<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Nos. 333-45607
33-51449
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 27, 1998)
U.S. $500,000,000
BellSouth Capital Funding Corporation
MEDIUM-TERM NOTES, SERIES C
------------------------
Due from 9 Months to 40 Years from Date of Issue
------------------------
BellSouth Capital Funding Corporation (the "Company") may offer from time to
time its Medium-Term Notes, Series C (the "Notes") at such initial public
offering prices as will result in aggregate net proceeds to the Company of up to
U.S.$500,000,000, or the equivalent thereof in other currencies, including
composite currencies such as the European Currency Unit (the "Specified
Currency"). Such amount may be reduced by the aggregate principal amount of an
additional series of medium-term notes of the Company in bearer or registered
form to be offered outside the United States concurrently with the offering of
the Notes (the "Euro Notes"). See "Plan of Distribution." The interest rate on
each Note will be either a fixed rate (a "Fixed Rate Note") established by the
Company at the date of issue of such Note, which may be zero in the case of
certain Notes issued at a price representing a substantial discount from the
principal amount payable upon maturity, or a floating rate (a "Floating Rate
Note") as set forth therein and specified in the applicable Pricing Supplement.
Fixed Rate Notes may pay an amount in respect of both interest and principal
amortized over the life of the Note (an "Amortizing Note").
Interest on each Note (and principal on each Amortizing Note) is payable on
the dates set forth herein or in the applicable Pricing Supplement. Unless
otherwise specified in the applicable Pricing Supplement, the Notes may not be
redeemed by the Company prior to maturity and will be issued in fully registered
form in denominations of U.S.$1,000 (or, in the case of Notes not denominated in
U.S. dollars, the equivalent thereof in the Specified Currency, rounded down to
the nearest 1,000 units of the Specified Currency) or any amount in excess
thereof which is an integral multiple of 1,000 U.S. dollars or units of the
Specified Currency.
Notes issued in Specified Currencies other than the U.S. dollar may subject
a U.S. holder to currency exchange risks. See "Important Currency Exchange
Information" and "Foreign Currency Risks" beginning on page S-2 for certain
information that should be considered by prospective investors.
Each Note will be issued either in certificated form (a "Certificated Note")
registered in the name of the holder or its nominee or in global form (a "Global
Note") registered in the name of a nominee of The Depository Trust Company, the
depositary (the "Depositary"), as set forth in the applicable Pricing
Supplement. Interests in Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants ("Book-Entry Notes"). Book-Entry Notes will not be issuable as
Certificated Notes except under the circumstances described in the accompanying
Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR ANY SUPPLEMENT HERETO OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
Price to Agents' Proceeds to
Public(1) Commissions(2) Company(2)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note............................ 100% .100%-.750% 99.900%-99.250%
Total(4)(5)......................... $500,000,000 $500,000-$3,750,000 $499,500,000-$496,250,000
</TABLE>
- ---------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be issued at 100% of their principal amount.
(2) The Company will pay to the Agents named below or others (collectively, the
"Agents") a commission ranging from .100% to .750% of the principal amount
of any Note, depending upon the maturity of the Note, sold through such
Agent. The Company may also sell Notes to the Agents or others, as
principal, at negotiated discounts, for resale to investors and other
purchasers.
(3) Assuming Notes are issued at 100% of their principal amount and before
deducting expenses payable by the Company estimated at $350,000, including
reimbursement of certain of the Agents' expenses.
(4) Or the equivalent thereof in other currencies, including composite
currencies.
(5) As such amount may be reduced by the aggregate principal amount issued and
sold of the Euro Notes. See "Plan of Distribution."
----------------------------
Offers to purchase the Notes are being solicited from time to time by the
Agents on behalf of the Company. The Agents have agreed to use their reasonable
best efforts to solicit purchases of such Notes. The Company may also sell Notes
to the Agents acting as principal for their own account for resale to one or
more investors and other purchasers at varying prices related to prevailing
market prices at the time of resale, to be determined by the Agents. In
addition, the Company may sell the Notes directly to investors in those
jurisdictions where such offering by the Company is authorized. No termination
date for the offering of the Notes has been established. The Company or the
Agents may reject any offer in whole or in part. The Notes will not be listed on
any securities exchange, and there can be no assurance that the Notes offered
hereby will be sold or that there will be a secondary market for the Notes. See
"Plan of Distribution."
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
February 27, 1998
<PAGE> 2
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN OR THEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BELLSOUTH CORPORATION ("BELLSOUTH") OR BY THE AGENTS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR BELLSOUTH SINCE THE DATES AS OF WHICH INFORMATION
IS GIVEN HEREIN OR THEREIN. THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
------------------------------
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in the Specified Currency, and
payments of principal of, and interest on, such Notes will be made in the
Specified Currency, unless otherwise provided in the applicable Pricing
Supplement. Currently, there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies, and vise versa. Accordingly,
payment of principal of and interest on Notes in a Specified Currency other than
U.S. dollars will be made from an account at a bank outside of the United
States, unless alternative arrangements are made. (See "Description of Notes"
and "Foreign Currency Risks.")
If the applicable Pricing Supplement provides for payments of principal and
interest on a non-U.S. dollar denominated Note to be made in U.S. dollars, or
for payments of principal and interest on a U.S. dollar denominated Note to be
made in a Specified Currency other than U.S. dollars, the conversion of the
Specified Currency into U.S. dollars or U.S. dollars into the Specified
Currency, as the case may be, will be handled by The Bank of New York in its
capacity as Exchange Rate Agent. The costs of such conversion will be borne by
the holder of a Note through deduction from such payments.
References herein to "U.S. dollars" or "U.S.$" or "$" are to the currency
of the United States of America.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in a Specified Currency other
than U.S. dollars entails significant risks that are not associated with a
similar investment in a security denominated in U.S. dollars. Such risks
include, without limitation, the possibility of significant changes in rates of
exchange between the U.S. dollar and the various foreign currencies and the
possibility of the imposition or modification of foreign exchange controls by
either the U.S. or foreign governments. Such risks generally depend on economic
and political events over which the Company and BellSouth have no control. In
recent years, rates of exchange between U.S. dollars and certain foreign
currencies have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
such rate that may occur during the term of any Note. Depreciation of the
currency specified in a Note against the U.S. dollar would result in a decrease
in the
S-2
<PAGE> 3
effective yield of such Note below its coupon rate, and in certain circumstances
could result in a loss to the investor on a U.S. dollar basis.
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS DO NOT DESCRIBE ALL
THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A FOREIGN CURRENCY OR A
COMPOSITE CURRENCY AND THE COMPANY AND BELLSOUTH DISCLAIM ANY RESPONSIBILITY TO
ADVISE PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS
ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN SPECIFIED CURRENCIES OTHER
THAN U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS
WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Notes denominated in foreign currencies other than ECUs will not be sold
in, or to residents of, the country of the Specified Currency in which
particular Notes are denominated.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company and
BellSouth disclaim any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase of, holding of, or receipt of payments of principal
of and interest on, the Notes. Such persons should consult their own counsel
with regard to such matters.
Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at the time of payment of principal of, and
premium, if any, or interest on a Note. Even if there are no actual exchange
controls, it is possible that the Specified Currency for any particular Note
would not be available at such Note's maturity. In that event, the Company would
make required payments in U.S. dollars on the basis of the Market Exchange Rate
on the date of such payment, or if such rate of exchange is not then available,
on the basis of the Market Exchange Rate as of the most recent Record Date. (See
"Description of Notes -- Payment Currency.")
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. In the event an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a court in the
United States, it is likely that such court would grant judgment relating to the
Notes only in U.S. dollars. If an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a New York court,
however, such court would render or enter a judgment or decree in the Specified
Currency. Such judgment would then be converted into U.S. dollars at the rate of
exchange prevailing on the date of entry of the judgment or decree. The
Indenture provides that the rate of exchange to be used in determining any such
judgment shall be such reasonable basis for exchange as the Company may specify
in a written notice to the Trustee or, in absence of such written notice, as the
Trustee may determine.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
BellSouth Corporation ("BellSouth") and its consolidated subsidiaries for the
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- --------------------------------
1997 1996 1995 1994 1993
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
7.17x 6.55x 4.24x 5.34x 2.98x
</TABLE>
For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, gross interest expense, such portion of rental
expense representative of the interest factor on such rentals and equity in
losses from less-than-50%-owned investments (accounted for under the equity
method of account-
S-3
<PAGE> 4
ing) less the excess of earnings over distributions from less-than-50%-owned
investments (accounted for under the equity method of accounting); (ii) fixed
charges are comprised of gross interest expense and such portion of rental
expense representative of the interest factor on such rentals.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Securities set forth in
the Prospectus, to which description reference is hereby made. The particular
terms of the Notes offered by any pricing supplement (a "Pricing Supplement")
will be described therein. The terms and conditions set forth in "Description of
Notes" will apply to each Note unless otherwise specified herein or in the
applicable Pricing Supplement and in such Note.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal
and interest with respect to such Note are to be paid, along with any other
terms relating to the non-U.S. dollar denomination, including exchange rates for
the Specified Currency as against the U.S. dollar at selected times during the
last five years, and any exchange controls affecting such Specified Currency.
(See "Foreign Currency Risks.")
GENERAL
The Notes offered hereby constitute a single series of Notes, and the Euro
Notes, if any, will constitute a separate single series of notes to be issued
under the Indenture referred to in the Prospectus. The Notes and the Euro Notes
may be issued from time to time in such amounts as will result in aggregate net
proceeds to the Company of up to $500,000,000 or the equivalent thereof in one
or more foreign or composite currencies. Such amount may be increased from time
to time as authorized by, or pursuant to authority delegated by, the Board of
Directors of the Company.
The Notes will mature on any day from nine months to 40 years from the date
of issue, as selected by the purchaser and agreed to by the Company. For this
purpose, (i) the principal amount of any Original Issue Discount Note (as
defined below) means the Issue Price (as defined below) of such Note and (ii)
the principal amount of any Note issued in a foreign currency or composite
currency means the U.S. dollar equivalent on the trade date of the Issue Price
of such Note. Except as may be specified for Notes denominated in foreign
currencies or ECUs or as otherwise provided in the Pricing Supplement, the Notes
will be issued only in fully registered form in denominations of U.S. $1,000 or
any amount in excess thereof which is an integral multiple of U.S. $1,000.
Except as otherwise required by applicable law, notes denominated in a
Specified Currency will be issued in denominations of the equivalent of U.S.
$1,000 (rounded down to an integral multiple of 1,000 units of such Specified
Currency), or any amount in excess thereof which is an integral multiple of
1,000 units of such Specified Currency as determined by the Federal Reserve Bank
of New York for the noon buying rate in New York City for cable transfers of
such Specified Currency (the "Market Exchange Rate") on the Business Day
immediately preceding the date of issuance; provided, however, in the case of
ECUs, Market Exchange Rate shall be the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities, or any successor
publication, on the Business Day immediately preceding the date of issuance.
The Notes will be offered on a continuing basis. Interest rates offered by
the Company with respect to the Notes may differ depending upon, among other
things, the aggregate principal amount of Notes purchased in any single
transaction.
The applicable Pricing Supplement will specify whether the related Note
will be issued as a Certificated Note or a Book-Entry Note, the interest rate or
interest rate formula, maturity and any other terms on which each Note will be
issued.
S-4
<PAGE> 5
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund and will not be redeemable prior to
maturity.
Principal and interest will be payable, transfer of the Notes will be
registrable and the Notes will be exchangeable (except as described in
"Book-Entry System") at the agency in the Borough of Manhattan, the City of New
York, which on the date hereof is at the office of The Bank of New York, 101
Barclay Street, New York, New York.
Payments of interest on Notes in a currency other than U.S. dollars will be
made by mailing a check, a draft or by wire transfer as agreed to by the
Noteholders and the Company in the Specified Currency from an account at a bank
outside of the United States.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in the City of New York or Atlanta and
(i) with respect to Notes denominated in a Specified Currency other than U.S.
dollars or ECUs, in the principal financial center of the country of the
Specified Currency, (ii) with respect to Notes denominated in ECUs or other
composite currencies, in Brussels, that is not a non-ECU clearing day (as
determined by the ECU Banking Association in Paris) and (iii) with respect to
LIBOR Notes (as defined below), that is also a London Banking Day. "London
Banking Day" means any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.
An "Interest Payment Date" or "Installment Date" with respect to any Note
shall be a date on which, under the terms of such Note, regularly scheduled
interest or, in the case of an Amortizing Note, principal and interest,
respectively, shall be payable.
"Original Issue Discount Note" means (i) any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the Indenture
and (ii) any other Note which for United States federal income tax purposes
would be considered an original issue discount note.
The "Record Date" with respect to any Interest Payment Date shall be the
date 15 calendar days prior to such Interest Payment Date, whether or not such
Interest Payment Date shall be a Business Day; provided, with respect to
interest payable at maturity (whether or not the date of maturity is an Interest
Payment Date) the Record Date for such interest payment due on such date shall
be the date of maturity.
The Notes will be general unsecured obligations of the Company but will be
entitled to the benefits of a Support Agreement with BellSouth as described in
the accompanying Prospectus.
PAYMENT CURRENCY
If the applicable Pricing Supplement provides for payments of interest and
principal on non-U.S. dollar denominated Notes to be made, at the option of the
Noteholders, in U.S. dollars, conversion of the Specified Currency into U.S.
dollars will be based on the highest bid quotation in the City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M. New York City
time on the second Business Day preceding the applicable payment date from three
recognized foreign exchange dealers (one of which may be the Exchange Rate
Agent) for the purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on such payment date in the aggregate amount of the
Specified Currency payable to the holders of Notes and at which the applicable
dealer commits to execute a contract. If such bid quotations are not available,
payments will be made in the Specified Currency. All currency exchange costs
will be borne by the holders of Notes by deductions from such payments.
Except as set forth below, if the principal of, or interest on, any Note is
payable in a Specified Currency other than U.S. dollars and such Specified
Currency is not available to the Company for making payments thereof due to the
imposition of exchange controls or other circumstances beyond the control of the
Company, or is no longer used by the government of the country issuing such
currency or for the settlement of transactions by public institutions within the
international banking community, the Company will be entitled to satisfy its
obligations to holders of the Notes by making such payments in U.S. dollars on
the basis of the
S-5
<PAGE> 6
Market Exchange Rate on the date of such payment or if such date of exchange is
not available as of the most recent available date. Any payment made under such
circumstances in U.S. dollars where the required payment is in a Specified
Currency other than U.S. dollars will not constitute an Event of Default, as
defined in the accompanying Prospectus.
If payment in respect of a Note is required to be made in ECUs and ECUs are
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or are no longer used in the European Monetary
System, then all payments in respect of such Note shall be made in U.S. dollars
until ECUs are again available or so used. The amount of each payment in U.S.
dollars shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior to
the date on which such payment is due.
The equivalent of the ECU in U.S. dollars as of any date shall be
determined by the Company or its agent on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the currency
amounts that were components of the ECU as of the last date on which the ECU was
used in the European Monetary System. The equivalent of the ECU in U.S. dollars
shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by the Company or such agent on the basis of the most recently
available Market Exchange Rates for such Components.
PAYMENTS OF PRINCIPAL AND INTEREST
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof until the principal thereof is paid or
made available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest on Fixed Rate Notes will be computed on the basis of a
360-day year of twelve 30-day months. Interest will be payable to the person in
whose name the Note is registered at the close of business on the applicable
Record Date; provided, that interest payable at maturity (whether or not the
date of maturity is an Interest Payment Date) will be payable to the person to
whom principal is payable. Unless otherwise specified in the applicable Pricing
Supplement, payments of principal and interest on Amortizing Notes will be made
either quarterly on the 1st day of March, June, September and December or
semiannually on the 1st day of March and September, as set forth in the
applicable Pricing Supplement, and at maturity. The initial interest payment on
a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date or Installment Date may be paid
on the next succeeding Interest Payment Date or Installment Date to the holder
of record on the Record Date with respect to such succeeding Interest Payment
Date or Installment Date. (See "Taxation -- Original Issue Discount Notes".) If
any Interest Payment Date relating to a Fixed Rate Note or Installment Date for
any Note would otherwise be a day that is not a Business Day, the payment will
be postponed to the next day that is a Business Day, and no interest on such
payment shall accrue for the period from and after the Interest Payment Date or
Installment Date. Interest rates are subject to change without notice by the
Company from time to time, but no such change will affect any Notes theretofore
issued.
Payment of interest (or, in the case of Amortizing Notes, principal and
interest other than principal and interest due at maturity ("Installments")) on
Notes in registered form may be made by check mailed to the address of the
person entitled thereto as it appears on the Note register. Notwithstanding the
foregoing, (a) the Depositary, as holder of record of Global Notes, shall be
entitled to receive payments of interest or Installments by wire transfer of
immediately available funds and (b) a holder of record of $10 million or more in
aggregate principal amount of Certificated Notes having the same Interest
Payment Date or Installment Date (whether or not other terms of such
Certificated Notes are identical) shall be entitled to receive payments of
interest or Installments by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received by the Paying Agent
not less than 15 days prior to the applicable Interest Payment Date or
Installment Date. Payments at maturity will be made only upon presentation and
surrender thereof at the corporate trust office of the Paying Agent or such
other office or agency designated by BellSouth.
S-6
<PAGE> 7
Certain of the Notes may be considered to be issued with original issue
discount which must be included in income for United States federal income tax
purposes. (See "Taxation -- Original Issue Discount Notes".) Special
considerations applicable to any such Notes will be described in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable on March 1 and September 1 of each year and
at maturity. Except as provided below, unless otherwise specified in the
applicable Pricing Supplement, interest on Floating Rate Notes will be payable:
(i) in the case of Notes with a daily, weekly or monthly Interest Reset Date (as
defined below), on the third Wednesday of each month or on the third Wednesday
of March, June, September and December, as specified in the applicable Pricing
Supplement; (ii) in the case of Notes with a quarterly Interest Reset Date, on
the third Wednesday of March, June, September and December; (iii) in the case of
Notes with a semiannual Interest Reset Date, on the third Wednesday of the two
months specified in the applicable Pricing Supplement; and (iv) in the case of
Notes with an annual Interest Reset Date, on the third Wednesday of the month
specified in the applicable Pricing Supplement. If any Interest Payment Date
(other than the maturity date) for any Floating Rate Note would fall on a day
that is not a Business Day, such Interest Payment Date will be postponed to the
following day that is a Business Day, except that in the case of a LIBOR Note,
if such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding day that is a Business Day. If
the maturity date of a Floating Rate Note (including a LIBOR Note) would fall on
a day that is not a Business Day, the payment of principal and interest will be
made on the next succeeding Business Day, and no interest on such payments shall
accrue for the period from and after such maturity date.
Each Floating Rate Note will bear interest at a rate determined by
reference to an interest rate basis (the "Base Rate"), which may be adjusted by
a Spread or Spread Multiplier (each as defined below). The applicable Pricing
Supplement will designate one of the following Base Rates as applicable to each
Floating Rate Note: (a) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (b) LIBOR (a "LIBOR Note"), (c) the Treasury Rate (a "Treasury Rate
Note") or (d) such other Base Rate as is set forth in such Pricing Supplement
and in such Floating Rate Note. The "Index Maturity" for any Floating Rate Note
is the period of maturity of the instrument or obligation from which the Base
Rate is calculated and will be specified in the applicable Pricing Supplement.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate which may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note will in no event be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application. Under
present New York law, the maximum rate of interest, with certain exceptions, is
25% per annum on a simple interest basis.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually (an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. Unless otherwise specified in
the Pricing Supplement, the Interest Reset Date will be, in the case of Floating
Rate Notes which reset daily, each Business Day; in the case of Floating Rate
Notes (other than Treasury Rate Notes) which reset weekly, the Wednesday of each
week; in the case of Treasury Rate Notes which reset weekly, the Tuesday of each
week (except as provided below); in the case of Floating Rate Notes which reset
monthly, the third Wednesday of each month; in the case of Floating Rate Notes
which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semiannually, the third
Wednesday of two months of each year, as specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset annually, the
third Wednesday of one month of each year, as specified in the applicable
Pricing Supplement; provided, however, that the interest rate in effect from the
date of issue to the first Interest Reset Date with respect to a Floating Rate
Note will be the Initial Interest Rate (as set forth in the applicable Pricing
Supplement). If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date shall be
postponed to the next succeeding Business Day, except that in the case of a
LIBOR Note, if such Business
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Day is in the next succeeding calendar month, such Interest Reset Date shall be
the immediately preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, or (ii) multiplied by
the Spread Multiplier, if any. The "Spread" is the number of basis points (one
one-hundredth of a percentage point) specified in the applicable Pricing
Supplement as being an adjustment to the interest rate for such Floating Rate
Note, and the "Spread Multiplier" is the percentage specified in the applicable
Pricing Supplement as being applicable to the interest rate for such Floating
Rate Note.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments shall be the amount of interest accrued from the date of issue or from
the last date to which interest has been paid to, but excluding, the Interest
Payment Date (an "Interest Period"). In the case of a Floating Rate Note on
which interest is reset daily or weekly, interest payments shall be, unless
otherwise specified, the amount of interest accrued from the date of issue or
from the last date to which interest has been paid, as the case may be, to, and
including, the Record Date immediately preceding such Interest Payment Date,
except that at maturity, the interest payable will include interest accrued to,
but excluding, the maturity date.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the Interest Period or from the last
date from which accrued interest is being calculated. The interest factor for
each such day is computed by dividing the interest rate applicable to such day
by 360, in the cases of Commercial Paper Rate Notes and LIBOR Notes, or by the
actual number of days in the year in the case of Treasury Rate Notes. The
interest rate applicable to any day that is an Interest Reset Date is the
interest rate for such Interest Reset Date. The interest rate applicable to any
other day is the interest rate from the immediately preceding Interest Reset
Date (or, if none, the Initial Interest Rate, as described below).
The applicable Pricing Supplement shall specify a calculation agent (the
"Calculation Agent") with respect to any issue of Floating Rate Notes. Upon the
request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
which will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.
All percentages resulting from any calculation on the rate of interest on a
Floating Rate Note will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point (.0000001), with five one-millionths of
a percentage point rounded upward, and all dollar amounts used in or resulting
from such calculation on Floating Rate Notes will be rounded to the nearest cent
(with one-half cent rounded upward).
The interest rate in effect with respect to a Floating Rate Note from the
Issue Date to the first Interest Reset Date (the "Initial Interest Rate") will
be specified in the applicable Pricing Supplement. The interest rate for each
subsequent Interest Reset Date will be determined by the Calculation Agent as
follows:
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any) specified in the Commercial Paper Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Commercial Paper Rate" for each Interest Reset Date will be determined on the
Calculation Date (as defined below) by the Calculation Agent as of the second
Business Day prior to such Interest Reset Date (a "Commercial Paper Interest
Determination Date") and shall be the Money Market Yield (as defined below) on
such Commercial Paper Interest Determination Date of the rate for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement,
as such rate shall be published by the Board of Governors of the Federal Reserve
System in "Statistical Release H.15(519), Selected Interest Rates"
("H.15(519)"), or any successor publication, under the caption "Commercial
Paper -- Nonfinancial". In the event that such rate is not published prior to
9:00 A.M., New York City time, on the Calculation Date, then the Commercial
Paper Rate shall be the
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Money Market Yield on such Commercial Paper Interest Determination Date of the
rate for commercial paper of the specified Index Maturity as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" ("Composite Quotations")
under the heading "Commercial Paper". If by 3:00 P.M., New York City time, on
such Calculation Date such rate is not yet available in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate shall be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date of three leading
dealers of commercial paper in the City of New York selected by the Calculation
Agent for commercial paper of the specified Index Maturity, placed for an
industrial issuer whose bond rating is "AA", or the equivalent, from a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting offered rates as
mentioned in this sentence, the rate of interest in effect for the applicable
period will be the rate of interest in effect on such Commercial Paper Interest
Determination Date.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<C> <C> <S>
D X 360
Money Market Yield = -------------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the period for which interest is being calculated.
The interest rate for each such Interest Reset Date shall be the Commercial
Paper Rate applicable to such Interest Reset Date plus or minus the Spread or
multiplied by the Spread Multiplier, as specified in the applicable Pricing
Supplement; however, the interest rate in effect for the period from the Issue
Date to the first Interest Reset Date will be the Initial Interest Rate. In
addition, if any Commercial Paper Rate Note is issued between a Record Date and
the related Interest Payment Date, and such Note has weekly Interest Reset
Dates, then, notwithstanding the fact that an Interest Reset Date will occur
prior to such Interest Payment Date, the Initial Interest Rate set forth in the
Pricing Supplement applicable to such Note shall remain in effect through the
first Interest Reset Date occurring on or subsequent to such Interest Payment
Date. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date" pertaining to a Commercial Paper Interest Determination Date
will be the earlier of (i) the 10th calendar day after such Commercial Paper
Interest Determination Date, or, if such day is not a Business Day, the next
succeeding Business Day, or (ii) the Business Day preceding each Interest
Payment Date or Maturity Date, as the case may be.
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified in the
LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Reset Date will be determined by the Calculation Agent as
follows:
(i) On the second London Banking Day prior to the Interest Reset Date
(a "LIBOR Determination Date"), the Calculation Agent will determine (a)
the arithmetic mean of the offered rates for deposits in United States
dollars for the period of the Index Maturity which appear on the Reuters
Screen LIBO Page at approximately 11:00 A.M., London time, on such LIBOR
Determination Date if at least two such offered rates appear on the Reuters
Screen LIBO Page ("LIBOR Reuters"), or (b) the rate for deposits in United
States dollars for the period of the Index Maturity that appears on the
Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date ("LIBOR Telerate"). "Reuters Screen LIBO Page" means the
display designated as Page "LIBO" on the Reuters Monitor Money Rate Service
(or such other page as may replace the LIBO page on the service for the
purpose of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page "3750" on the
Telerate Service (or such other page as may replace the 3750 page on
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<PAGE> 10
that service or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR
Telerate is specified in the applicable Pricing Supplement, LIBOR will be
determined as if LIBOR Telerate had been specified. If fewer than two
offered rates appear on the Reuters Screen LIBO Page, or if no rate appears
on the Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in (ii) below.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page or the rate appears on Telerate Page 3750, the Calculation Agent will
request the principal London offices of each of four major banks in the
London interbank market, as selected by the Calculation Agent, to provide
the Calculation Agent with its offered quotations for deposits in the
United States dollars for the period of the Index Maturity to prime banks
in the London interbank market at approximately 11:00 A.M., London time, on
such LIBOR Determination Date and in a principal amount equal to an amount
of not less than U.S. $1 million that is representative of a single
transaction in such market at such time. If at least two such quotations
are provided, LIBOR will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR in respect of that LIBOR
Determination Date will be the arithmetic mean of rates quoted by three
major banks in the City of New York selected by the Calculation Agent
(after consultation with the Company) at approximately 11:00 A.M., New York
City time, on such LIBOR Determination Date for loans in U.S. dollars to
leading European banks, for the period of the Index Maturity and in a
principal amount equal to an amount of not less than U.S. $1 million that
is representative for a single transaction in such market to such time;
provided, however, that if fewer than three banks selected as aforesaid by
the Calculation Agent are quoting rates as mentioned in this sentence, the
rate of interest in effect for the applicable period will be the rate of
interest in effect on such LIBOR Interest Determination Date.
The interest rate for each Interest Reset Date shall be LIBOR plus or minus
the Spread or multiplied by the Spread Multiplier as specified in the applicable
Pricing Supplement; provided, however, the interest rate in effect for the
period from the Issue Date to the first Interest Reset Date will be the Initial
Interest Rate. In addition, if any LIBOR Note is issued between a Record Date
and the related Interest Payment Date, and such Note has weekly Interest Reset
Dates, then, notwithstanding the fact that an Interest Reset Date will occur
prior to such Interest Payment Date, the Initial Interest Rate set forth in the
Pricing Supplement applicable to such Note shall remain in effect through the
first Interest Reset Date occurring on or subsequent to such Interest Payment
Date.
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
specified in the Treasury Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Reset Date, the rate for the
auction held on the Treasury Rate Determination Date, as defined below,
pertaining to such Interest Reset Date of direct obligations of the United
States ("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills -- auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Treasury Rate
Determination Date, the auction average rate (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) as otherwise announced by the United States Department of the Treasury.
In the event that the results of the auction of Treasury Bills having the Index
Maturity designated in the applicable Pricing Supplement are not published or
reported as provided above by 3:00 P.M., New York City time, on such Calculation
Date or if no such auction is held on such Treasury Rate Determination Date,
then the Treasury Rate shall be calculated by the Calculation Agent and shall be
a yield to maturity (expressed as a bond equivalent, on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the arithmetic
mean of the secondary market bid rates, as of approximately 3:30 P.M., New York
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City time, on such Treasury Rate Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent
for the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement; provided, however,
that if the dealers selected as aforesaid by the Calculation Agent are not
quoting bid rates as mentioned in this sentence, the Treasury Rate for such
Interest Reset Date will be the Treasury Rate in effect on such Treasury Rate
Determination Date.
The "Treasury Rate Determination Date" pertaining to an Interest Reset Date
will be the day of the week in which such Interest Reset Date falls on which
Treasury Bills would normally be auctioned. Treasury Bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as a result of a legal holiday,
an auction is so held on the preceding Friday, such Friday will be the Treasury
Rate Determination Date pertaining to the Interest Reset Date occurring in the
next succeeding week. If an auction should fall on an Interest Reset Date, then
such Interest Reset Date shall be postponed to the next succeeding Business Day.
The interest rate for each such Interest Reset Date shall be the Treasury
Rate plus or minus the Spread or multiplied by the Spread Multiplier as
specified in the applicable Pricing Supplement; provided, however, the interest
rate in effect for the period from the Issue Date to the first Interest Reset
Date will be the Initial Interest Rate. In addition, if any Treasury Rate Note
is issued between a Record Date and the related Interest Payment Date, and such
Note has weekly Interest Reset Dates, then, notwithstanding the fact that an
Interest Reset Date will occur prior to such Interest Payment Date, the Initial
Interest Rate set forth in the Pricing Supplement applicable to such Note shall
remain in effect through the first Interest Reset Date occurring on or
subsequent to such Interest Payment Date. The "Calculation Date" pertaining to a
Treasury Rate Determination Date will be the earlier of (i) the 10th calendar
day after such Treasury Rate Determination Date, or, if such day is not a
Business Day, the next succeeding Business Day, or (ii) the Business Day
preceding each Interest Payment Date or Maturity Date, as the case may be.
PAYMENTS ON AMORTIZING NOTES
Amortizing Notes are securities for which payments of principal and
interest are made in Installments over the life of the security. Interest on
each Amortizing Note will be computed on the basis of a 360-day year of twelve
30-day months. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in respect
of each Amortizing Note will be provided to the original purchaser and will be
available, upon request, to subsequent holders.
BOOK-ENTRY SYSTEM
Upon issuance, all Book-Entry Notes having the same issue date, interest
rate, if any, amortization schedule, if any, and maturity date will be
represented by a single Global Note. Each Global Note representing Book-Entry
Notes will be deposited with, or on behalf of, the Depositary and registered in
the name of a nominee of the Depositary. Certificated Notes will not be
exchangeable for Book-Entry Notes and, except under the circumstances described
in the Prospectus under "Description of Securities -- Registered Global
Securities," Book-Entry Notes will not be exchangeable for Certificated Notes
and will not otherwise be issuable as Certificated Notes.
A further description of the Depositary's procedures with respect to Global
Notes representing Book-Entry Notes is set forth in the Prospectus under
"Description of Securities -- Registered Global Securities." The Depositary has
confirmed to the Company that it intends to follow such procedures.
TAXATION
In the opinion of Davis Polk & Wardwell, special tax counsel to the Company
and BellSouth, the following summary accurately describes the principal United
States federal income tax consequences of
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ownership and disposition of the Notes. The discussion addresses only initial
holders who purchase the Notes at their "issue price," that is, the first price
at which a substantial amount of such Notes is sold for money to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers). This summary
discusses only Notes held as capital assets within the meaning of Section 1221
of the Code. It does not discuss all of the tax consequences that may be
relevant to a holder in light of his particular circumstances or to holders
subject to special rules, such as financial institutions, tax-exempt
organizations, insurance companies, regulated investment companies, dealers in
securities or foreign currencies, persons holding Notes as a hedge or as a
position in a "straddle," conversion transaction, or other integrated
transaction, or whose functional currency (as defined in Section 985 of the
Code) is not the United States dollar. This summary is based on the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), existing
administrative pronouncements and judicial decisions and existing and proposed
Treasury Regulations currently in effect, including regulations concerning the
treatment of debt instruments issued with original issue discount (the "OID
Regulations"), changes to any of which subsequent to the date of this Prospectus
Supplement may affect the tax consequences described herein. Persons considering
the purchase of Notes should consult their tax advisors with regard to the
application of the United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
As used herein, the term "Holder" means an owner of a Note that is for
United States federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
Payments of Interest. Interest paid on a Note will generally be taxable to
a Holder as ordinary interest income at the time it accrues or is received in
accordance with the Holder's method of accounting for federal income tax
purposes. Under the OID Regulations, all payments of interest on a Note that
matures one year or less from its date of issuance will be included in the
stated redemption price at maturity of the Notes and will be taxed in the manner
described below under "Original Issue Discount Notes." Special rules governing
the treatment of interest paid with respect to Original Issue Discount Notes,
including certain Floating Rate Notes and Foreign Currency Notes, are described
under "Original Issue Discount Notes" and "Foreign Currency Notes".
Original Issue Discount Notes. A Note that is issued for an amount less
than its stated redemption price at maturity will generally be considered to
have been issued at an original issue discount for federal income tax purposes
(an "Original Issue Discount Note"). The stated redemption price at maturity of
a Note will equal the sum of all payments required under the Note other than
payments of "qualified stated interest." "Qualified stated interest" is stated
interest unconditionally payable as a series of payments in cash or property
(other than debt instruments of the issuer) at least annually during the entire
term of the Note and equal to the outstanding principal balance of the Note
multiplied by a single fixed rate of interest. In addition, stated interest on
Floating Rate Notes that is based on a single qualified floating rate (such as
Commercial Paper Rate, LIBOR or Treasury Rate) will generally constitute
qualified stated interest if such interest is unconditionally payable at least
annually during the term of the Note. If interest on a debt instrument is stated
at a fixed rate for an initial period of one year or less followed by a variable
rate that is a qualified floating rate for a subsequent period, and the value of
the variable rate on the issue date is intended to approximate the fixed rate,
the fixed rate and the variable rate together constitute a single qualified
floating rate. Two or more rates will be conclusively presumed to meet the
requirements of the preceding sentences if the values of the applicable rates on
the issue date are within 1/4 of 1 percent of each other. Special tax
considerations (including possible original issue discount) may arise with
respect to Floating Rate Notes providing for (i) one Base Rate followed by one
or more Base Rates, (ii) a single fixed rate followed by a qualified floating
rate or (iii) a Spread Multiplier. Purchasers of Floating Rate Notes with any of
such features should carefully examine the applicable Pricing Supplement and
should consult their tax advisors with respect to such a feature since the tax
consequences will depend, in part, on the particular terms of the purchased
Note. Special rules may also apply if a Floating Rate Note is subject to a cap,
floor, governor or similar restrictions that is not fixed
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throughout the term of the Note and is reasonably expected as of the issue date
to cause the yield on the Note to be significantly less or more than the
expected yield determined without the restriction.
If the difference between a Note's stated redemption price at maturity and
its issue price is a de minimis amount, i.e., less than 1/4 of 1 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, regardless of whether cash payments attributable to
such income are received.
Under the OID Regulations, a Note that matures one year or less from its
date of issuance will be treated as a "short-term Original Issue Discount Note."
In general, a cash method Holder of a short-term Original Issue Discount Note is
not required to accrue original issue discount for United States federal income
tax purposes unless it elects to do so. Holders who make such an election,
Holders who report income for federal income tax purposes on the accrual method
and certain other Holders, including banks and dealers in securities, are
required to include original issue discount in income on such short-term
Original Issue Discount Notes as it accrues on a straight-line basis, unless an
election is made to accrue the original issue discount according to a constant
yield method based on daily compounding. In the case of a Holder who is not
required and who does not elect to include original issue discount in income
currently, any gain realized on the sale, exchange or retirement of the
short-term Original Issue Discount Note will be ordinary income to the extent of
the original issue discount accrued on a straight-line basis (or, if elected,
according to a constant yield method based on daily compounding), reduced by any
interest received, through the date of sale, exchange or retirement. In
addition, such Holders will be required to defer deductions for any interest
paid on indebtedness incurred to purchase or carry short-term Original Issue
Discount Notes in an amount not exceeding the deferred interest income, until
such deferred interest income is recognized.
Under the OID Regulations, a Holder may make an election (the "Constant
Yield Election") to include in gross income all interest that accrues on a Note
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) in accordance with a constant yield method based on the
compounding of interest.
The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one type of Note is issued as part of the same
issuance of securities to a single holder, some or all of such Notes may be
treated together as a single debt instrument with a single issue price, maturity
date, yield to maturity and stated redemption price at maturity for purposes of
calculating and accruing any original issue discount. Unless otherwise provided
in the related Pricing Supplement, the Company does not expect to treat any of
the Notes as being subject to the aggregation rules for purposes of computing
original issue discount.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange or
retirement of a Note, a Holder generally will recognize taxable gain or loss
equal to the difference between the amount realized on the sale, exchange or
retirement and such Holder's adjusted tax basis in the Note. For these purposes,
the amount realized does not include any amount attributable to accrued interest
on the Note. Amounts attributable to accrued interest are treated as interest as
described under "Payments of Interest" above. A Holder's adjusted tax basis in a
Note generally will equal the cost of the Note to such Holder, increased by the
amounts of any original issue discount previously includible in income by the
Holder with respect to such Note and reduced by any principal payments received
by the Holder, any amortizable bond premium used to offset qualified stated
interest or allowed as a deduction as described below under "Amortizable Bond
Premium" and, in the case of an Original Issue Discount Note, by the amounts of
any other payments that do not constitute qualified stated interest (as defined
above).
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Subject to the discussion under "Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a Note generally will be
capital gain or loss (except, in the case of a short-term Original Issue
Discount Note, to the extent of any original issue discount not previously
included in the Holder's taxable income), and will be long-term capital gain or
loss if at the time of sale, exchange or retirement the Note has been held for
more than one year. See "Original Issue Discount Notes" above. Prospective
investors should consult their tax advisers regarding the treatment of capital
gains (which may be taxed at lower rates than ordinary income for certain
taxpayers who are individuals) and losses (the deductibility of which is subject
to limitations).
Amortizable Bond Premium. Under the Code and regulations, including new
regulations generally effective for bonds acquired on or after March 2, 1998 (or
by a certain election), if a Holder purchases a Note for an amount that is
greater than the amount payable at maturity, the Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess, and may elect as prescribed in regulations to amortize such premium over
the remaining term of the Note, based on the Holder's yield to maturity with
respect to the Note as determined under the bond premium rules. A Holder may
generally use the amortizable bond premium allocable to an accrual period to
offset qualified stated interest required to be included in the holder's income
with respect to the Note in that accrual period. Under the new regulations, if
the amortizable bond premium allocable to an accrual period exceeds the amount
of qualified stated interest allocable to such accrual period, such excess would
be allowed as a deduction for such accrual period, but only to the extent of the
Holder's prior interest inclusions on the Note; any excess is generally carried
forward and allocable to the next accrual period. A Holder who elects to
amortize bond premium must reduce his tax basis in the Note as described above
under "Sale, Exchange or Retirement of the Notes." An election to amortize bond
premium applies to all taxable debt obligations held by the Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and may be revoked only with the consent of the Internal Revenue
Service. The new regulations provide a restrictive automatic consent for a
Holder to change its method of accounting for eligible bond premium in certain
circumstances, if the change is made for the first taxable year for which the
Holder must account for the bond under the new regulations.
If a Holder makes a Constant Yield Election for a Note with amortizable
bond premium, such election will result in a deemed election to amortize bond
premium for all of the Holder's appertaining debt instruments with amortizable
bond premium and may be revoked only with the permission of the Internal Revenue
Service with respect to debt instruments acquired after revocation.
Foreign Currency Notes. The following summary relates to Notes that are
denominated in a currency or currency unit other than the U.S. dollar ("Foreign
Currency Notes").
A Holder who uses the cash method of accounting and who receives a
qualified stated interest payment in a foreign currency with respect to a
Foreign Currency Note will be required to include in income the U.S. dollar
value of the foreign currency payment (determined on the date such payment is
received) regardless of whether the payment is in fact converted to U.S. dollars
at that time, and such U.S. dollar value will be the Holder's tax basis in the
foreign currency. A cash method Holder who receives such a payment in U.S.
dollars pursuant to an option available under such Note will be required to
include the amount of such payment in income upon receipt.
To the extent the above paragraph is not applicable, a Holder will be
required to include in income the U.S. dollar value of the amount of interest
income (including original issue discount, but reduced by amortizable bond
premium to the extent applicable) that has accrued and is otherwise required to
be taken into account with respect to a Foreign Currency Note during an accrual
period. The U.S. dollar value of such accrued income will be determined by
translating such income at the average rate of exchange for the accrual period
or, with respect to an accrual period that spans two taxable years, at the
average rate for the partial period within the taxable year. Such Holder will
recognize ordinary income or loss with respect to accrued interest income on the
date such income is actually received. The amount of ordinary income or loss
recognized will equal the difference between the U.S. dollar value of the
foreign currency payment received (determined on the date such payment is
received) in respect of such accrual period (or, where a Holder
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receives U.S. dollars, the amount of such payment in respect of such accrual
period) and the U.S. dollar value of interest income that has accrued during
such accrual period (as determined above). A Holder may elect to translate
interest income (including original issue discount) into U.S. dollars at the
spot rate on the last day of the interest accrual period (or, in the case of a
partial accrual period, the spot rate on the last day of the taxable year) or,
alternatively, if the date of receipt is within five business days of the last
day of the interest accrual period, the spot rate on the date of receipt. A
Holder that makes such an election must apply it consistently to all debt
instruments from year to year and cannot change the election without the consent
of the Internal Revenue Service.
Original issue discount and amortizable bond premium on a Foreign Currency
Note are to be determined in the relevant foreign currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a Holder who has not elected to amortize
such premium under Section 171 of the Code will be a capital loss to the extent
of such bond premium. If such an election is made, amortizable bond premium
taken into account on a current basis will reduce interest income in units of
the relevant foreign currency. Exchange gain or loss is realized on such
amortized bond premium with respect to any period by treating the bond premium
amortized in such period as a return of principal.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will equal
the difference between (i) the U.S. dollar value of the foreign currency
principal amount (as determined pursuant to regulations under Section 988 of the
Code) of such Note, and any payment with respect to accrued interest, determined
on the date such payment is received or such Note is disposed of, and (ii) the
U.S. dollar value of the foreign currency principal amount of such Note,
determined on the date such Holder acquired such Note, and the U.S. dollar value
of the accrued interest received, determined by translating such interest at the
average exchange rate (or at the spot rate elected as described above) for the
accrual period. Such foreign currency gain or loss will be recognized only to
the extent of the total gain or loss realized by a Holder on the sale, exchange
or retirement of the Foreign Currency Note. The source of such foreign currency
gain or loss will be determined by reference to the residence of the Holder or
the "qualified business unit" of the Holder on whose books the Note is properly
reflected. Any gain or loss realized by such a Holder in excess of such foreign
currency gain or loss will generally be capital gain or loss (except, in the
case of a short-term Original Issue Discount Note, to the extent of any original
issue discount not previously included in the Holder's income).
A Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Foreign Currency Note equal to the U.S. dollar
value of such foreign currency, determined at the time of such sale, exchange or
retirement. Regulations issued under Section 988 of the Code provide a special
rule for purchases and sales of publicly traded Foreign Currency Notes by a cash
method taxpayer under which units of foreign currency paid or received are
translated into U.S. dollars at the spot rate on the settlement date of the
purchase or sale. Accordingly, no exchange gain or loss will result from
currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual method taxpayer may elect the same treatment
required of cash-method taxpayers, provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a Holder on a sale or
other disposition of foreign currency (including its exchange for U.S. dollars
or its use to purchase Foreign Currency Notes) will be ordinary income or loss.
Backup Withholding. Certain noncorporate Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest
(including original issue discount, if any) on, and the proceeds of disposition
of, a Note. Backup withholding will apply only if the Holder (i) fails to
furnish its Taxpayer Identification Number ("TIN") which, for an individual,
would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the Internal Revenue Service that it has failed to properly report
payments of interest and dividends or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that it has furnished a correct TIN and has
not been notified by the Internal Revenue Service that
S-15
<PAGE> 16
it is subject to backup withholding for failure to report interest and dividend
payments. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through
the Agents, who have agreed to use their reasonable best efforts to solicit such
offers. The Company will have the sole right to accept offers to purchase Notes
and may reject any offer to purchase Notes in whole or in part. The Agents will
have the right to reject any offer to purchase Notes solicited by them in whole
or in part. Payment of the purchase price of the Notes will be required to be
made in immediately available funds. The Company will pay the Agents a
commission, in connection with sales of Notes to purchasers solicited by such
Agents, ranging from .100% to .750% of the principal amount of Notes so sold,
depending upon the maturity of the Notes.
The Company may also sell Notes to the Agents as principal for their own
account at discounts to be agreed upon at the time of sale. Unless otherwise
specified in the applicable Pricing Supplement, any Note sold to an Agent as
principal will be purchased by such Agent at 100% of the principal amount
thereof less a commission equal to an agency sale of identical maturity and may
be resold to investors and other purchasers at varying prices related to
prevailing market prices at the time of resale or, if so agreed, at a fixed
public offering price. The Agents may offer the Notes it has purchased as
principal to other dealers. The Agents may sell the Notes to any dealer at a
discount and, unless otherwise specified in the applicable Pricing Supplement,
such discounts allowed to any dealer will not be in excess of the discount to be
received by the Agents from the Company. After the initial public offering of
Notes that are to be resold by the Agents to investors and other purchasers on a
fixed public offering price basis, the public offering price, concession and
discount may be changed.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the Agents may reclaim
selling concessions allowed to a dealer for distributing the Notes in the
offering, if the Agents repurchase previously distributed Notes in transactions
to cover short positions established in connection with the offering of the
Notes, in stabilizing transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Notes above independent market
levels. The Agents are not required to engage in these activities and may end
any of these activities at any time.
The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors from
time to time on its own behalf.
Each of the Agents may be deemed to be an "underwriter" within the meaning
of the Securities Act of 1933. The Company has agreed to indemnify the Agents
against certain liabilities, including liabilities under such Act, and will
reimburse the Agents for certain expenses.
The Agents in the ordinary course of their business engage from time to
time in securities transactions with and perform investment banking services for
the Company and BellSouth.
Concurrently with the offering of the Notes through the Agents as described
herein, the Company may offer outside the United States an additional series of
medium-term notes, which may have terms substantially similar to the terms of
the Notes offered hereby (but will constitute a separate series for purposes of
the Indenture), and which may be offered in bearer or registered form. Such Euro
Notes will be offered pursuant to agency agreements with Morgan Stanley & Co.
International Limited, Goldman Sachs International and/or Merrill Lynch
International, acting as agents for the Company. Pursuant to such agency
agreements,
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<PAGE> 17
Morgan Stanley & Co. International Limited, Goldman Sachs International and
Merrill Lynch International may also purchase Euro Notes as principals for their
own accounts for resale, and the Company may make direct sales of the Euro Notes
on its own behalf. For this purpose, "United States" means the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction. Any Euro Notes so
offered and sold will reduce correspondingly the principal amount of Notes which
may be offered by this Prospectus Supplement and the Prospectus.
The Company has been advised by the Agents that the Agents intend to make a
market in the Notes and the Series A and B Notes, but that the Agents are not
obligated to do so and that the Agents may discontinue making a market at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
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<PAGE> 18
PROSPECTUS
$727,265,000
BELLSOUTH CAPITAL FUNDING CORPORATION
DEBT SECURITIES
ISSUED UNDER A SUPPORT AGREEMENT
WITH
BELLSOUTH CORPORATION
BellSouth Capital Funding Corporation (the "Company") may offer its debt
securities (the "Securities"), in one or more series, at such initial public
offering prices as will result in aggregate net proceeds to the Company of up to
U.S. $727,265,000 on terms to be determined at the time the Securities are
offered for sale. When a particular series of the Securities is offered, a
prospectus supplement ("Prospectus Supplement"), together with this Prospectus,
will be delivered setting forth the terms of the Securities, including, where
applicable, the specific designation, aggregate principal amount, currency
(including composite currencies such as the ECU), denominations, maturity, rate
of any interest (or manner of calculation thereof) and time of payment thereof,
whether the Securities are issuable in registered form or bearer form or both,
any redemption provisions, the initial public offering price, the names of any
underwriters, dealers or agents, any compensation to such underwriters, dealers
or agents and any other specific terms in connection with the offering and sale
of such series.
All of the Securities will have the benefit of a Support Agreement dated as
of October 15, 1987, as amended as of August 1, 1992 (the "Support Agreement"),
between the Company and BellSouth Corporation ("BellSouth"), the parent company
and sole shareholder of the Company. In the Support Agreement, BellSouth has
agreed to ensure the timely payment of principal, premium, if any, and interest
owed on the Securities; however, no holder of the Securities will have recourse
to or against the stock or assets of BellSouth Telecommunications, Inc. (the
"Telephone Company") or any interest of BellSouth or the Company in the
Telephone Company.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is February 27, 1998.
<PAGE> 19
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, BELLSOUTH OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
BELLSOUTH SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
BellSouth is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports and other information with the Securities and Exchange Commission
("SEC"). Such reports, proxy statements and other information filed by BellSouth
can be inspected and copied at the public reference facilities of the SEC, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as
at the following SEC Regional Offices: Room 1102, 13th Floor, 7 World Trade
Center, New York, NY 10048 and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, IL 60661-2511. Such material can also be inspected at
the New York, Boston, Midwest, Pacific and Philadelphia Stock Exchanges. Copies
can be obtained from the SEC by mail at prescribed rates. Requests should be
directed to the SEC's Public Reference Section, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549. Copies of the above documents which
have been electronically filed through the Electronic Data Gathering, Analysis
and Retrieval System are publicly available through the Securities and Exchange
Commission's website (http://www.sec.gov).
The Company is not subject to the informational filing requirements of the
SEC, and no documents have been or will be filed by the Company under the
Exchange Act.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following document has been filed by BellSouth with the SEC (File No.
1-8607) and is incorporated herein by reference:
(1) BellSouth's Annual Report on Form 10-K for the year ended December
31, 1997.
All documents filed by BellSouth pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of any series of Securities shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
COPIES OF THE ABOVE DOCUMENTS (EXCLUDING EXHIBITS) MAY BE OBTAINED UPON
REQUEST WITHOUT CHARGE FROM THE OFFICE OF THE CONTROLLER OF BELLSOUTH, 1155
PEACHTREE STREET, N.E., 15G03, ATLANTA, GEORGIA 30309-3610 (TELEPHONE NUMBER
404-249-3290).
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<PAGE> 20
BELLSOUTH CAPITAL FUNDING CORPORATION
The Company was incorporated in 1987 under the laws of the State of Georgia
and has its principal executive offices at 1155 Peachtree Street, N.E., Atlanta,
Georgia 30309-3610 (telephone number 404-249-2000). The Company is a
wholly-owned subsidiary of BellSouth.
The Company's purpose is engaging in financing activities that will provide
general working capital for BellSouth, including funds for use in connection
with the diversification of BellSouth and in support of the activities of the
subsidiaries of BellSouth ("Diversified Subsidiaries") other than the Telephone
Company but including such subsidiaries of the Telephone Company whose
operations are not subject to regulation by tariff. The Company will raise funds
through the offering and sale of debt securities (the "Securities") in the
United States, European and other overseas markets and lend the proceeds to
BellSouth or the Diversified Subsidiaries. The Company will not engage in any
separate business operations.
On October 14, 1987, the SEC issued an order exempting the Company from the
provisions of the Investment Company Act of 1940 (the "1940 Act"), provided that
the Company complies with the provisions of Rule 3a-5 under such Act and that
the Securities remain entitled to the benefits of the Support Agreement. See
"Support Agreement" and "Use of Proceeds."
SUPPORT AGREEMENT
Pursuant to the Support Agreement, BellSouth has agreed to cause the
Company to maintain a positive tangible net worth as determined in accordance
with generally accepted accounting principles. The Support Agreement also
provides that BellSouth shall own, directly or indirectly, all the outstanding
voting capital stock of the Company throughout the term of the Support
Agreement.
If the Company is unable to pay when due the principal, interest or
premium, if any, owed on any of the Securities, BellSouth shall provide funds to
the Company to assure that the Company will be able to pay when due such
principal, interest or premium, if any. The Support Agreement provides that in
the event of any default by BellSouth in meeting its obligations under such
Support Agreement or in the event of default by the Company in the timely
payment of principal, interest or premium, if any, owed on any Securities,
holders of Securities or a trustee acting on their behalf shall be entitled to
proceed directly against BellSouth, except that no holder of Securities or
trustee acting on their behalf will have recourse to or against the stock or
assets of the Telephone Company or any interest of BellSouth or the Company in
the Telephone Company. Dividends declared and paid to BellSouth by the Telephone
Company, which in 1997 aggregated approximately $2.0 billion, are not subject to
this limitation. BellSouth's non-Telephone Company net book assets, which would
also be available to holders of Securities under the Support Agreement,
aggregated approximately $6.6 billion at December 31, 1997.
Neither BellSouth nor the Company will be able to amend or terminate the
Support Agreement so as to adversely affect the rights of holders of Securities
without the written consent of all the holders of the then outstanding
Securities maturing in more than one year. The holders of Securities maturing in
less than one year shall have the benefit of the Support Agreement without
giving effect to any such amendment or termination until the Securities held by
them have been retired.
BELLSOUTH CORPORATION
BellSouth was incorporated in 1983 under the laws of the State of Georgia
and has its principal executive offices at 1155 Peachtree Street, N.E., Atlanta,
Georgia 30309-3610 (telephone number 404-249-2000).
The Telephone Company 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.
The primary businesses conducted by the Diversified Subsidiaries are wireless
and international communications services and advertising and publishing
products.
3
<PAGE> 21
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be used to provide
funds for the Diversified Subsidiaries and in connection with the
diversification activities of BellSouth.
The Company will remit to BellSouth or the Diversified Subsidiaries the
cash or cash equivalents raised by the Company as soon as practicable after
receipt thereof, but in no event later than six months after the Company
receives such cash or cash equivalents. In the interim, the Company will invest
any funds held by it only in securities permitted by Rule 3a-5(a)(6) of the SEC
under the 1940 Act.
DESCRIPTION OF SECURITIES
The following description sets forth certain general terms and provisions
of the Securities of any series to which any Prospectus Supplement may relate.
The particular terms and provisions of the series of Securities offered by a
Prospectus Supplement, and the extent to which such general terms and provisions
described below may apply thereto, will be described in the Prospectus
Supplement relating to such series.
The Securities are to be issued under an Indenture dated as of August 1,
1992 among the Company, BellSouth and The Bank of New York, as successor to
Wachovia Bank of Georgia, N.A. (the "Trustee").
The following summaries of certain provisions of the Securities, the
Indenture and the Support Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the Indenture and the Support Agreement, including the definitions therein of
certain terms. Particular sections of the Indenture which are relevant to the
discussion are cited parenthetically. Capitalized terms used in this Prospectus
which are defined in the Indenture shall have the same meaning herein as in the
Indenture. The term "principal" when used herein includes, when appropriate, the
premium, if any, on any series of Securities.
GENERAL
The Indenture does not limit the amount of Securities which may be issued
thereunder, and additional debt securities may be issued thereunder up to the
aggregate principal amount which may be authorized from time to time by, or
pursuant to, a resolution of the Company's Board of Directors, by a Company
Order signed by two Officers of the Company or by a supplemental indenture.
Reference is made to the Prospectus Supplement for the following terms of the
particular series or issue of Securities being offered hereby: (i) the title of
the Securities of the series; (ii) if denominated in other than United States
dollars, the currency of payment of the principal of and interest on the
Securities of the series; (iii) any limit upon the aggregate principal amount of
the Securities of the series; (iv) the date or dates on which the principal of
the Securities of the series will mature; (v) the rate or rates (or manner of
calculation thereof), if any, at which the Securities of the series will bear
interest, the date or dates from which any such interest will accrue and on
which such interest will be payable, and, with respect to Securities of the
series in registered form, the record date for the interest payable on any
interest payment date and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months; (vi) the place or
places where the principal of and interest on the Securities of the series will
be payable; (vii) any redemption or sinking fund provisions; (viii) if other
than the principal amount thereof, the portion of the principal amount of
Securities of the series which will be payable upon declaration of acceleration
of the maturity thereof; (ix) whether the Securities of the series will be
issuable in registered (and if so, whether such securities will be issuable as
registered global Securities) or bearer form or both, any restrictions
applicable to the offer, sale or delivery of Securities in bearer form
("Unregistered Securities") and whether, and the terms upon which, Unregistered
Securities will be exchangeable for Securities in registered form ("Registered
Securities") and vice versa; (x) if and under what circumstances the Company
will pay additional amounts on the Securities of the series held by a person who
is not a United States person in respect of taxes or similar charges withheld or
deducted and, if so, whether the Company will have the option to redeem such
Securities rather than pay such additional amounts; (xi) any index used to
determine the amount of payments of principal of and interest on the Securities
of the series; (xii) any depositary (a "Depositary") with respect to the
Securities of such series; and (xiii) any
4
<PAGE> 22
additional provisions or other special terms not inconsistent with the
provisions of the Indenture, including any terms which may be required by or
advisable under United States laws or regulations or advisable in connection
with the marketing of Securities of such series. (Sections 2.01 and 2.02.)
Unless otherwise indicated in the Prospectus Supplement, Registered
Securities will be issued in denominations of $1,000 and integral multiples
thereof, and Unregistered Securities will not be offered, sold or delivered in
the United States or to United States persons in connection with their original
issuance. Any special federal income tax considerations applicable to
Unregistered Securities will be described in the Prospectus Supplement relating
thereto.
To the extent set forth in the Prospectus Supplement, except in special
circumstances set forth in the Indenture, interest on Unregistered Securities
will be payable only against presentation and surrender of the coupons for the
interest installments evidenced thereby as they mature at a paying agency of the
Company located outside of the United States. (Section 2.05(c).) The Company
will maintain a paying agent outside the United States to which the Unregistered
Securities may be presented for payment and will provide the necessary funds
therefor to such paying agent upon reasonable notice. (Section 2.04.)
Registration of transfer of Registered Securities may be requested upon
surrender thereof at any agency of the Company maintained for such purpose and
upon fulfillment of all other requirements of such agent. Unregistered
Securities and the coupons related thereto will be transferable by delivery.
(Section 2.08.) To the extent not described herein, principal and interest will
be payable, and the transfer of Registered Securities of a particular series
will be registrable, in the manner described in the Prospectus Supplement
relating to such series.
Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from the principal
amount thereof. Special federal income tax, accounting and other considerations
applicable thereto will be described in the Prospectus Supplement relating to
such Original Issue Discount Securities. "Original Issue Discount Security"
means any Security which provides for an amount less than the stated principal
amount thereof to be due and payable upon declaration of acceleration of the
maturity thereof or upon the occurrence and continuation of an event of default.
(Section 1.01.)
REGISTERED GLOBAL SECURITIES
The Registered Securities of a series may be issued in the form of one or
more fully registered global Securities (a "Registered Global Security") that
will be deposited with a Depositary or with a nominee for a Depositary
identified in the Prospectus Supplement relating to such series. In such case,
one or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Registered Securities of the series to be represented by such
Registered Global Security or Securities. Unless and until it is exchanged in
whole or in part for Securities in definitive registered form, a Registered
Global Security may not be transferred except as a whole by the Depositary for
such Registered Global Security to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or another nominee of such Depositary or
by such Depositary or any such nominee to a successor Depositary or a nominee of
such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such series.
BellSouth anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a Registered Global Security, the Depositary for such
Registered Global Security will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Securities represented
by such Registered Global Security to the accounts of persons that have accounts
with such Depositary ("participants"). The accounts to be credited shall be
designated by any underwriters or agents participating in the distribution of
such Securities. Ownership of beneficial interests in a Registered Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interest in such Registered Global
Security will be shown on, and the transfer of such ownership will be effected
only through, records maintained by the Depositary for such Registered Global
Security (with respect to interests of participants) and on the records of
participants (with respect to interests of persons other than participants) in
accordance with the procedures of the Depositary. The laws of some
5
<PAGE> 23
states may require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in Registered Global
Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Registered Global Security for all purposes
under the Indenture. Except as set forth below, owners of beneficial interests
in a Registered Global Security will not be entitled to have the Securities
represented by such Registered Global Security registered in their names, will
not receive or be entitled to receive physical delivery of such Securities in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Accordingly, each person owning a beneficial interest in a
Registered Global Security must rely on the procedures of the Depositary for
such Registered Global Security and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or if any owner of a beneficial interest in a Registered Global Security
desires to give or take any action which a holder is entitled to give or take
under the Indenture, the Depositary for such Registered Global Security would
authorize the participants holding the beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal and interest payments of Securities represented by a Registered
Global Security registered in the name of a Depositary or its nominee will be
made to such Depositary or its nominee, as the case may be, as the registered
owner of such Registered Global Security. None of the Company, BellSouth, the
Trustee or any paying agent for such Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in such Registered Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depositary for any Securities represented by a
Registered Global Security, upon receipt of any payment of principal or
interest, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Registered Global Security as shown on the records of such
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in such Registered Global Security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with the securities held for the accounts for customers
registered in "street names" and will be the responsibility of such
participants.
If the Depositary for any Securities represented by a Registered Global
Security is at any time unwilling or unable to continue as Depositary and a
successor Depositary is not appointed by the Company or BellSouth within 90
days, the Company will issue such Securities in definitive form in exchange for
such Registered Global Security. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Securities of such series in definitive form in exchange for all of the
Registered Global Security or Securities representing such Securities.
EXCHANGE OF SECURITIES
Registered Securities may be exchanged for an equal aggregate principal
amount of Registered Securities of the same series and date of maturity in such
authorized denominations as may be requested upon surrender of the Registered
Securities at an agency of the Company maintained for such purpose and upon
fulfillment of all other requirements of such agent.
To the extent permitted by the terms of a series of Securities authorized
to be issued in registered form and unregistered form, Unregistered Securities
may be exchanged for an equal aggregate principal amount of Registered or
Unregistered Securities (containing identical terms and provisions) of the same
series and date of maturity in such authorized denominations as may be requested
upon surrender of the bearer Securities
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<PAGE> 24
with all unpaid coupons relating thereto (except as may otherwise be provided in
the Securities) at an agency of the Company maintained for such purpose and upon
fulfillment of all other requirements of such agent. (Section 2.08(b).) As of
the date of this Prospectus, it is expected that the terms of a series of
Securities will not permit Registered Securities to be exchanged for
Unregistered Securities.
LIEN ON ASSETS
If at any time the Company mortgages, pledges or otherwise subjects to any
lien the whole or any part of any property or assets now owned or hereafter
acquired by it, except as hereinafter provided, the Company will secure the
outstanding Securities, and any other obligations of the Company which may then
be outstanding and entitled to the benefit of a covenant similar in effect to
this covenant, equally and ratably with the indebtedness or obligations secured
by such mortgage, pledge or lien, for as long as any such indebtedness or
obligation is so secured. The foregoing covenant does not apply to the creation,
extension, renewal or refunding of purchase-money mortgages or liens, or to the
making of any deposit or pledge to obtain the benefits of any law relating to
workers' compensation, unemployment insurance, old age pensions or other social
security, or with any court, board, commission or governmental agency as
security incident to the proper conduct of any proceeding before it. (Section
4.02.)
Neither the Indenture nor the Support Agreement restricts BellSouth from
pledging or otherwise encumbering any of its assets.
SUCCESSOR ENTITIES
Neither the Company nor BellSouth may consolidate with or merge into, or
transfer or lease its property and assets substantially as an entirety to,
another entity unless the successor entity is a United States corporation and,
in the case of the Company, assumes all the obligations of the Company under the
Securities and any coupons related thereto and the Indenture and, in the case of
BellSouth, assumes all the obligations of BellSouth under the Indenture and the
Support Agreement. Thereafter, except in the case of a lease, all such
obligations of the Company or BellSouth, as the case may be, shall terminate.
(Sections 5.01 and 5.02.)
BellSouth or a subsidiary thereof may assume the payment of the principal
of and interest on all Securities and any coupons and the performance of every
covenant of the Indenture on the part of the Company. Upon such assumption,
BellSouth or such subsidiary shall have the same rights and obligations as the
Company under the Indenture, and the Company shall be released from its
liability thereunder. (Section 5.03.)
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Securities: (i) default in the payment of interest
on any Security of such series for 90 days; (ii) default in the payment of the
principal of any Security of such series; (iii) failure by the Company or
BellSouth for 90 days after notice to it to comply with any of its other
agreements with respect to the Securities of such series set forth in the
Indenture in any supplemental indenture under which the Securities of that
series may have been issued (other than covenants relating only to other series)
or in the Support Agreement; and (iv) certain events of bankruptcy or insolvency
of the Company. A payment default with respect to one series is not a default
with regard to any other series of Securities issued pursuant to the Indenture.
(Section 6.01.) If an Event of Default occurs with respect to the Securities of
any series, and is continuing, the Trustee or the Holders of at least 25% in
principal amount of all of the outstanding Securities of that series may declare
the principal (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of, and any accrued interest on, all the Securities of
that series to be due and payable. Securities of all other series will be
unaffected. Upon such declaration, such principal (or, in the case of Original
Issue Discount Securities, such specified amount) and interest will become due
and payable immediately. (Section 6.02.)
Securityholders may not enforce the Indenture, the Securities or the
Support Agreement, except as provided in the Indenture and the Support
Agreement. (Section 6.06.) The Trustee may require indemnity
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satisfactory to it before it enforces the Indenture, the Securities or the
Support Agreement. (Section 7.01(e).) Subject to certain limitations, holders of
a majority in principal amount of the Securities of each series affected may
direct the Trustee in its exercise of any trust power with respect to Securities
of that series. (Section 6.05.) The Trustee may withhold from Securityholders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their interests.
(Section 7.05.)
AMENDMENT AND WAIVER
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented by the Company, BellSouth and the Trustee with the
consent of the Holders of a majority in principal amount of the outstanding
Securities of each series affected by the amendment or supplement, and
compliance with any provision may be waived with the consent of the Holders of a
majority in principal amount of outstanding Securities of each series affected
by such waiver. However, without the consent of each Securityholder affected, an
amendment or waiver may not (i) reduce the amount of Securities whose holders
must consent to an amendment or waiver; (ii) reduce the rate of or change the
time for payment of interest on any Security; (iii) reduce the principal of, or
change the fixed maturity of, any Security; (iv) waive a default in the payment
of the principal of or interest on any Security; (v) make any security payable
in money other than that stated in the Security; (vi) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Securities; or (vii) amend or terminate the Support Agreement to the detriment
of the Securityholders. (Section 9.02.)
The Indenture may be amended or supplemented without the consent of any
Securityholder (i) to cure any ambiguity, defect or inconsistency in the
Indenture or in the Securities of any series; (ii) to secure the Securities
under the circumstances set forth under "Liens on Assets" set forth above; (iii)
to provide for the assumption of all the obligations of the Company or
BellSouth, as the case may be, under the Securities and any coupons related
thereto and the Indenture in connection with a merger, consolidation or transfer
or lease of the Company's or BellSouth's property and assets substantially as an
entirety as provided for in the Indenture; (iv) to provide for the assumption by
BellSouth or a subsidiary thereof of all obligations of the Company under the
Securities and any coupons related thereto and the Indenture; (v) to provide for
the issuance of, and establish the form, terms and conditions of, a series of
Securities or to establish the form of any certifications required to be
furnished pursuant to the terms of the Indenture or any series of securities;
(vi) to provide for uncertificated Securities in addition to or in place of
certificated Securities; (vii) to add to rights of Securityholders or surrender
any right or power conferred on the Company; or (viii) to make any change that
does not adversely affect the rights of any Securityholder. (Section 9.01.)
CONCERNING THE TRUSTEE
BellSouth and certain of its affiliates maintain banking relationships in
the ordinary course of business with the Trustee and certain of its affiliates.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the Securities being offered hereby: (i) directly to
purchasers, (ii) through agents, (iii) through dealers, (iv) through
underwriters or (v) through a combination of any such methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions either (i) at a fixed price or prices, which may be
changed, (ii) at market prices prevailing at the time of sale, (iii) at prices
related to such prevailing market prices or (iv) at negotiated prices.
Offers to purchase Securities may be solicited directly by the Company or
by agents designated by the Company from time to time. Any such agent, which may
be deemed to be an underwriter as that term is
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defined in the Securities Act of 1933, as amended (the "Securities Act"),
involved in the offer or sale of the Securities in respect of which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be acting
on a best efforts basis for the period of its appointment (ordinarily five
business days or less).
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer, which may be deemed to be an underwriter as
that term is defined in the Securities Act, may then resell such Securities to
the public at varying prices to be determined by such dealer at the time of
resale.
If an underwriter or underwriters are utilized in the sale, the Company and
BellSouth will execute an underwriting agreement with such underwriters at the
time of sale to them and the names of the underwriter will be set forth in the
Prospectus Supplement, which will be used by the underwriters to make resales of
the Securities in respect of which the Prospectus is delivered to the public.
Underwriters, dealers, agents and other persons may be entitled, under
agreements which may be entered into with the Company and BellSouth, to
indemnification against certain civil liabilities, including liabilities under
the Securities Act.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company pursuant
to contracts providing for payment and delivery on a future date or dates.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will not be subject to any conditions except that (a)
the purchase of the Securities shall not at the time of delivery be prohibited
under the laws of the jurisdiction to which such purchaser is subject and (b) if
the Securities are also being sold to underwriters, the Company shall have sold
to such underwriters the Securities not sold for delayed delivery. The
underwriters, dealers and such other persons will not have any responsibility in
respect of the validity or performance of such contracts.
LEGAL OPINIONS
Charles R. Morgan, Executive Vice President and General Counsel of
BellSouth, is passing upon the legality of the Securities for the Company.
On behalf of dealers, underwriters or agents, Davis Polk & Wardwell is
passing upon certain legal matters in connection with the offering of the
Securities.
EXPERTS
The financial statements of BellSouth included in its Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated by reference herein,
have been audited by Coopers & Lybrand L.L.P., independent accountants, to the
extent and for the periods indicated in their report relating to such financial
statements, which is also incorporated by reference herein, and have been so
included in reliance upon the report of Coopers & Lybrand L.L.P., given upon
their authority as experts in auditing and accounting.
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