitors
have announced plans to build local phone connections that would permit business
and residential customers to bypass the facilities of local telephone companies,
including those of BellSouth Telecommunications in certain cities in its service
territory. In addition, legislative activities in Congress could affect
BellSouth's businesses and competitive position. BellSouth has undertaken a plan
to streamline its telephone operations and to improve its overall cost structure
as a part of its competitive strategy (see "Results of Operations").

Notwithstanding the risks associated with increased competition, BellSouth
will have the opportunity to benefit from entry into new business markets.
BellSouth believes that in order to remain competitive in the future, it must
aggressively pursue a corporate strategy of expanding its offerings beyond its
traditional businesses which may include information services, interactive
communications and cable television and other entertainment services. BellSouth
plans to enter such businesses through acquisitions, investments and strategic
alliances with established companies in such industries and through the
development of such capabilities internally. Such transactions, if accomplished,
could initially reduce earnings and require substantial capital. Financing for
such business opportunities will be provided from funds generated through
internal operations and from external sources.

ACCOUNTING UNDER SFAS NO. 71. BellSouth's regulated enterprise, BellSouth
Telecommunications, continues to account for the economic effects of regulation
under SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."
BellSouth, for strategic and business planning purposes, continuously monitors
and evaluates the impacts of both existing and potential competitive factors.
If, in BellSouth's judgment, changes in the competitive structure of the
telecommunications industry dictate that it could not charge prices to customers
which provide for the recovery of costs, SFAS No. 71 would no longer apply.
BellSouth currently believes that the existing and anticipated levels of
competition still permit prices based

A-12
<PAGE>
on costs to be charged to and collected from customers. However, the rapid pace
of change in the industry is making it increasingly likely that BellSouth will
be required to discontinue its accounting under SFAS No. 71 in the future.

BellSouth believes that the existing regulatory framework is not appropriate
for the increasingly competitive telecommunications environment. Accordingly,
BellSouth intends to pursue implementation of price regulation plans in all of
its jurisdictions through filings with state regulatory commissions or through
legislative initiatives. Since price regulation plans do not provide for the
recovery of specific costs, SFAS No. 71 would no longer apply. If BellSouth is
successful in altering the existing regulatory framework and achieving price
regulation, BellSouth would be required to discontinue its accounting under SFAS
No. 71.

If BellSouth were to discontinue its accounting under SFAS No. 71 due to the
overall level of competition or to changes in regulatory frameworks, the effect
on BellSouth's financial condition and results of operations would be material.
Specific financial impacts would depend on the timing and magnitude of changes,
both in the marketplace and in the overall regulatory framework.

OTHER MATTERS

ACCOUNTING PRONOUNCEMENTS. Effective January 1, 1993, BellSouth adopted
three new accounting standards issued by the Financial Accounting Standards
Board. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," requires employers to accrue the cost of providing
postretirement benefits other than pensions during the period employees are
expected to earn the benefit. BellSouth is recognizing the related transition
benefit obligation over 15 years. As a result of the adoption of SFAS No. 106,
operating expenses in 1993 were $38 higher than they would have been using the
former accounting method. Accordingly, net income was reduced by approximately
$23 ($.05 per share) (see Note H).

SFAS No. 109, "Accounting for Income Taxes," requires companies to compute
deferred income taxes using a liability approach rather than the deferred method
previously required under Accounting Principles Board Opinion No. 11. The
adoption of SFAS No. 109 did not materially affect tax expense or net income for
1993 (see Note M).

SFAS No. 112, "Employers' Accounting for Postemployment Benefits," requires
employers to accrue the cost of postemployment benefits provided to former or
inactive employees after employment but before retirement. A one-time charge of
$67.4 ($.14 per share), net of a deferred tax benefit of $42.5, related to the
adoption of SFAS No. 112 was recognized as an accounting change (see Note H).

Other pronouncements have been issued by authoritative accounting bodies but
not yet adopted by BellSouth. The adoption of such standards in future periods,
where required, is not expected to have a material impact on BellSouth's
operating results and financial condition.

ENVIRONMENTAL ISSUES. BellSouth is subject to a number of environmental
matters as a result of the operations of its subsidiaries and shared liability
provisions in the Plan of Reorganization, related to the Modification of Final
Judgment. As a result, BellSouth expects that it will be required to expend
funds to remedy certain facilities, including those Superfund sites for which
BellSouth has been named as a potentially responsible party and also for the
remediation of sites with underground fuel storage tanks and other expenses
associated with environmental compliance. At December 31, 1993, BellSouth's
recorded liability related primarily to remediation of these sites was $35.5.

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

SUBSEQUENT EVENTS. During the first quarter of 1994, BellSouth sold its 36%
interest in the cellular telephone business in Guadalajara, Mexico. As a result,
a gain of $67.5 ($.14 per share) was recognized. In the same period, BellSouth
Communication Systems, Inc., a wholly-owned subsidiary, also entered into an
agreement to sell its customer premise equipment sales and service operations
outside the nine-state region served by BellSouth Telecommunications. The
transaction is expected to close by the end of April 1994.

A-13
<PAGE>
REPORT OF MANAGEMENT

To the Shareholders of BellSouth Corporation:

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

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

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

Management maintains a strong internal auditing program that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. In addition, as part of its audit of these financial
statements, Coopers & Lybrand completed a review of the accounting controls to
establish a basis for reliance thereon in determining the nature, timing and
extent of audit tests to be applied. Management has considered the internal
auditor's and Coopers & Lybrand's recommendations concerning the system of
internal controls and has taken actions that it believes are cost-effective in
the circumstances to respond appropriately to these recommendations. Management
believes that as of December 31, 1993, the system of internal controls was
adequate to accomplish the objectives discussed herein.

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

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

February 3, 1994

A-14
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER

Through January 31, 1994, the Audit Committee of the Board of Directors
consisted of four Directors who are neither officers nor employees of BellSouth
Corporation (for a discussion of the reorganization of the committees of the
Board effective February 1, 1994, including the Audit Committee, see BellSouth's
1994 Proxy Statement). Information as to these persons, as well as the scope of
duties of the Audit Committee, is provided in the Proxy Statement. The Audit
Committee met five times during 1993 and reviewed with the Chief Corporate
Auditor, Coopers & Lybrand and management the various audit activities and
plans, together with the results of selected internal audits. The Audit
Committee also reviewed the financial reporting process and the adequacy of
internal controls. The Audit Committee recommends, subject to shareholder
ratification, the appointment of the independent public accountants and
considers factors relating to their independence. The Chief Corporate Auditor
and Coopers & Lybrand met privately with the Audit Committee on occasion to
encourage confidential discussions as to any auditing matters.

Thomas R. Williams
CHAIRMAN, AUDIT COMMITTEE
January 31, 1994

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders
BellSouth Corporation
Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of BellSouth
Corporation as of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of BellSouth's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BellSouth
Corporation as of December 31, 1993 and 1992, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.

As discussed in Notes H and M to the consolidated financial statements,
BellSouth changed its method of accounting for postretirement benefits other
than pensions, postemployment benefits, and income taxes in 1993.

Coopers & Lybrand
Atlanta, Georgia
February 3, 1994

A-15
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues:
Network and Related Services
Local service....................................................... $6,577.3 $6,236.0 $5,846.2
Interstate access................................................... 2,991.2 2,945.6 2,858.1
Intrastate access................................................... 881.9 871.8 866.7
Toll................................................................ 1,219.5 1,248.8 1,373.7
Directory advertising and publishing.................................. 1,515.4 1,459.8 1,426.3
Wireless communications............................................... 1,553.4 1,195.6 774.5
Other services........................................................ 1,141.6 1,244.0 1,300.0
-------- -------- --------
Total Operating Revenues.......................................... 15,880.3 15,201.6 14,445.5
-------- -------- --------
Operating Expenses:
Cost of services and products......................................... 5,865.1 5,681.3 5,739.2
Depreciation.......................................................... 3,103.8 3,032.2 2,965.4
Selling, general and administrative................................... 3,487.9 3,327.4 2,931.2
Restructuring charge (Note K)......................................... 1,136.4 -- --
-------- -------- --------
Total Operating Expenses.......................................... 13,593.2 12,040.9 11,635.8
-------- -------- --------
Operating Income........................................................ 2,287.1 3,160.7 2,809.7
Interest Expense (Note L)............................................... 689.0 746.4 802.1
Other Income, net (Note L).............................................. 7.6 177.6 252.7
-------- -------- --------
Income Before Income Taxes, Extraordinary Loss and Cumulative Effect of
Change in Accounting Principle......................................... 1,605.7 2,591.9 2,260.3
Provision for Income Taxes (Note M)..................................... 571.6 933.5 753.4
-------- -------- --------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle................................................... 1,034.1 1,658.4 1,506.9
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note E).................................................... (86.6) (40.7) --
Cumulative Effect of Change in Accounting Principle, net of tax (Note
N)..................................................................... (67.4) -- (35.4)
-------- -------- --------
Net Income........................................................ $ 880.1 $1,617.7 $1,471.5
-------- -------- --------
-------- -------- --------
Weighted Average Common Shares Outstanding.............................. 496.1 490.8 484.3
Dividends Declared Per Common Share..................................... $ 2.76 $ 2.76 $ 2.76
Earnings Per Share:
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle................................................. $ 2.08 $ 3.38 $ 3.11
Extraordinary Loss on Early Extinguishment of Debt,
net of tax........................................................... (.17 ) (.08 ) --
Cumulative Effect of Change in Accounting Principle, net of tax....... (.14 ) -- (.07 )
-------- -------- --------
Net Income........................................................ $ 1.77 $ 3.30 $ 3.04
-------- -------- --------
-------- -------- --------
</TABLE>

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

A-16
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................................. $ 501.5 $ 265.5
Temporary cash investments................................................................. 49.0 80.6
Accounts receivable, net of allowance for uncollectibles of $149.6 and
$123.0.................................................................................... 2,985.2 2,692.5
Material and supplies...................................................................... 418.7 430.6
Other current assets....................................................................... 364.6 201.8
----------- -----------
4,319.0 3,671.0
----------- -----------
Investments and Advances (Note B)............................................................ 2,039.4 1,087.1
----------- -----------
Property, Plant and Equipment, net (Note C).................................................. 24,667.8 24,272.6
----------- -----------
Deferred Charges and Other Assets............................................................ 512.2 630.2
----------- -----------
Intangible Assets, net....................................................................... 1,334.9 1,801.8
----------- -----------
Total Assets............................................................................. $ 32,873.3 $ 31,462.7
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year (Note E)..................................................... $ 1,838.6 $ 1,634.6
Accounts payable........................................................................... 979.0 1,077.2
Other current liabilities (Note D)......................................................... 2,943.8 2,310.4
----------- -----------
5,761.4 5,022.2
----------- -----------
Long-Term Debt (Note E)...................................................................... 7,380.7 7,359.7
----------- -----------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes.......................................................... 3,465.3 3,715.8
Unamortized investment tax credits......................................................... 515.9 604.3
Other liabilities and deferred credits (Note F)............................................ 2,255.8 962.1
----------- -----------
6,237.0 5,282.2
----------- -----------
Shareholders' Equity:
Common stock, $1 par value (1,100,000,000 shares authorized; 496,086,984 and 493,793,166
shares outstanding at December 31, 1993 and 1992, respectively) (Note G).................. 501.6 493.8
Paid-in capital............................................................................ 8,009.4 7,609.6
Retained earnings.......................................................................... 5,919.3 6,395.4
Shares held in trust (Note G).............................................................. (292.6) --
Guarantee of ESOP debt (Notes G and H)..................................................... (643.5) (700.2)
----------- -----------
13,494.2 13,798.6
----------- -----------
Total Liabilities and Shareholders' Equity............................................... $ 32,873.3 $ 31,462.7
----------- -----------
----------- -----------
</TABLE>

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

A-17
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)

<TABLE>
<CAPTION>
AMOUNT
NUMBER OF ---------------------------------------------------------
SHARES SHARES
--------------- HELD GUARANTEE
COMMON TREASURY PAR PAID-IN RETAINED TREASURY IN OF ESOP
STOCK STOCK VALUE CAPITAL EARNINGS STOCK TRUST DEBT
------ ------- ------ -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990....... 481.9 4.7 $486.6 $7,222.8 $5,959.8 $(191.7) $ -- $ (811.1)
Net income......................... 1,471.5
Dividends declared................. (1,336.9)
Shares issued under Shareholder
Dividend Reinvestment and Stock
Purchase Plan..................... 4.5 (3.0) 1.5 96.9 124.5
Shares issued and activity
associated with various employee
benefit plans..................... .3 (.1) .2 6.3 3.6 2.1
Reduction of ESOP debt and other
related activities................ 14.8 54.0
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1991....... 486.7 1.6 488.3 7,326.0 6,112.8 (65.1) -- (757.1)
Net income......................... 1,617.7
Dividends declared................. (1,356.3)
Shares issued under Shareholder
Dividend Reinvestment and Stock
Purchase Plan..................... 6.3 (1.2) 5.1 262.3 50.2
Shares issued and activity
associated with various employee
benefit plans and other
activities........................ .8 (.4) .4 21.3 6.4 14.9
Reduction of ESOP debt and other
related activities................ 14.8 56.9
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1992....... 493.8 -- 493.8 7,609.6 6,395.4 -- -- (700.2)
Net income......................... 880.1
Dividends declared................. (1,368.8)
Shares issued under Shareholder
Dividend Reinvestment and Stock
Purchase Plan..................... 1.6 1.6 81.0
Shares issued and activity
associated with various employee
benefit plans and other
activities........................ .7 .7 31.7
Shares issued to grantor trusts.... 5.5 5.5 287.1 (292.6)
Reduction of ESOP debt and other
related activities................ 12.6 56.7
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1993....... 501.6 -- $501.6 $8,009.4 $5,919.3 $ -- $(292.6) $ (643.5)
------ ------- ------ -------- -------- ------- ------- --------
------ ------- ------ -------- -------- ------- ------- --------
</TABLE>

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

A-18
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 880.1 $ 1,617.7 $ 1,471.5
Adjustments to net income:
Depreciation................................................... 3,103.8 3,032.2 2,965.4
Amortization of intangibles.................................... 58.4 67.8 50.9
Restructuring Charge........................................... 1,136.4 -- --
Provision for losses on bad debts.............................. 197.8 195.5 197.1
Deferred income taxes and unamortized investment tax credits... (633.2) (138.7) (422.6)
Pension expense in excess of funding........................... 120.7 165.7 143.6
Summary tax assessment settlement.............................. -- 90.9 --
Noncash compensation expense related to ESOP benefits.......... 23.2 27.1 28.5
Undistributed earnings of unconsolidated affiliates............ (11.0) (76.7) (132.3)
Dividends received from unconsolidated affiliates.............. 199.9 124.6 94.9
Extraordinary loss on early extinguishment of debt............. 145.4 70.7 --
Change in accounting principle, net of tax..................... 67.4 -- 35.4
Gain on sale of operations..................................... (6.5) -- (14.0)
Allowance for funds used during construction................... (23.7) (15.3) (18.1)
Net change in accounts receivable.............................. (501.7) (302.4) (288.0)
Net change in material and supplies............................ (98.0) (156.1) (64.5)
Net change in accounts payable and other current liabilities... (13.6) 148.7 31.2
Net change in deferred charges and other assets................ 101.5 139.3 122.6
Net change in other liabilities and deferred credits........... 46.3 29.5 131.2
Other reconciling items, net................................... (7.0) (73.7) 57.1
----------- ----------- -----------
Net cash provided by operating activities.................... 4,786.2 4,946.8 4,389.9
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (3,485.9) (3,189.3) (3,102.4)
Proceeds from disposals of property, plant and equipment......... 156.0 139.5 112.7
Proceeds from disposition of short-term investments.............. 147.9 188.5 363.0
Purchase of short-term investments............................... (116.3) (167.5) (286.0)
Investment acquisitions.......................................... -- (53.8) (702.2)
Investment dispositions.......................................... 105.2 -- --
Investments in/advances to unconsolidated affiliates............. (319.5) (562.5) (126.0)
Proceeds from repayment of loans and advances.................... 77.2 178.5 .7
Other investing activities, net.................................. .5 (125.2) (36.2)
----------- ----------- -----------
Net cash used for investing activities....................... (3,434.9) (3,591.8) (3,776.4)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings.............................. 16,289.9 13,541.0 15,285.5
Repayments of short-term borrowings.............................. (15,856.4) (13,770.3) (14,774.3)
Proceeds of long-term debt....................................... 2,963.3 675.0 193.3
Repayment of long-term debt...................................... (3,131.3) (801.3) (169.3)
Payment of call premium.......................................... (99.7) (33.4) --
Payment of capital lease obligations............................. (12.2) (15.5) (20.9)
Proceeds from issuing common and treasury shares................. 38.5 70.2 33.6
Dividends paid................................................... (1,307.4) (1,082.5) (1,124.7)
----------- ----------- -----------
Net cash used for financing activities....................... (1,115.3) (1,416.8) (576.8)
----------- ----------- -----------
Net Increase/(Decrease) in Cash and Cash Equivalents............. 236.0 (61.8) 36.7
Cash and Cash Equivalents at Beginning of Period................. 265.5 327.3 290.6
----------- ----------- -----------
Cash and Cash Equivalents at End of Period....................... $ 501.5 $ 265.5 $ 327.3
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

A-19
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Amounts)

NOTE A -- ACCOUNTING POLICIES

BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of BellSouth Corporation ("BellSouth") and subsidiaries in which it has
a controlling financial interest. BellSouth operates predominantly in the
telecommunications service industry. BellSouth Telecommunications, Inc.
("BellSouth Telecommunications"), BellSouth's largest subsidiary, provides
primarily regulated telephone services. Investments in certain partnerships,
joint ventures and subsidiaries are accounted for using the equity method. All
significant intercompany transactions and accounts have been eliminated, except
as otherwise required under generally accepted accounting principles applicable
to regulated entities. Certain amounts in the prior period consolidated
financial statements have been reclassified to conform to the current year's
presentation.

BASIS OF ACCOUNTING. BellSouth's consolidated financial statements have
been prepared in accordance with generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 71, "Accounting for the Effects of Certain Types of Regulation." Where
appropriate, SFAS No. 71 gives accounting recognition to the actions of
regulators. Such actions can provide reasonable assurance of the existence of an
asset, reduce or eliminate the value of an asset or impose or eliminate a
liability on a regulated entity.

CASH AND CASH EQUIVALENTS. BellSouth considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Investments with an original maturity of over three months to one
year are not considered cash equivalents and are included as temporary cash
investments on the consolidated balance sheets.

PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and
equipment is stated at original cost. Depreciation is based on the remaining
life method of depreciation and straight-line composite rates determined on the
basis of equal life groups of certain categories of telephone plant acquired in
a given year. Depreciation expense also includes amortization of certain classes
of telephone plant and identified depreciation reserve deficiencies over periods
allowed by regulatory authorities. When depreciable plant is disposed of, the
original cost, less net salvage value, is charged to accumulated depreciation.
The cost of property, plant and equipment other than that of BellSouth
Telecommunications is depreciated using either straight-line or accelerated
methods over the estimated useful lives of the assets. Gains or losses on
disposal of other depreciable property, plant and equipment are recognized in
the year of disposition as an element of other non-operating income.

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

INVESTMENTS AND ADVANCES. Investments and advances substantially consist of
investments in, and advances to, affiliated companies. Also included in this
caption are other long-term investments.

INTANGIBLE ASSETS. Intangible assets substantially consist of the excess
consideration paid over net assets acquired in business combinations. Also
included in this caption are acquired licenses and customer lists. Intangible
assets are being amortized using the straight-line and sum-of-the-years' digits
methods over periods of benefit. Such periods do not exceed 40 years.
Amortization of such intangibles was $58.4, $67.8 and $50.9, for the years ended
December 31, 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992,
accumulated amortization of intangibles was $169.2 and $197.9, respectively (see
Note B).

MAINTENANCE AND REPAIRS. The cost of maintenance and repairs of plant,
including the cost of replacing minor items not effecting substantial
betterments, is charged to operating expenses.

A-20
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE A -- ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION. Revenues are recognized when earned. Certain revenues
derived from local telephone and wireless access services are billed monthly in
advance and are recognized the following month when services are provided.
Directory advertising and publishing revenues and related directory costs are
recognized upon publication of directories, except where regulatory authorities
recognize different treatment. Revenues derived from other telecommunications
services, principally network access, toll and cellular airtime usage are
recognized monthly as services are provided.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Regulatory authorities allow
BellSouth Telecommunications to accrue interest as a cost of constructing
certain plant and as an item of income (interest charged construction). Such
income is not realized in cash currently but will be realized over the service
life of the related plant as the resulting higher depreciation expense and plant
investment are recovered in the form of increased revenues.

INCOME TAXES. Effective January 1, 1993, BellSouth adopted SFAS No. 109,
"Accounting for Income Taxes." In accordance with the standard, the balance
sheet reflects deferred tax balances associated with the anticipated tax impact
of future income or deductions implicit in the balance sheet in the form of
temporary differences. Temporary differences primarily result from the use of
accelerated methods and shorter lives in computing depreciation for tax
purposes. Prior to 1993, BellSouth accounted for income taxes under the
provisions of Accounting Principles Board Opinion No. 11.

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

EARNINGS PER SHARE. Earnings per common share are computed on the basis of
the weighted average number of shares of common stock and common stock
equivalents outstanding during each year.

NOTE B -- INVESTMENTS AND ADVANCES

Investments and Advances consist primarily of BellSouth's investment in
unconsolidated affiliates accounted for under the equity method. The total of
such investments was $1,806.7 and $740.1 at December 31, 1993 and 1992,
respectively. Investments and Advances increased approximately $1,000 from
December 31, 1992 as a result of a reclassification of amounts previously
reported as Intangible Assets and the adoption of SFAS No. 109. Earnings related
to investments accounted for under the equity method totaled $11.0, $76.7 and
$132.3 for the three years ended December 31, 1993, 1992 and 1991, respectively,
and are reported as a component of Other Income. The most significant of these
equity method investments are BellSouth's various domestic cellular properties,
a business venture with RAM Broadcasting Corporation ("RBC"), Optus
Communications Pty. Ltd. ("Optus") and certain investments in international
cellular properties.

DOMESTIC CELLULAR. BellSouth's domestic cellular investments consist
primarily of a 60% non-controlling financial interest in the Los Angeles
Cellular Telephone Company and a 43.75% interest in the Houston Cellular
Telephone Company. At December 31, 1993, BellSouth's investment in the above
mentioned entities exceeded the underlying book value of the investees' net
assets by $965.0. The excess of consideration paid over net assets acquired
along with other intangible assets are being amortized using either straight
line or accelerated methods over periods of benefit which do not exceed 40
years.

RBC. In January 1992, BellSouth and RBC formed a business venture to own
and operate certain mobile data communications networks worldwide as well as
certain cellular and paging operations in the United States. The mobile data
portion of the venture gives BellSouth a 49% interest in the United States

A-21
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE B -- INVESTMENTS AND ADVANCES (CONTINUED)
mobile data operations, which is operated by RBC, and the following interests in
the foreign mobile data operations of the venture: Australia 90%, The
Netherlands 72%, Belgium 72%, United Kingdom 37.5% and France 11.25%. In
addition, BellSouth has a 50% interest in the domestic paging segment of the
venture.

OPTUS. BellSouth is a 24.5% participant in Optus, an international
consortium which provides a full spectrum of telecommunications services in
Australia, including switched network and enhanced services, wireless and
satellite based services.

INTERNATIONAL CELLULAR. During December 1993, BellSouth increased its
ownership interest in TelCel Cellular C.A. ("TelCel"), a cellular telephone
company providing service to all major cities in Venezuela, from 44% to 53.26%.
BellSouth accounts for its investment in TelCel using the equity method because
the company does not control the requisite voting percentage required to control
Board decisions or the outcome of ordinary matters requiring shareholder
approval. BellSouth is approximately a 21% participant in the E-Plus Mobilfunk
consortium, which, during 1993, became the successful bidder for the second
private German GSM PCN license.

OTHER INVESTMENT ACTIVITY. During 1993 and 1992, BellSouth made several
small acquisitions principally related to its cellular telephone business. The
results of operations have been included in the consolidated financial
statements from their respective dates of acquisition. The effect of these
acquisitions on BellSouth's consolidated results of operations was not
significant. All acquisitions were recorded using the purchase method of
accounting. The purchase price in excess of the underlying fair value of
identifiable net assets acquired will be amortized over a period not to exceed
40 years. In addition, during 1993, BellSouth disposed of minor investments in
various portions of its business. The effect of these dispositions on
BellSouth's consolidated results of operations was not significant. BellSouth
has other investments that are accounted for using the cost method in addition
to various advances to affiliated companies.

In December 1993, BellSouth entered into a credit agreement with Prime South
Diversified, Inc. ("Prime South Diversified"), which indirectly wholly owns
Community Cable TV, a Las Vegas cable operation managed by Prime Cable, to
provide up to $250 in financing. The loan transaction closed in January 1994
with funding of an initial advance of $135. The loan is collateralized by the
stock of Prime South Diversified and its wholly-owned subsidiary, Prime South
Holdings, Inc. ("Prime South Holdings"). The loan, which bears a variable rate
of 10% to 11%, matures in 2001. In connection with the credit agreement,
BellSouth entered into option agreements with the shareholders of Prime South
Diversified to acquire the stock of Prime South Diversified and Prime South
Holdings at various dates over the term of the loan. Concurrent with the credit
agreement, BellSouth Enterprises entered into an agreement to acquire a 22.5%
interest in Prime Cable's management company, which provides management services
to five affiliated cable systems nationwide. Closing of this transaction is
expected in late 1994, subject to regulatory approval. This agreement also
grants BellSouth the option to acquire the remaining interest of the management
company over the loan period.

SUBSEQUENT EVENT. During the first quarter of 1994, BellSouth disposed of
its 36% interest in the cellular telephone business in Guadalajara, Mexico. As a
result, a gain of $67.5 was recognized.

A-22
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE C -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows at December 31:

<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Outside plant...................................................................... $ 18,595.7 $ 17,813.5
Central office equipment........................................................... 14,668.0 13,893.9
Building and building improvements................................................. 2,954.4 2,785.5
Furniture and fixtures............................................................. 2,362.6 2,211.5
Operating and other equipment...................................................... 2,006.8 1,708.3
Station equipment.................................................................. 631.4 612.9
Plant under construction........................................................... 497.2 516.5
Land............................................................................... 175.9 173.3
Capital leases..................................................................... 62.4 70.0
Other.............................................................................. 20.4 15.5
----------- -----------
41,974.8 39,800.9
Less: Accumulated depreciation................................................. 17,307.0 15,528.3
----------- -----------
Total Property, Plant and Equipment, net....................................... $ 24,667.8 $ 24,272.6
----------- -----------
----------- -----------
</TABLE>

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

<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Restructuring accrual.............................................................. $ 513.4 $ --
Taxes accrued...................................................................... 492.1 413.9
Advanced billing and customer deposits............................................. 476.2 470.7
Dividends payable.................................................................. 346.1 340.7
Salaries and wages payable......................................................... 338.3 313.8
Compensated absences............................................................... 332.6 319.5
Interest and rents accrued......................................................... 250.2 293.9
Other.............................................................................. 194.9 157.9
---------- ----------
Total Other Current Liabilities................................................ $ 2,943.8 $ 2,310.4
---------- ----------
---------- ----------
</TABLE>

A-23
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE E -- DEBT

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

<TABLE>
<CAPTION>
DESCRIPTION 1993 1992 1991
- ------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Notes Payable:
Bank loans............................................................. $ 88.7 $ 196.0 $ 238.7
Commercial paper....................................................... 1,536.1 1,066.6 1,280.4
---------- ---------- ----------
1,624.8 1,262.6 1,519.1
Current maturities of long-term debt..................................... 213.8 372.0 216.4
---------- ---------- ----------
Total................................................................ $ 1,838.6 $ 1,634.6 $ 1,735.5
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DESCRIPTION
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Bank Loans:
Maximum amount outstanding during the period........................... $ 191.3 $ 287.6 $ 608.5
Average amount outstanding during the period (a)....................... $ 157.3 $ 223.6 $ 194.1
Weighted average interest rate at end of period........................ 3.77 % 4.11 % 7.78 %
Weighted average interest rate during the period (b)................... 3.85 % 5.84 % 7.52 %
Commercial Paper:
Maximum amount outstanding during the period........................... $1,786.9 $1,569.5 $1,376.0
Average amount outstanding during the period (a)....................... $1,332.4 $1,049.3 $ 892.6
Weighted average interest rate at end of period........................ 3.30 % 3.57 % 5.14 %
Weighted average interest rate during the period (b)................... 3.20 % 3.86 % 5.94 %
</TABLE>

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

(a) Determined by computing the average face amount of daily ending balances in
each category.

(b) Determined by dividing the average daily face amount described in (a) into
aggregate related interest expense.

BellSouth has committed credit lines aggregating $1,375.6 with various
banks. There were borrowings under the committed lines totaling $48.4 at
December 31, 1993. BellSouth also maintains uncommitted lines of credit of
$665.0. At December 31, 1993, borrowings under the uncommitted lines totaled
$72.0. There are no significant commitment fees or requirements for compensating
balances associated with any lines of credit.

A-24
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE E -- DEBT (CONTINUED)

LONG-TERM: Long-term debt consists primarily of debentures and notes issued
by BellSouth Telecommunications. Interest rates and maturities of the amounts
outstanding are summarized as follows at December 31:

<TABLE>
<CAPTION>
INTEREST RATES MATURITIES 1993 1992
------------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
BellSouth Telecommunications Debentures: 3 1/4% - 6 7/8% 1995 - 2033 $ 1,270.0 $ 605.0
7 3/8% - 8 1/4% 1999 - 2033 1,935.0 3,335.0
8 1/2% - 10 3/8% 2001 - 2029 1,400.0 2,375.0
---------- ----------
4,605.0 6,315.0
BellSouth Telecommunications Notes............. 5 1/4% - 7% 1998 - 2008 1,875.0 --
Guarantee of ESOP debt......................... 9.125% - 9.19% 2003 693.9 734.6
BellSouth Capital Funding Corporation Notes.... 4.02% - 9.50% 1994 - 1999 200.9 159.9
Capital leases and other....................... 68.5 203.2
Unamortized discount, net of premium........... (62.6) (53.0)
---------- ----------
Total Long-Term Debt....................... $ 7,380.7 $ 7,359.7
---------- ----------
---------- ----------
</TABLE>

Maturities of long-term debt outstanding at December 31, 1993 are summarized
below:

<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturities....................... $ 213.8 $ 127.8 $ 66.1 $ 141.1 $ 764.2 $ 6,344.1 $ 7,657.1
--------- --------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- --------- ---------- ----------
</TABLE>

As further discussed in Note H, BellSouth incorporated an Employee Stock
Ownership Plan ("ESOP") feature into certain of its existing savings plans. In
1990, the ESOP trusts (the "Trusts") borrowed $850.0 aggregate principal amount
through the issuance of amortizing notes. Although the obligations are owed by
the Trusts, they are guaranteed by BellSouth and thus are reflected as an
addition to long-term debt and a reduction to shareholders' equity. The Trusts
service the debt with contributions from BellSouth and dividends paid on the
shares held by the Trusts. As the ESOP obligations are repaid, the amount
guaranteed decreases and long-term debt is reduced accordingly.

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

During 1993 and 1992, BellSouth Telecommunications refinanced certain
long-term debt issues at more favorable interest rates. As a result of the early
extinguishment of these issues, charges of $86.6 ($.17 per share), net of taxes
of $58.8, and $40.7 ($.08 per share), net of taxes of $30.0, were recognized as
extraordinary losses in 1993 and 1992, respectively.

At December 31, 1993, shelf registration statements had been filed with the
Securities and Exchange Commission by BellSouth Telecommunications and Capital
Funding under which $725.0 and $1,050.3, respectively, additional amount of debt
securities could be offered.

A-25
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

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

<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Restructuring accrual (see Note K)................................................... $ 570.0 $ --
Accrued pension cost................................................................. 565.5 444.8
Regulatory liability related to income taxes (see Note M)............................ 378.9 --
Compensation related................................................................. 318.5 242.2
Minority interests................................................................... 123.6 88.4
Postemployment benefits (see Note H)................................................. 121.4 --
Other................................................................................ 177.9 186.7
---------- ----------
Total Other Liabilities and Deferred Credits..................................... $ 2,255.8 $ 962.1
---------- ----------
---------- ----------
</TABLE>

NOTE G -- SHAREHOLDERS' EQUITY

PREFERRED STOCK AUTHORIZED. BellSouth's Articles of Incorporation authorize
100 million shares of cumulative First Preferred Stock having a par value of $1
per share, of which 30 million shares have been reserved and designated Series A
for possible issuance under BellSouth's Shareholder Rights Plan. As of December
31, 1993, no preferred shares had been issued.

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

GUARANTEE OF EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") DEBT. Financial
reporting practices require that the amount equivalent to BellSouth's guarantee
of the amortizing notes issued by its ESOP trusts be presented as a reduction to
shareholders' equity, as well as an increase to debt. The amount recorded as a
decrease in shareholders' equity represents the value of unallocated BellSouth
common stock purchased with the proceeds of the amortizing notes and the timing
difference resulting from the shares allocated accounting method. As the ESOP
notes are repaid, the amount of debt guaranteed decreases, and Shareholders'
Equity increases accordingly (see Notes E and H).

SHARES HELD IN TRUST. During 1993, BellSouth issued shares to grantor
trusts to provide partial funding for the benefits payable under certain
non-qualified benefit plans. The trusts are irrevocable and assets contributed
to the trusts can only be used to pay such benefits with certain exceptions. At
December 31, 1993, the assets held in the trusts consist of cash and 5,464,920
shares of BellSouth common stock.

The total cost of the BellSouth shares as of the date of funding the trusts
is included in Common Stock and Paid-In Capital; however, because the shares
held in trust are not considered outstanding for financial reporting purposes,
the shares are reflected separately as Shares Held in Trust, a reduction to
Shareholders' Equity. Accordingly, there is no earnings per share impact. As the
plan benefits are paid from the trusts, Shareholders' Equity will increase
accordingly.

A-26
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE H -- EMPLOYEE BENEFIT PLANS

PENSION PLANS. Substantially all employees of BellSouth are covered by
noncontributory defined benefit pension plans. The plan covering non-represented
employees prior to July 1993, provided a benefit based on years of credited
service and employees' average compensation for a specified period. Effective
July 1993, BellSouth converted this plan to a cash balance plan where the
pension benefit is determined by a combination of compensation-based service and
additional credits, and individual account-based interest credits. The new cash
balance plan is subject to a minimum benefit determined under the prior plan's
formula for employees retiring through 2005. The December 31, 1993 projected
benefit obligation assumes interest and additional credits greater than the
minimum levels specified in the written plan. The conversion of the
non-represented pension plan had no material impact on 1993 pension cost. The
estimated impact on 1994 projected pension cost will be a reduction of $65.
Pension benefits provided for represented employees are based on specified
benefit amounts and years of service. Consistent with past practice, this plan
includes the effect of future bargained-for improvements.

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

The components of net periodic pension cost are summarized below:

<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year....................... $ 265.8 $ 262.4 $ 242.9
Interest cost on projected benefit obligation......................... 774.8 751.8 719.8
Actual return on plan assets.......................................... (1,734.9) (686.2) (2,200.9)
Net amortization and deferral......................................... 816.0 (160.2) 1,382.0
----------- ----------- -----------
Net periodic pension cost......................................... $ 121.7 $ 167.8 $ 143.8
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation...................................................... $ 7,705.3 $ 7,123.9
------------ ------------
------------ ------------
Accumulated benefit obligation................................................. $ 8,819.6 $ 8,219.0
------------ ------------
------------ ------------
Projected benefit obligation................................................... $ 10,644.3 $ 10,271.6
Plan assets at market value...................................................... 13,173.0 11,901.7
------------ ------------
Plan assets in excess of projected benefit obligation............................ 2,528.7 1,630.1
Unrecognized net gain due to past experience different from assumptions made..... (2,503.2) (1,775.1)
Unrecognized prior service cost.................................................. (398.5) (86.4)
Unrecognized net asset at transition............................................. (192.5) (213.4)
------------ ------------
Accrued pension cost......................................................... $ (565.5) $ (444.8)
------------ ------------
------------ ------------
</TABLE>

The projected benefit obligation for 1993 and 1992 was determined using a
discount rate of 7.5% and 7.75%, respectively, and, for both years an expected
long-term rate of return on plan assets of 8% and a long-term assumed weighted
average rate of compensation increase of 5.7%. Other economic related benefit
assumptions, for both the non-represented and the represented plans, have been
changed to reflect both past experience and management's best estimate of future
benefit increases. In the aggregate, the assumption changes will have the impact
of reducing the projected 1994 pension cost by $20.

A-27
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)

In 1991, BellSouth offered an early retirement option to non-represented
employees. Approximately 3,100 employees elected to retire under this option,
which allowed the employee to accept the present value of their pension benefit
as a lump-sum payment and to receive a special payment equivalent to 5% of base
pay times full years of service (not to exceed 100% of base pay). The retirement
option was accounted for in accordance with SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits." BellSouth recognized an expense of $68.6 in 1991 related
to this option.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. BellSouth sponsors defined
benefit postretirement health and life insurance plans for most of its
non-represented and represented employees. Effective January 1, 1993, BellSouth
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," to account for these plans. BellSouth's transition benefit
obligation of $1,486 will be amortized over 15 years, the average remaining
service period of active plan participants. The accounting for the health care
plan does not anticipate future adjustments to the cost-sharing arrangements
provided for in the written plan. As a result of the adoption of SFAS No. 106,
net income for 1993 was reduced by approximately $23 ($.05 per share).

As of January 1993, the accumulated postretirement health benefit obligation
for non-represented retirees is being funded over the average remaining service
period of currently active non-represented employees. The accumulated
postretirement benefit obligation for pre-January 1, 1990 represented retirees
is being funded over a 10-year period, while the accumulated postretirement
benefit obligation for all other represented retirees is being funded over the
average remaining service period of currently active represented employees.

Postretirement benefit cost for the year ending December 31, 1993 is
composed of the following:

<TABLE>
<CAPTION>
HEALTH LIFE TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year...................................... $ 30 $ 9 $ 39
Interest on accumulated postretirement benefit obligation............................ 199 32 231
Actual return on plan assets......................................................... (44) (35) (79)
Amortization of transition liability (asset)......................................... 113 (13) 100
Other amortization and deferral, net................................................. (9) (10) (19)
----- --------- ---------
Postretirement benefit cost (income)............................................. $ 289 $ (17) $ 272
----- --------- ---------
----- --------- ---------
</TABLE>

Prior to 1993, BellSouth recognized the cost of providing postretirement
benefits based on funded amounts. The cost of providing health and life benefits
for both active and retired employees was $574.6 and $550.6 for 1992 and 1991,
respectively.

A-28
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)

The following table sets forth the plans' funded status at December 31,
1993:

Accumulated postretirement benefit obligation:

<TABLE>
<CAPTION>
HEALTH LIFE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Retirees....................................................................... $ 1,910 $ 246 $ 2,156
Fully eligible active plan participants........................................ 350 194 544
Other active plan participants................................................. 631 68 699
--------- --------- ---------
2,891 508 3,399
Plan assets, primarily equity securities, at fair value........................ 785 585 1,370
--------- --------- ---------
Accumulated postretirement benefit obligation in excess of (less than) plan
assets........................................................................ 2,106 (77) 2,029
Unrecognized net losses........................................................ (514) (123) (637)
Unrecognized transition (obligation) asset..................................... (1,573) 183 (1,390)
--------- --------- ---------
Accrued (Prepaid) postretirement benefit cost.............................. $ 19 $ (17) $ 2
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accrued (prepaid) postretirement benefit costs are included in Other
Liabilities and Deferred Credits and Deferred Charges and Other Assets,
respectively.

For measurement purposes, an 11.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1994; the rate is assumed
to decrease gradually to 5% in 2007 and remains at that level. The health care
cost trend rate assumption significantly affects the amounts reported. A one-
percentage-point increase in the assumed health care cost trend rates for each
future year would increase the accumulated postretirement benefit obligation by
$171 and the estimated aggregate service and interest cost components of the
1993 postretirement benefit cost by $15. For purposes of valuing the
postretirement life insurance obligation, a 5.7% rate of future increase in
compensation at December 31, 1993 was used.

The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%. After a 30% tax reduction for the non-represented
employees' trust, the combined expected long-term rate of return on plan assets
used was 8%. The impact of reducing the discount rate from 9% to 7.5% will
increase 1994 postretirement benefit expense by approximately $30.

Most regulatory jurisdictions have accepted BellSouth's SFAS No. 106
implementation plan. However, one state's commission is requiring a 20-year
amortization of the transition benefit obligation and in another state there are
pending issues, the outcome of which are not expected to have a material impact
on recovery.

EFFECT OF RESTRUCTURING ON PENSIONS AND POSTRETIREMENT BENEFITS. As a
result of the restructuring, (see Note K), BellSouth recognized $88 of estimated
net curtailment losses expected to impact BellSouth's pension and postretirement
benefit plans. Of the amount recognized, $16 was realized in 1993.

DEFINED CONTRIBUTION PLANS. BellSouth maintains several contributory
savings plans which cover substantially all employees. The BellSouth Management
Savings and Employee Stock Ownership Plan and the BellSouth Savings and Security
Plan (collectively, the "ESOP Plans") cover the largest portion of the
employees. Effective in 1990, a leveraged ESOP feature was incorporated into the
ESOP plans. The shares that were purchased by the Trusts with proceeds from the
ESOP notes (see Note E) are allocated to participants' accounts throughout the
13-year debt repayment period of the leveraged ESOP program as described below.

A-29
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)

BellSouth matches participants' eligible contributions to the respective
Plans based on defined percentages determined annually by the Board of
Directors. The match consists of BellSouth common shares that were purchased by
the Trusts with proceeds from the ESOP notes, which shares are released for
allocation as loan payments are made in accordance with ESOP guidelines, and
that are purchased by the Trusts on the open market from time to time as
required. BellSouth contributes an amount which, in addition to ESOP dividends,
is sufficient to service the ESOP loan payments and to purchase any additional
shares required to meet the match obligation.

Effective with the incorporation of the ESOP feature into the Plans in 1990,
BellSouth began recognizing expense attributable to the leveraged ESOPs based on
the cost of the shares allocated for the period plus interest incurred, reduced
by the dividends used to service the ESOP debt (Shares Allocated Method).

BellSouth recognized ESOP expense in 1993, 1992 and 1991 as follows:

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Compensation expense......................................................... $ 67.9 $ 71.8 $ 77.1
Interest expense............................................................. $ 39.9 $ 40.5 $ 40.5
Actual interest on ESOP notes................................................ $ 69.5 $ 72.4 $ 74.8
Cash contributions, excluding dividends paid to the Trusts................... $ 84.9 $ 84.3 $ 90.7
Dividends paid to the Trusts, used for debt service.......................... $ 43.6 $ 43.7 $ 43.5
</TABLE>

BellSouth also maintains certain other defined contribution plans for most
other employees not covered by the ESOP plans. Company contributions, which are
not included in the amounts above, were approximately $12.5, $8.8 and $2.0 in
1993, 1992 and 1991, respectively.

POSTEMPLOYMENT BENEFITS. Effective January 1, 1993, BellSouth adopted SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112
requires employers to accrue the cost of postemployment benefits provided to
former or inactive employees after employment but before retirement, including
but not limited to worker's compensation, disability, and continuation of health
care benefits. Previously, BellSouth used the cash method to account for such
costs. A one-time charge related to adoption of SFAS No. 112 was recognized as a
change in accounting principle, effective as of January 1, 1993. The charge was
$67.4 ($.14 per share), net of a deferred tax benefit of $42.5. The effect of
the change on BellSouth's 1993 operating results was not material. Future
expense levels are dependent upon actual claim experience, but are not expected
to differ materially from expense recognized under the former accounting method.

NOTE I -- EMPLOYEE STOCK OPTION PLAN

The BellSouth Corporation Stock Option Plan provides for the grant of stock
options and related stock appreciation rights ("SARs") to key employees, as
determined by the Board of Directors, to purchase shares of BellSouth common
stock within prescribed periods at prices equal to the fair market value on the
date of grant. SARs entitle an optionee to surrender unexercised stock options
for cash or stock equal to the excess of the fair market value of the
surrendered shares over the option price of such shares. Of the 3,654,142 shares
covered by outstanding options under the plan at December 31, 1993, 489,590 were
accompanied by SARs.

A-30
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE I -- EMPLOYEE STOCK OPTION PLAN (CONTINUED)

The following table summarizes the activity for stock options outstanding:

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Options Outstanding at January 1.................. 3,436,724 3,101,490 2,414,328
Options Granted................................... 840,302 977,978 924,942
Options Exercised................................. (569,508) (590,953) (193,065)
Options Cancelled/Forfeited....................... (53,376) (51,791) (44,715)
Options Outstanding at December 31................ 3,654,142 3,436,724 3,101,490
Option Prices per Common
Share:
$50.69 - $48.38 - $39.63 -
Granted......................................... $62.19 $58.25 $58.25
$22.76 - $22.76 - $22.76 -
Exercised....................................... $58.25 $45.56 $41.82
$32.34 - $37.38 - $32.34 -
Cancelled/Forfeited............................. $58.25 $58.25 $58.25
$12.99 - $12.99 - $12.99 -
Outstanding at Year-End......................... $62.19 $58.25 $58.25
Options Exercisable at Year-End................... 1,407,914 1,343,523 1,369,838
Shares Available For Grant at December 31......... 5,015,519 4,937,932 4,866,981
</TABLE>

NOTE J -- LEASES
BellSouth has entered into operating leases for facilities and equipment
used in operations. Rental expenses under operating leases were $300.3, $328.9
and $288.8 for 1993, 1992 and 1991, respectively. Capital leases currently in
effect are not significant.

The following table summarizes the approximate future minimum rentals under
non-cancelable operating leases in effect at December 31, 1993:

<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum rentals............................... $ 128.1 $ 106.0 $ 80.0 $ 67.8 $ 46.9 $ 339.2 $ 768.0
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>

NOTE K -- RESTRUCTURING CHARGE
The results of operations for the year ended December 31, 1993 include a
$1,136.4 restructuring charge which reduced net income by $696.6. The
restructuring is being undertaken to redesign and streamline the fundamental
processes and work activities in BellSouth Telecommunications' telephone
operations to better respond to an increasingly competitive business
environment. The restructuring is expected to improve overall responsiveness to
customer needs, permit more rapid introduction of new products and services and
reduce costs.

The material components of the charge relate to the downsizing of the
existing workforce by 10,200 employees through 1996. These components include
provisions for separation payments and relocations of remaining employees,
consolidation and elimination of certain operations facilities and enabling
changes to information systems, primarily those used to provide services to
existing customers.

A-31
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE L -- ADDITIONAL INCOME STATEMENT DATA

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Other Income, net:
Interest and dividend income................................................. $ 42.8 $ 123.6 $ 77.4
Earnings of unconsolidated affiliates........................................ 11.0 76.7 132.3
Minority interests........................................................... (50.9) (39.3) (5.5)
Gain from operations sold, net............................................... 6.5 -- 40.0
Other, net................................................................... (1.8) 16.6 8.5
--------- --------- ---------
Total.................................................................... $ 7.6 $ 177.6 $ 252.7
--------- --------- ---------
--------- --------- ---------
</TABLE>

Interest and dividend income for 1992 includes $56.6 relating to the
settlement of an Internal Revenue Service summary assessment for the tax years
1979 and 1980.

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Interest Expense:
Long-term debt............................................................... $ 577.3 $ 612.9 $ 573.2
Notes payable................................................................ 39.0 37.4 62.8
Other........................................................................ 72.7 96.1 166.1
--------- --------- ---------
Total.................................................................... $ 689.0 $ 746.4 $ 802.1
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<S> <C> <C> <C>
Depreciation of telephone plant as a percentage of average
depreciable telephone plant................................... 7.51% 7.67% 7.76%
--- --- ---
--- --- ---
</TABLE>

Revenues from services provided to American Telephone and Telegraph Company,
BellSouth's largest customer, were approximately 14%, 14% and 15% of
consolidated operating revenues for 1993, 1992 and 1991, respectively.

NOTE M -- INCOME TAXES
Effective January 1, 1993, BellSouth adopted SFAS No. 109, "Accounting for
Income Taxes," which applies a balance sheet approach to income tax accounting.
In accordance with the new standard, the balance sheet reflects the anticipated
tax impact of future taxable income or deductions implicit in the balance sheet
in the form of temporary differences. These temporary differences reflect the
difference between the basis in assets and liabilities as measured in the
financial statements and as measured by tax laws using enacted tax rates. The
cumulative effect to January 1, 1993 of the adoption of SFAS No. 109 was
recorded as a $7.8 reduction to income tax expense. As permitted by the new
standard, prior years' financial statements have not been restated.

In accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," BellSouth has, for its regulated
operations, only reflected the balance sheet impact of the adoption of this
statement. Specifically, BellSouth Telecommunications recorded a net regulatory
liability of $538.0 coincidental with the reduction of the deferred tax reserves
from higher historical to lower current tax rates. The balance of such liability
at December 31, 1993, included in Other Liabilities and Deferred Credits, was
$378.9. This regulatory liability will be adjusted as the related temporary
differences reverse.

A-32
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE M -- INCOME TAXES (CONTINUED)

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current................................................................ $ 1,079.7 $ 918.3 $ 953.6
Deferred, net.......................................................... (532.0) (85.9) (242.0)
Investment tax credits, net............................................ (88.3) (87.9) (108.8)
---------- ---------- ----------
459.4 744.5 602.8
---------- ---------- ----------
State:
Current................................................................ 173.9 163.6 171.9
Deferred, net.......................................................... (61.7) 25.4 (21.3)
---------- ---------- ----------
112.2 189.0 150.6
---------- ---------- ----------
Total provision for income taxes................................... $ 571.6 $ 933.5 $ 753.4
---------- ---------- ----------
---------- ---------- ----------
Amortization of investment tax credits................................... $ 88.3 $ 88.2 $ 105.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) at December 31, 1993 are as follows:

<TABLE>
<S> <C>
Restructuring charge.......................................................... $ 419.5
Pensions...................................................................... 240.3
Deferred compensation......................................................... 112.4
Compensated absences.......................................................... 89.2
Bad debts..................................................................... 82.5
Leveraged employee stock ownership plan....................................... 36.2
Net operating losses.......................................................... 11.3
Other......................................................................... 138.1
---------
1,129.5
Valuation Allowance........................................................... (13.8)
---------
Deferred Tax Assets......................................................... 1,115.7
---------
Depreciation.................................................................. (3,636.2)
Equity investment............................................................. (376.4)
Franchises.................................................................... (204.3)
Other......................................................................... (189.7)
---------
Deferred Tax Liabilities.................................................... (4,406.6)
---------
Net Deferred Tax Liability.............................................. $(3,290.9)
---------
---------
</TABLE>

The valuation allowance primarily represents federal and state net operating
losses that will not be utilized during the carryforward period. Of the Net
Deferred Tax Liability at December 31, 1993, $174.4 was current and $(3,465.3)
was noncurrent.

A-33
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE M -- INCOME TAXES (CONTINUED)

Deferred tax expense for 1992 and 1991 resulting from timing differences in
the recognition of revenue and expense items for tax and financial reporting
purposes, were as follows:

<TABLE>
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Property, plant and equipment............................................................ $ 5.5 $ (114.7)
Pension benefits......................................................................... (55.6) (65.3)
Other timing differences................................................................. (10.4) (83.3)
--------- ---------
Total.................................................................................. $ (60.5) $ (263.3)
--------- ---------
--------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory tax rate....................................................... 35.0% 34.0% 34.0%
State income taxes, net of Federal income tax benefit............................ 4.8% 4.8% 4.4%
Amortization of investment tax credits........................................... (5.5%) (3.4%) (4.7%)
Miscellaneous items, net......................................................... 1.3% 0.6% (0.4%)
--- --- ---
Effective tax rate............................................................. 35.6% 36.0% 33.3%
--- --- ---
--- --- ---
</TABLE>

NOTE N -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE

SFAS 112. As more fully discussed in Note H, BellSouth adopted, effective
January 1, 1993, SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." A one-time charge of $67.4 ($.14 per share), net of a deferred tax
benefit of $42.5, related to adoption of this statement was recognized as a
change in accounting principle.

CELLULAR SALES COMMISSIONS. In the third quarter of 1991, BellSouth
Mobility Inc. changed its policy of capitalizing certain third-party cellular
service sales commissions and amortizing them over the average customer lives.
Accordingly, these amounts are expensed in the period in which they are earned
by the agent. BellSouth effected this change to standardize the accounting
treatment of sales commissions throughout its recently consolidated cellular
operations, including those properties acquired in 1991. The effect of the
change in accounting principle on BellSouth's 1991 results of operations was not
material. The cumulative effect of the change was $35.4 ($.07 per share) and is
included in 1991 net income.

NOTE O -- SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is presented in accordance with the
provisions of SFAS No. 95, "Statement of Cash Flows":

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common and Treasury Shares Issued in Lieu of Cash Dividends Under
Shareholder Dividend Reinvestment and Stock Purchase Plan............... $ 66.4 $ 268.9 $ 199.3
---------- ---------- ----------
---------- ---------- ----------
Shares Issued to Grantor Trusts.......................................... $ 292.6 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest................................................................. $ 755.0 $ 738.8 $ 793.2
---------- ---------- ----------
---------- ---------- ----------
Income taxes............................................................. $ 1,145.2 $ 1,053.4 $ 1,048.7
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

A-34
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

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

<TABLE>
<CAPTION>
1993 1992
------------------------ ----------------------
RECORDED RECORDED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ 501.5 $ 501.5 $ 265.5 $ 265.5
Temporary cash investments................................. 49.0 49.0 80.6 80.6
Debt Maturing Within One Year:
Bank loans............................................... 88.7 88.7 196.0 196.0
Commercial paper......................................... 1,536.1 1,536.1 1,066.6 1,066.6
Current maturities of long-term debt..................... 213.8 213.8 372.0 372.0
Long-Term Debt:
BellSouth Telecommunications Debentures.................. 4,605.0 4,707.0 6,315.0 6,346.8
BellSouth Telecommunications Notes....................... 1,875.0 1,901.0 -- --
Guarantee of ESOP Debt................................... 693.9 802.5 734.6 813.1
BellSouth Capital Funding Corporation Notes.............. 200.9 223.6 159.9 166.0
</TABLE>

CASH AND CASH EQUIVALENTS/TEMPORARY CASH INVESTMENTS. At December 31, 1993
and 1992, the recorded amounts for cash and cash equivalents and temporary cash
investments, respectively, approximate fair value due to the short-term nature
of these instruments.

DEBT. At December 31, 1993 and 1992, the recorded amounts for Debt Maturing
Within One Year approximate fair value due to the short-term nature of the
liabilities. The estimates of fair value for BellSouth Telecommunications
Debentures and Notes are based on the closing market prices for each issue at
December 31, 1993 and 1992, respectively. Fair value estimates for the Guarantee
of ESOP Debt and BellSouth Capital Funding Corporation Notes are based on quotes
from dealers.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. BellSouth is party to interest
rate swap agreements, currency swap agreements and forward contracts and other
derivatives in its normal course of business. These financial instruments are
used to mitigate foreign currency and interest rate risks, although to some
extent they expose the company to off-balance-sheet risks and credit risks. The
credit risks associated with interest rate swap agreements and foreign exchange
contracts are controlled through the evaluation and continual monitoring of the
creditworthiness of the counterparties. The net fair value of these off-balance-
sheet financial instruments at December 31, 1993 is not significant.

BellSouth has also issued letters of credit and financial guarantees which
approximate $175 at December 31, 1993. Due to the number and diverse nature of
these instruments, an estimate of fair value could not be practicably
determined.

A-35
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)

NOTE Q -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In the following summary of quarterly financial information, all adjustments
necessary for a fair presentation of each period were included. The results for
first quarter 1993 were restated to reflect the one-time, non-cash charge for
retroactive adoption of SFAS No. 112.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(RESTATED)
1993
Operating Revenues................................ $3,833.7 $3,906.9 $4,014.9 $4,124.8
Operating Income (Loss)........................... $ 804.1 $ 856.4 $ 909.1 $ (282.5)
Income (Loss) Before Extraordinary Loss on Early
Extinguishment of Debt and Cumulative Effect of
Change in Accounting Principle................... $ 411.2 $ 433.1 $ 442.4 $ (252.6)
Extraordinary Loss on Early Extinguishment
of Debt, net of tax.............................. -- (55.4) (7.8) (23.4)
Cumulative Effect of Change in Accounting
Principle, net of tax............................ (67.4) -- -- --
Net Income (Loss)................................. $ 343.8 $ 377.7 $ 434.6 $ (276.0)
-------- -------- -------- --------
Earnings Per Share:
Income (Loss) Before Extraordinary Loss on Early
Extinguishment of Debt and Cumulative Effect of
Change in Accounting Principle................. $ .83 $ .87 $ .89 $ (.51 )
Extraordinary Loss on Early Extinguishment of
Debt, net of tax............................... -- (.11 ) (.01 ) (.05 )
Cumulative Effect of Change in Accounting
Principle, net of tax.......................... (.14 ) -- -- --
Net Income (Loss)............................... $ .69 $ .76 $ .88 $ (.56 )
-------- -------- -------- --------
1992
Operating Revenues................................ $3,738.7 $3,816.8 $3,736.0 $3,910.1
Operating Income.................................. $ 831.6 $ 874.4 $ 750.8 $ 703.9
Income Before Extraordinary Loss on Early
Extinguishment of Debt........................... $ 460.9 $ 458.5 $ 385.6 $ 353.4
Extraordinary Loss on Early Extinguishment of
Debt, net of tax................................. -- -- (40.7) --
Net Income........................................ $ 460.9 $ 458.5 $ 344.9 $ 353.4
-------- -------- -------- --------
Earnings Per Share:
Income Before Extraordinary Loss on Early
Extinguishment of Debt......................... $ .94 $ .94 $ .78 $ .72
Extraordinary Loss on Early Extinguishment of
Debt, net of tax............................... -- -- (.08 ) --
Net Income...................................... $ .94 $ .94 $ .70 $ .72
-------- -------- -------- --------
</TABLE>

A-36
<PAGE>
BELLSOUTH CORPORATION
MARKET AND DIVIDEND DATA

The principal market for trading in BellSouth common stock is the New York
Stock Exchange, Inc. ("NYSE"). BellSouth common stock is also listed on the
Boston, Chicago, Pacific and Philadelphia exchanges in the United States and the
London, Zurich, Basel, Geneva, Frankfurt and Amsterdam exchanges. The ticker
symbol for BellSouth common stock is BLS. As of January 31, 1994, there were
1,237,677 holders of record of BellSouth common stock. Market data, obtained
from the NYSE Composite Tape, which encompasses trading on the principal United
States stock exchanges as well as off-board trading, for 1991 through 1993 are
listed below. High and low prices represent the highest and lowest sales prices
for the periods indicated. Dividend data also are listed.

<TABLE>
<CAPTION>
MARKET PRICES PER SHARE
------------------ DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------
<S> <C> <C> <C>
1993
First Quarter................................................................... $57 1/2 $50 3/8 $ .69
Second Quarter.................................................................. 57 50 5/8 .69
Third Quarter................................................................... 62 7/8 54 1/8 .69
Fourth Quarter.................................................................. 63 7/8 54 1/8 .69
1992
First Quarter................................................................... $52 5/8 $43 5/8 $ .69
Second Quarter.................................................................. 50 3/8 43 3/8 .69
Third Quarter................................................................... 55 1/2 49 1/4 .69
Fourth Quarter.................................................................. 53 7/8 46 3/4 .69
1991
First Quarter................................................................... $55 $49 7/8 $ .69
Second Quarter.................................................................. 54 46 3/8 .69
Third Quarter................................................................... 50 1/4 46 1/8 .69
Fourth Quarter.................................................................. 51 3/4 45 3/8 .69
</TABLE>

STOCK TRANSFER AGENT AND REGISTRAR

Chemical Bank is BellSouth's stock transfer agent and registrar.

A-37
<PAGE>
BELLSOUTH CORPORATION
DOMESTIC CELLULAR AND PAGING OPERATIONS
PROPORTIONATE OPERATING DATA
(DOLLARS IN THOUSANDS)
(UNAUDITED)

The following table sets forth unaudited, supplemental financial data for
BellSouth's domestic cellular and paging operations reflecting proportionate
consolidation of entities in which BellSouth has an interest. This presentation
differs from the consolidation metholodology used to prepare BellSouth's
principal financial statements in accordance with generally accepted accounting
principles. The proportionate operating data reflect BellSouth's ownership
percentage of entities consolidated for financial reporting purposes and
BellSouth's ownership percentage in the entities which are accounted for on the
equity method for financial reporting purposes.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Cellular Revenue, net (1)....................................................... $ 1,150,288 $ 918,885
Paging and Other Revenue, net (1)............................................... 189,824 175,567
------------- -------------
Total Revenues.............................................................. 1,340,112 1,094,452
------------- -------------
Operating Expenses.............................................................. 820,945 689,454
Depreciation and Amortization................................................... 242,481 184,074
------------- -------------
Total Operating Expenses.................................................... 1,063,426 873,528
------------- -------------
Operating Income................................................................ 276,686 220,924
Other Expenses, net (including interest and taxes).............................. 136,216 125,963
------------- -------------
Net Income...................................................................... $ 140,470 $ 94,961
------------- -------------
------------- -------------
Operating Margins as a Percentage of Revenue:
Including Depreciation and Amortization....................................... 20.65% 20.19%
Excluding Depreciation and Amortization....................................... 38.74% 37.00%
Operational Comparisons:
Proportionate Cellular Population Served...................................... 38,845,000 37,549,000
Proportionate Cellular Customers.............................................. 1,559,100 1,118,100
Proportionate Paging Customers................................................ 1,232,200 977,200
<FN>
- ------------------------
(1) Includes equipment revenue, net of cost.
</TABLE>

A-38
<PAGE>
VISUAL DIFFERENCES BETWEEN THE PRINTED AND ELECTRONIC VERSIONS OF THE:

PROXY CARD:

On the reverse of the proxy card the BellSouth logo is printed at the top
left.

The bottom of the proxy card contains a detachable section. The front side
of this section is the shareholder's admission ticket to the Annual Meeting and
the reverse contains a map and directions to the meeting site.
<PAGE>

BELLSOUTH [LOGO] PROXY/VOTING INSTRUCTION CARD

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 25, 1994.

The undersigned hereby appoints John L. Clendenin, Armando M. Codina, and
Marshall M. Crisor, and each of them, proxies with full power of substitution,
to vote all Common Shares of the undersigned at the Annual Meeting of
Shareholders to be held at 9:30 A.M. EDT, April 25, 1994 at the Georgia World
Congress Center, Room 255, West Concourse, 285 International Boulevard,
Atlanta, Georgia, and at any adjournment thereof, upon all subjects that may
properly come before the meeting, including the matters described in the proxy
statement furnished herewith, subject to any directions indicated on the
reverse side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE
FOR THE ELECTION OF ALL LISTED NOMINEES, IN ACCORD WITH THE DIRECTORS'
RECOMMENDATIONS ON THE OTHER MATTERS LISTED ON THE REVERSE SIDE OF THIS CARD,
AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING.

YOUR VOTE FOR THE ELECTION OF DIRECTORS FOR THE TERMS SET FORTH IN THE PROXY
STATEMENT, MAY BE INDICATED ON THE REVERSE SIDE OF THIS CARD. NOMINEES ARE
REUBEN V. ANDERSON, JAMES H. BLANCHARD, J. HYATT BROWN, JOHN L. CLENDENIN,
MARSHALL M. CRISER, GORDON B. DAVIDSON, PHYLLIS BURKE DAVIS AND THOMAS R.
WILLIAMS.

This card also provides voting instructions for shares held in the BellSouth
Shareholder Dividend Reinvestment and Stock Purchase Plan and, if
registrations are identical, shares held in the various employee benefit plans.

YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE ON THE REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE OR OTHERWISE TO P.O. BOX
24863, NEW YORK, NEW YORK 10242-4863, SO THAT YOUR SHARES CAN BE REPRESENTED
AT THE MEETING.

Detach here.
- --------------------------------------------------------------------------------

[MAP]

DIRECTIONS TO THE GEORGIA WORLD CONGRESS CENTER
(GWCC) AT 285 INTERNATIONAL BLVD., NW

FROM THE AIRPORT & SOUTH: Take I-75/85 North to International Blvd. (exit 96);
turn left on International Blvd.

FROM THE NORTH: Take I-75/85 South to Williams St. (exit 99); continue on
Williams St. and turn right onto International Blvd.

FROM THE WEST: Take I-20 East to Spring St. (exit 22) and turn left on Spring
St.; continue on Spring St. and turn left on Marietta St.; go to second
traffic light and turn left on International Blvd.

FROM THE EAST: Take I-20 West, to Spring St. (exit 22) and turn right onto
Spring St.; continue on Spring St. and turn left on Marietta St.; go to second
traffic light and turn left on International Blvd.

NOTE: Continue on INTERNATIONAL BLVD. and come to the top of the ramp. The
GWCC is located on the right across from the Omni Hotel/CNN Center. Stay right
on the UPPER loop and follow signs to Parking Deck. PARKING FOR PHYSICALLY
DISABLED AVAILABLE. (Inquire with parking attendant)

TAKING MARTA: Take East-West bound train to OMNI Station (W-1), follow signs
to the GWCC.

<PAGE>

PROXY/VOTING INSTRUCTION CARD

PLEASE MARK VOTES "X"

TO VOTE FOR ALL DIRECTOR NOMINEES, MARK THE "FOR" BOX ON ITEM "A". TO WITHHOLD
VOTING FOR ALL NOMINEES, MARK THE "WITHHOLD AUTHORITY" BOX. TO WITHHOLD VOTING
FOR A PARTICULAR NOMINEE, MARK THE "FOR ALL EXCEPT" BOX AND ENTER NAME(S) OF
THE EXCEPTION(S) IN THE SPACE PROVIDED. YOUR SHARES WILL BE VOTED FOR THE
REMAINING NOMINEES.

DIRECTORS RECOMMEND A VOTE "FOR"
Withhold For All
A. Election of All For Authority Except*
Director Nominees (p.5) / / / / / /

*Exceptions:

B. Ratification of Auditors (p.8) For Against Abstain
/ / / / / /

I plan to attend the Annual Meeting / /

Discontinue mailing Annual Report / /

PLEASE SIGN PROXY CARD AND RETURN IT PROMPTLY WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING. PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD
EACH SIGN. IF SIGNING FOR A CORPORATION OR PARTNERSHIP OR AS AGENT, ATTORNEY
OR FIDUCIARY, INDICATE THE CAPACITY IN WHICH YOU ARE SIGNING. IF YOU ATTEND
THE MEETING AND DECIDE TO VOTE BY BALLOT, SUCH VOTE WILL SUPERCEDE THIS PROXY.

Signature Date

Detach here.
- --------------------------------------------------------------------------------

[BELLSOUTH LOGO]

ANNUAL MEETING OF SHAREHOLDERS
MONDAY, APRIL 25, 1994
9:30 A.M. EDT

Georgia World Congress Center
Room 255, West Concourse
285 International Boulevard, N.W.
Atlanta, Georgia

ADMISSION TICKET

-------------------------------- Please present this
ticket for admittance
of shareholders
named and guests.
See reverse side for
map of area.
--------------------------------