Prepared by R.R. Donnelley Financial -- Form 11-K
Table of Contents
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 11-K
 
x    Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2001
 
or
 
¨    Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
 
For the transition period from              to             
  
Commission file number  
1-8607
 
BellSouth Savings and
Security Plan
 
BellSouth Corporation
1155 Peachtree Street, N.E.
Atlanta, Georgia 30309-3610
 

Table of Contents
BELLSOUTH SAVINGS AND SECURITY PLAN
 
Table of Contents
 
    
Page
 
  
2
 
  
3
 
  
5
 
  
7
 
  
9
 
  
11
 
  
13
 
  
25
 
  
26

1

Table of Contents
REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Participants and Plan Administrator of
the BellSouth Savings and Security Plan
 
In our opinion, the accompanying statements of net assets available for benefits and the related statements of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the BellSouth Savings and Security Plan (the “Plan”) at December 31, 2001 and 2000, and the changes in net assets available for benefits for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Fund Information in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The Fund Information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
 
/s/    PricewaterhouseCoopers LLP
Atlanta, Georgia
 
June 10, 2002

2

Table of Contents
BELLSOUTH SAVINGS
 
STATEMENT OF NET ASSETS AVAILABLE
 
December
(In Tho
 
ASSETS
   
BellSouth
Stock
Fund
   
Indexed
Stock
Fund
   
Interest
Income
Fund
     
Vanguard Growth Index-Institutional
   
Fidelity
Growth
& Income
Portfolio
   
Balanced
Fund
                   
Share of Trust net assets
   
$
1,115,367
   
$
129,225
   
$
361,691
     
$
66,884
   
$
54,692
   
$
21,940
Investment in BellSouth Savings and Security Employee Stock Ownership Plan Trust:
                                            
    Shares of BellSouth common stock allocated to
  participants
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
    Shares of BellSouth common stock held for future
  allocation
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
Temporary cash investments
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
    
  
  
    
  
  
Total Investments
   
 
1,115,367
   
 
129,225
   
 
361,691
     
 
66,884
   
 
54,692
   
 
21,940
Contributions receivable
   
 
1,467
   
 
319
   
 
613
     
 
267
   
 
198
   
 
64
Fund, BellSouth Retirement Savings Plan and other transfers receivable—net
   
 
183
   
 
62
   
 
30
     
 
—  
   
 
—  
   
 
—  
    
  
  
    
  
  
Total Assets
   
 
1,117,017
   
 
129,606
   
 
362,334
     
 
67,151
   
 
54,890
   
 
22,004
    
  
  
    
  
  
                                             
LIABILITIES
                                            
Distributions payable
   
 
340
   
 
47
   
 
194
     
 
12
   
 
15
   
 
1
Fund, BellSouth Retirement Savings Plan and other transfers payable—net
   
 
—  
   
 
—  
   
 
—  
     
 
19
   
 
11
   
 
63
Notes payable
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
    
  
  
    
  
  
Total Liabilities
   
 
340
   
 
47
   
 
194
     
 
31
   
 
26
   
 
64
    
  
  
    
  
  
Net Assets Available for Benefits
   
$
1,116,677
   
$
129,559
   
$
362,140
     
$
67,120
   
$
54,864
   
$
21,940
    
  
  
    
  
  
                                             
 
 
The accompanying notes are an integ

3

Table of Contents
AND SECURITY PLAN
 
FOR BENEFITS, WITH FUND INFORMATION
 
31, 2001
usands)
 
Bond
Fund
   
T. Rowe Price Mid-Cap Growth
   
DFA U.S.
Small Cap Value II Fund
     
DFA
International
Value II
Fund
   
DFA U.S. Large Cap Value II Fund
   
Participant
Loans
   
Other
   
Employee Stock
Ownership Plan
   
Total
                      
Allocated
   
Unallocated
   
$
25,415
   
$
47,109
   
$
23,860
     
$
5,351
   
$
16,364
   
$
38,094
   
$
7,004
   
$
—  
   
$
—    
   
$
1,912,996
 
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
811,095
   
 
—  
   
 
811,095
                                                                    
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
136,874
   
 
136,874
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
858
   
 
6,739
   
 
7,597
  
  
    
  
  
  
  
  
  
 
25,415
   
 
47,109
   
 
23,860
     
 
5,351
   
 
16,364
   
 
38,094
   
 
7,004
   
 
811,953
   
 
143,613
   
 
2,868,562
 
78
   
 
164
   
 
102
     
 
24
   
 
62
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
3,358
 
 
107
   
 
—  
   
 
—  
     
 
—  
   
 
12
   
 
1,310
   
 
—  
   
 
—  
   
 
—  
   
 
1,704
  
  
    
  
  
  
  
  
  
 
25,600
   
 
47,273
   
 
23,962
     
 
5,375
   
 
16,438
   
 
39,404
   
 
7,004
   
 
811,953
   
 
143,613
   
 
2,873,624
  
  
    
  
  
  
  
  
  
 
                                                                    
 
5
   
 
5
   
 
2
     
 
5
   
 
9
   
 
4
   
 
—  
   
 
202
   
 
—  
   
 
841
                                                                    
 
—  
   
 
296
   
 
1
     
 
—  
   
 
—  
   
 
—  
   
 
7,004
   
 
11
   
 
—  
   
 
7,405
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
66,068
   
 
66,068
  
  
    
  
  
  
  
  
  
 
5
   
 
301
   
 
3
     
 
5
   
 
9
   
 
4
   
 
7,004
   
 
213
   
 
66,068
   
 
74,314
  
  
    
  
  
  
  
  
  
$
25,595
   
$
46,972
   
$
23,959
     
$
5,370
   
$
16,429
   
$
39,400
   
$
—  
   
$
811,740
   
$
77,545
   
$
2,799,310
  
  
    
  
  
  
  
  
  
 
 
 
ral part of these financial statements.

4

Table of Contents
BELLSOUTH SAVINGS
 
STATEMENT OF NET ASSETS AVAILABLE
 
December
(In Tho
 
ASSETS
   
BellSouth
Stock
Fund
   
Indexed
Stock
Fund
   
Interest
Income
Fund
     
Vanguard
Growth Index-Institutional
   
Fidelity
Growth
& Income
Portfolio
   
Balanced
Fund
Share of Trust net assets
   
$
1,323,639
   
$
176,541
   
$
334,662
     
$
97,374
   
$
66,864
   
$
22,870
Investment in BellSouth Savings and Security Employee Stock
                                            
Ownership Plan Trust:
                                            
Shares of BellSouth common stock allocated to participants
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
Shares of BellSouth common stock held for future allocation
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
Temporary cash investments
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
    
  
  
    
  
  
Total Investments
   
 
1,323,639
   
 
176,541
   
 
334,662
     
 
97,374
   
 
66,864
   
 
22,870
Contributions receivable
   
 
1,553
   
 
384
   
 
537
     
 
330
   
 
203
   
 
61
Fund, BellSouth Retirement Savings Plan and other transfers receivable—net
   
 
310
   
 
197
   
 
—  
     
 
—  
   
 
44
   
 
14
    
  
  
    
  
  
Total Assets
   
 
1,325,502
   
 
177,122
   
 
335,199
     
 
97,704
   
 
67,111
   
 
22,945
    
  
  
    
  
  
                                             
LIABILITIES
                                            
Distributions payable
   
 
677
   
 
98
   
 
96
     
 
51
   
 
17
   
 
4
Fund, BellSouth Retirement Savings Plan and other transfers payable—net
   
 
—  
   
 
—  
   
 
376
     
 
185
   
 
—  
   
 
—  
Notes payable
   
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
    
  
  
    
  
  
Total Liabilities
   
 
677
   
 
98
   
 
472
     
 
236
   
 
17
   
 
4
    
  
  
    
  
  
Net Assets Available for Benefits
   
$
1,324,825
   
$
177,024
   
$
334,727
     
$
97,468
   
$
67,094
   
$
22,941
    
  
  
    
  
  
 
 
The accompanying notes are an integ

5

Table of Contents
AND SECURITY PLAN
 
FOR BENEFITS, WITH FUND INFORMATION
 
31, 2000
usands)
 
Bond
Fund
   
T. Rowe
Price
Mid-
Cap
Growth
   
DFA U.S.
Small Cap Value II Fund
     
DFA
International
Value II
Fund
   
DFA U.S.
Large Cap
Value II
Fund
   
Participant
Loans
   
Other
   
Employee Stock
Ownership Plan
   
Total
                      
Allocated  
   
Unallocated
   
$
8,587
   
$
52,782
   
$
13,112
     
$
6,102
   
$
8,652
   
$
39,982
   
$
9,665
   
$
—
   
$
—  
   
$
2,160,832
                                                                    
                                                                    
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
879,192
   
 
—  
   
 
879,192
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
214,370
   
 
214,370
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
414
   
 
7,302
   
 
7,716
  
  
    
  
  
  
  
  
  
 
8,587
   
 
52,782
   
 
13,112
     
 
6,102
   
 
8,652
   
 
39,982
   
 
9,665
   
 
879,606
   
 
221,672
   
 
3,262,110
 
26
   
 
160
   
 
40
     
 
23
   
 
38
   
 
—  
   
 
—  
   
 
1,840
   
 
—  
   
 
5,195
                                                                    
 
123
   
 
—    
   
 
16
     
 
—  
   
 
24
   
 
1,306
   
 
—  
   
 
—  
   
 
—  
   
 
2,034
  
  
    
  
  
  
  
  
  
 
8,736
   
 
52,942
   
 
13,168
     
 
6,125
   
 
8,714
   
 
41,288
   
 
9,665
   
 
881,446
   
 
221,672
   
 
3,269,339
  
  
    
  
  
  
  
  
  
                                                                    
                                                                    
 
—  
   
 
5
   
 
1
     
 
2
   
 
15
   
 
4
   
 
—  
   
 
108
   
 
—  
   
 
1,078
                                                                    
 
—  
   
 
262
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
9,665
   
 
17
   
 
—  
   
 
10,505
 
—  
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
98,175
   
 
98,175
  
  
    
  
  
  
  
  
  
 
—  
   
 
267
   
 
1
     
 
2
   
 
15
   
 
4
   
 
9,665
   
 
125
   
 
98,175
   
 
109,758
  
  
    
  
  
  
  
  
  
$
8,736
   
$
52,675
   
$
13,167
     
$
6,123
   
$
8,699
   
$
41,284
   
$
—  
   
$
881,321
   
$
123,497
   
$
3,159,581
  
  
    
  
  
  
  
  
  
 
 
ral part of these financial statements.

6

Table of Contents
     BELLSOUTH SAVINGS
 
STATEMENT OF CHANGES
FOR BENEFITS,
 
Year Ended Dec
(In Tho
 
    
BellSouth
Stock
Fund
     
Indexed
Stock
Fund
     
Interest
Income
Fund
     
Vanguard Growth Index-Institutional
     
Fidelity Growth & Income Portfolio
     
Balanced
Fund
     
Bond
Fund
Net Assets Available for Benefits,
    December 31, 2000
   
$
1,324,825
 
   
$
177,024
 
   
$
334,727
     
$
97,468
 
   
$
67,094
 
   
$
22,941
 
   
$
8,736
    
  
  
    
  
  
  
                                                              
Employee contributions
   
 
40,503
 
   
 
10,001
 
   
 
26,312
     
 
8,146
 
   
 
5,785
 
   
 
2,076
 
   
 
2,742
Transfer of participants’ balances—net
   
 
(64,564
)
   
 
(21,052
)
  
 
50,643
     
 
(17,015
)
   
 
(3.612
)
   
 
434
 
   
 
15,847
Supplemental contributions
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
Allocation of shares to participants
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
Transfer for loan repayment
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
    
  
  
    
  
  
  
Total Contributions, Allocations and Transfers
   
 
(24,061
)
   
 
(11,051
)
   
 
76,955
     
 
(8,869
)
   
 
2,173
 
   
 
2,510
 
   
 
18,589
Share of Trust investment activities
   
 
(49,549
)
   
 
(20,421
)
   
 
20,712
     
 
(12,217
)
   
 
(6,420
)
   
 
(640
)
   
 
1,323
    
  
  
    
  
  
  
Total
   
 
(73,610
)
   
 
(31,472
)
   
 
97,667
     
 
(21,086
)
   
 
(4,247
)
   
 
1,870
 
   
 
19,912
    
  
  
    
  
  
  
                                                              
Less:  Distributions to participants
   
 
134,538
 
   
 
15,993
 
   
 
70,254
     
 
9,262
 
   
 
7,983
 
   
 
2,871
 
   
 
3,053
          Intereston notes payable
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
    
  
  
    
  
  
  
Net Assets Available for Benefits,
    December 31, 2001
   
$
1,116,677
 
   
$
129,559
 
   
$
362,140
     
$
67,120
 
   
$
54,864
 
   
$
21,940
 
   
 
$25,595
    
  
  
    
  
  
  
 
 
 
The accompanying notes are an integ 

7

Table of Contents
 AND SECURITY PLAN
 
 IN NET ASSETS AVAILABLE
 WITH FUND INFORMATION
 
 ember 31, 2001
 usands)
 
T. Rowe Price Mid-Cap Growth
     
DFA U.S.
Small Cap Value II Fund
     
DFA International Value II Fund
     
DFA U.S. Large Cap Value II Fund
   
Participant
Loans
     
Other
     
Employee Stock Ownership Plan
     
Total
  
                   
Allocated
     
Unallocated
     
                                                                           
$
52,675
 
   
$
13,167
     
$
6,123
 
   
$
8,699
   
$
41,284
 
   
$
—  
 
   
$
881,321
 
   
$
123,497
 
   
$
3,159,581
 
  
    
  
  
  
  
  
  
                                                                           
 
4,801
 
   
 
1,702
     
 
706
 
   
 
1,762
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
104,536
 
 
(3,799
)
   
 
8,134
     
 
452
 
   
 
7,464
   
 
(2,127
)
   
 
166
 
   
 
(9,575
)
   
 
—  
 
   
 
(38,604
)
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
26,102
 
   
 
26,102
 
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
   
 
—  
 
   
 
—  
 
   
 
65,492
 
   
 
(65,492
)
   
 
—  
 
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
   
 
—  
 
   
 
—  
 
   
 
(10,109
)
   
 
10,109
 
   
 
—  
 
  
    
  
  
  
  
  
  
                                                                           
 
1,002
 
   
 
9,836
     
 
1,158
 
   
 
9,226
   
 
(2,127
)
   
 
166
 
   
 
45,808
 
   
 
(29,281
)
   
 
92,034
 
 
(1,250
)
   
 
3,125
     
 
(915
)
   
 
150
   
 
3,222
 
   
 
(166
)
   
 
(42,203
)
   
 
(8,423
)
   
 
(113,672
)
  
    
  
  
  
  
  
  
 
(248
)
   
 
12,961
     
 
243
 
   
 
9,376
   
 
1,095
 
   
 
—  
 
   
 
3,605
 
   
 
(37,704
)
   
 
(21,638
)
  
    
  
  
  
  
  
  
                                                                           
 
5,455
 
   
 
2,169
     
 
996
 
   
 
1,646
   
 
2,979
 
   
 
  —  
 
   
 
73,186
 
   
 
—  
 
   
 
330,385
 
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
8,248
 
   
 
8,248
 
                                                                           
  
    
  
  
  
  
  
  
                                                                           
 
$46,972
 
   
$
23,959
     
$
5,370
 
   
$
16,429
   
$
39,400
 
   
$
—  
 
   
$
811,740
 
   
$
77,545
 
   
$
2,799,310
 
  
    
  
  
  
  
  
  
 
 
 
ral part of these financial statements.

8

Table of Contents
BELLSOUTH SAVINGS
 
STATEMENT OF CHANGES
FOR BENEFITS, WITH
 
Year Ended Dec
(In Tho
 
 
    
BellSouth
Stock
Fund
     
Indexed
Stock
Fund
     
Interest
Income
Fund
     
Vanguard
Growth
Index-Institutional
     
Fidelity
Growth
& Income
Portfolio
     
Balanced
Fund
     
Bond
Fund
  
                                                  
Net Assets Available for Benefits,
December 31, 1999
   
$
1,752,157
 
   
$
207,625
 
   
$
351,123
     
$
90,650
 
   
$
70,927
 
   
$
25,154
 
   
$
7,715
 
    
  
  
    
  
  
  
                                                                
Employee contributions
   
 
50,900
 
   
 
13,445
 
   
 
35,526
     
 
11,208
 
   
 
6,589
 
   
 
2,450
 
   
 
744
 
Transfer of participants’ balances—net
   
 
(111,811
)
   
 
708
 
   
 
37,950
     
 
41,946
 
   
 
1,433
 
   
 
(1,784
)
   
 
681
 
Supplemental contributions
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Allocation of shares to participants
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Transfer for loan repayment
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
    
  
  
    
  
  
  
Total Contributions, Allocations and Transfers
   
 
(60,911
)
   
 
14,153
 
   
 
73,476
     
 
53,154
 
   
 
8,022
 
   
 
666
 
   
 
1,425
 
Share of Trust investment activities
   
 
(148,371
)
   
 
(17,323
)
   
 
20,131
     
 
(27,360
)
   
 
(1,659
)
   
 
798
 
   
 
819
 
    
  
  
    
  
  
  
Total
   
 
(209,282
)
   
 
(3,170
)
   
 
93,607
     
 
25,794
 
   
 
6,363
 
   
 
1,464
 
   
 
2,244
 
    
  
  
    
  
  
  
                                                                
Less: Distributions to participants
   
 
218,050
 
   
 
27,431
 
   
 
110,003
     
 
18,976
 
   
 
10,196
 
   
 
3,677
 
   
 
1,223
 
Intereston notes payable
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
    
  
  
    
  
  
  
 
Net Assets Available for Benefits,
December 31, 2000
   
$
1,324,825
 
   
$
177,024
 
   
$
334,727
     
$
97,468
 
   
$
67,094
 
   
$
22,941
 
   
$
8,736
 
    
  
  
    
  
  
  
 
 
 
The accompanying notes are an integ

9

Table of Contents
AND SECURITY PLAN
 
IN NET ASSETS AVAILABLE
FUND INFORMATION
 
ember 31, 2000
usands)
 
T. Rowe Price Mid-Cap Growth
   
DFA U.S.
Small Cap Value II Fund
     
DFA
International
Value II
Fund
     
DFA U.S.
Large Cap
Value II
Fund
     
Participant
Loans
     
Other
     
Employee Stock
Ownership Plan
     
Total
  
                   
Allocated
     
Unallocated
     
   
$
20,379
   
$
11,191
     
$
5,680
 
   
$
9,221
 
   
$
39,628
 
   
$
—  
 
   
$
1,063,635
 
   
$
186,131
 
   
$
3,841,216
 
  
    
  
  
  
  
  
  
                                                                           
 
4,363
   
 
1,188
     
 
676
 
   
 
864
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
127,953
 
 
31,734
   
 
1,720
     
 
783
 
   
 
(749
)
   
 
(6,211
)
   
 
(1,090
)
   
 
(16,035
)
   
 
—  
 
   
 
(20,725
)
 
—  
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
24,861
 
   
 
24,861
 
 
—  
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
40,221
 
   
 
(40,221
)
   
 
—  
 
 
—  
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(9,863
)
   
 
9,863
 
   
 
—  
 
  
    
  
  
  
  
  
  
 
36,097
   
 
2,908
     
 
1,459
 
   
 
115
 
   
 
(6,211
)
   
 
(1,090
)
   
 
14,323
 
   
 
(5,497
)
   
 
132,089
 
 
2,134
   
 
1,055
     
 
(4
)
   
 
670
 
   
 
9,863
 
   
 
1,090
 
   
 
(96,712
)
   
 
(46,159
)
   
 
(301,028
)
  
    
  
  
  
  
  
  
 
38,231
   
 
3,963
     
 
1,455
 
   
 
785
 
   
 
3,652
 
   
 
—
  
   
 
(82,389
)
   
 
(51,656
)
   
 
(168,939
)
  
    
  
  
  
  
  
  
                                                                           
 
5,935
   
 
1,987
     
 
1,012
 
   
 
1,307
 
   
 
1,996
 
   
 
—  
 
   
 
99,925
 
   
 
—  
 
   
 
501,718
 
 
—  
   
 
—    
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
10,978
 
   
 
10,978
 
  
    
  
  
  
  
  
  
   
$
52,675
   
$
13,167
     
$
6,123
 
   
$
8,699
 
   
$
41,284
 
   
$
—  
 
   
$
881,321
 
   
$
123,497
 
   
$
3,159,581
 
  
    
  
  
  
  
  
  
 
 
 
ral part of these financial statements.

10

Table of Contents
BELLSOUTH SAVINGS
 
STATEMENT OF CHANGES
FOR BENEFITS, WITH
 
Year Ended De
(In Tho
 
    
BellSouth
Stock
Fund
     
Indexed
Stock
Fund
     
Interest
Income
Fund
     
Vanguard Growth Index-Institutional
     
Fidelity Growth & Income Portfolio
     
Balanced
Fund
     
Bond
Fund
  
Net Assets Available for Benefits,
    December 31, 1998
   
$
2,058,039
 
   
$
184,123
 
   
$
322,241
     
$
45,629
 
   
$
67,836
 
   
$
23,896
 
   
$
8,658
 
    
  
  
    
  
  
  
                                                                
Employee contributions
   
 
47,492
 
   
 
11,477
 
   
 
18,166
     
 
5,250
 
   
 
4,775
 
   
 
1,793
 
   
 
762
 
Transfer of participants’ balances—net
   
 
(82,142
)
   
 
(13,108
)
   
 
38,967
     
 
23,424
 
   
 
(3,913
)
   
 
(901
)
   
 
(646
)
Supplemental contributions
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Allocation of shares to participants
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Transfer for loan repayment
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
    
  
  
    
  
  
  
Total Contributions, Allocations and Transfers
   
 
(34,650
)
   
 
(1,631
)
   
 
57,133
     
 
28,674
 
   
 
862
 
   
 
892
 
   
 
116
 
Share of Trust investment activities
   
 
(148,325
)
   
 
36,005
 
   
 
18,059
     
 
19,713
 
   
 
6,474
 
   
 
1,832
 
   
 
(172
)
    
  
  
    
  
  
  
Total
   
 
(182,975
)
   
 
34,374
 
   
 
75,192
     
 
48,387
 
   
 
7,336
 
   
 
2,724
 
   
 
(56
)
    
  
  
    
  
  
  
                                                                
Less: Distributions to participants
   
 
122,907
 
   
 
10,872
 
   
 
46,310
     
 
3,366
 
   
 
4,245
 
   
 
1,466
 
   
 
887
 
              Interest on notes payable
   
 
—  
 
   
 
—  
 
   
 
—  
     
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
    
  
  
    
  
  
  
Net Assets Available for Benefits, December 31, 1999
   
$
1,752,157
 
   
$
207,625
 
   
$
351,123
     
$
90,650
 
   
$
70,927
 
   
$
25,154
 
   
$
7,715
 
    
  
  
    
  
  
  
 
 
 
The accompanying notes are an integ

11

Table of Contents
AND SECURITY PLAN
 
IN NET ASSETS AVAILABLE
FUND INFORMATION
 
cember 31, 1999
usands)
 
T. Rowe Price
Mid-Cap Growth
  
DFA U.S.
Small Cap Value II Fund
       
DFA International Value II Fund
   
DFA U.S. Large Cap Value II Fund
     
Participant
Loans
     
Other
     
Employee Stock
Ownership Plan
     
Total
  
                  
Allocated
     
Unallocated
     
         
$
14,171
  
$
13,441
 
     
$
4,170
   
$
10,318
 
   
$
30,026
 
   
$
—  
 
   
$
1,084,067
 
   
$
264,096
 
   
$
4,130,711
 
 
    
  
  
  
  
  
  
                                                                          
 
1,514
  
 
961
 
     
 
386
   
 
747
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
93,323
 
 
2,218
  
 
(3,902
)
     
 
723
   
 
(1,573
)
   
 
8,084
 
   
 
(118
)
   
 
(3,545
)
   
 
—  
 
   
 
(36,432
)
 
—  
 
 
—  
 
     
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
24,500
 
   
 
24,500
 
 
—  
 
 
—  
 
     
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
76,948
 
   
 
(76,948
)
   
 
—  
 
 
—  
 
 
—  
 
     
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(9,384
)
   
 
9,384
 
   
 
—  
 
 
    
  
  
  
  
  
  
 
3,732
  
 
(2,941
)
     
 
1,109
   
 
(826
)
   
 
8,084
 
   
 
(118
)
   
 
64,019
 
   
 
(43,064
)
   
 
81,391
 
 
3,749
  
 
1,282
 
     
 
716
   
 
336
 
   
 
2,416
 
   
 
118
 
   
 
(45,335
)
   
 
(21,443
)
   
 
(124,575
)
 
    
  
  
  
  
  
  
 
7,481
  
 
(1,659
)
     
 
1,825
   
 
(490
)
   
 
10,500
 
   
 
—  
 
   
 
18,684
 
   
 
(64,507
)
   
 
(43,184
)
 
    
  
  
  
  
  
  
                                                                          
 
1,273
  
 
591
 
     
 
315
   
 
607
 
   
 
898
 
   
 
—  
 
   
 
39,116
 
   
 
—  
 
   
 
232,853
 
 
—  
 
 
—  
 
     
 
—  
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
13,458
 
   
 
13,458
 
 
    
  
  
  
  
  
  
$
20,379
  
$
11,191
 
     
$
5,680
   
$
9,221
 
   
$
39,628
 
   
$
—  
 
   
$
1,063,635
 
   
$
186,131
 
   
$
3,841,216
 
 
    
  
  
  
  
  
  
 
 
ral part of these financial statements.

12

Table of Contents
BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS
 
(Dollars in Thousands, Except Per-Participant Amounts)
 
1.    Plan Description
 
General
 
The following description of the BellSouth Savings and Security Plan (the Plan) provides only general information. For additional information, participants should refer to the Plan Prospectus/Summary Plan Description, as supplemented (SPD). A copy of the SPD can be obtained by calling the BellSouth Participant Service Center at 1-866-697-1006. In addition, copies of the Plan agreement and other related documents which include details of the Plan can be obtained by writing to: Secretary, BellSouth Savings Plan Committee, Room 13C09, 1155 Peachtree Street, N.E., Atlanta, Georgia 30309-3610.
 
The Plan was established by BellSouth Corporation (BellSouth) to provide a convenient way for non-salaried employees to save for their retirement on a long-term basis and to acquire an ownership interest in BellSouth. The Plan consists of two parts: one is a profit sharing plan which includes a qualified cash or deferred arrangement and which is intended to qualify as such under Sections 401(a), 401(k) and 401(m) and related sections of the Internal Revenue Code of 1986, as amended (the Code); the second part is an Employee Stock Ownership Plan (ESOP) which is designed as a stock bonus plan to invest primarily in shares of BellSouth Common Stock and which is intended to qualify under Sections 401(a), 401(m) and 4975(e)(7) and related sections of the Code. Substantially all non-management employees who are active, regular full-time or part-time employees of a BellSouth company participating in the Plan and have completed one year of service are eligible to participate. The Plan is subject to the Employee Retirement Income Security Act of 1974, as amended.
 
Master Trust
 
For investment purposes, the assets of the Plan are held in the BellSouth Master Savings Trust (the Master Savings Trust). The Master Savings Trust also holds the assets of the BellSouth Retirement Savings Plan (BRSP).
 
Investment Options
 
At December 31, 2001, the Plan’s assets were comprised of the following investment vehicles: BellSouth Stock Fund, Indexed Stock Fund, Interest Income Fund, Bond Fund, Balanced Fund and the following mutual funds: Fidelity Growth & Income Portfolio, Vanguard Growth Index-Institutional, DFA U.S. Small Cap Value II Fund, T. Rowe Price Mid-Cap Growth, DFA U.S. Large Cap Value II Fund and DFA International Value II Fund. All investments are valued on a daily basis.
 
Concentrations of Risk
 
At December 31, 2001 and 2000, the Plan’s assets were significantly concentrated in shares of BellSouth Common Stock, the value of which is subject to fluctuations related to corporate, industry and economic factors.
 
The Plan’s other investment options include a variety of stocks, bonds, fixed income securities, mutual funds and other investment securities. Investment securities subject participants to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits, With Fund Information.

13

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)
 
 

 
1.    Plan Description—(continued)
 
Vesting
 
Participant contributions vest immediately. Employing company matching contributions vest upon a participant’s completion of three years of service. One year of vesting service is earned upon a participant’s completion of 1,000 work hours during any year.
 
Participant Loans (Whole Dollars)
 
Participants may borrow from their fund accounts a minimum of $1,000 up to the lesser of $50,000 minus the highest outstanding loan principal balance over the previous twelve months or 50 percent of their before-tax account balances as defined by the Plan document and any amounts rolled over to the Plan from other qualified plans. Loan balances are secured by the assets allocated to the participant’s accounts and bear interest at various rates which ranged from 5.75% to 10.5% at December 31, 2001. Principal and interest are paid ratably through periodic payroll deductions for active employees and by coupon for nonactive employees.
 
Service Providers
 
As of May 1, 1999, State Street Bank & Trust Company serves as the Trustee for the Master Savings Trust. Prior to May 1, 1999, Bankers Trust Company served as the Trustee for the Master Savings Trust. Metropolitan Life Insurance Company serves as the recordkeeper and service center provider for the Plan.
 
2.    Accounting Policies
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
 
With respect to the Statements of Net Assets Available for Benefits, With Fund Information for the years presented, allocated Share of Trust Net Assets includes investments at fair value, accrued interest income, accrued dividends, receivables for investments sold, payables for investments purchased and accrued administrative expenses of the Master Savings Trust.
 
With respect to the Statements of Changes in Net Assets Available for Benefits, With Fund Information for the years presented, allocated Share of Trust Investment Activities includes the sum of realized gains, net of realized losses, the net change in unrealized appreciation/(depreciation) of the fair value of the investments, interest income, dividends, investment manager fees and other administrative fees paid by the Master Savings Trust.
 

14

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

 
2.    Accounting Policies—(continued)
 
The values of investments in the Master Savings Trust are determined as follows:
 
 
·
Shares of BellSouth Common Stock and equity securities underlying the Indexed Stock Fund are valued on the basis of the closing price per share on December 31, 2001 and 2000 as reported on the New York Stock Exchange or, if no sales were made on that date, at the closing price on the next preceding day on which sales were made;
 
 
·
The values of mutual funds, all of which are traded on a national securities exchange, are based on published daily closing net asset values as reported by the respective securities exchanges;
 
 
·
Over-the-counter securities and government obligations are valued based on the bid prices on December 31, 2001 and 2000 from published sources where available and, if not available, from other sources considered reliable;
 
 
·
Annuity contracts with insurance companies and synthetic contracts (derivatives) are valued at principal plus reinvested interest; and
 
 
·
Future and forward contracts (derivatives) are carried at fair value and reflect the amount that the Master Savings Trust would receive or pay to terminate the contracts at the reporting date.
 
Purchases and sales of securities are reflected as of the trade date.
 
Realized gains and losses on sales of investments are determined on the basis of average cost.
 
Dividend income is recognized on the date the Master Savings Trust is entitled to the benefit. Interest earned on investments is recognized on the accrual basis.
 
Realized gains and losses as well as the current unrealized gains and losses of open derivative contracts are recorded currently to income.
 
3.    Contributions
 
Employee contributions to the Plan are recorded based upon authorized basic and supplemental contributions. The maximum basic contribution rate was $60 per week for 2001, 2000 and 1999. Participants may contribute up to the IRS limit of their eligible compensation to the Plan on a before-tax basis.
 
As discussed in Section 3 of the Plan document, participants may also rollover amounts into the Plan from other qualified plans.

15

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)
 
 

 
3.    Contributions—(continued)
 
The employing company makes matching contributions to the Employee Stock Ownership Plan (ESOP) in respect of each participant’s authorized basic contribution. The rate of the employing company matching contribution remains in effect for a twelve-month period from April 1 through March 31 and varies from company to company. The employing company makes a matching contribution that is a percentage of the employee’s basic contribution. The ranges of matching contribution rates for the three years ended December 31, 2001 were as follows:
 
    
2001
   
2000
   
1999
January-March
   
81%
   
76%
   
76% - 81%
April-December
   
65% - 81%
   
81%
   
76%
 
4.    Plan Expenses
 
Each participant in the Plan is charged a flat annual fee for Plan administrative expenses, including record keeping, trustee and other expenses considered reasonable by the Plan administrator. The fee is divided on a pro rata basis among each investment option of the participant. The per-participant fee was $36.00 for 2001, $35.25 for 2000 and $33.00 for 1999. Additional fees are charged to individual participants for various services provided by the Plan’s recordkeeper.
 
Investment manager fees are paid by the Master Savings Trust. The Plan’s share of investment manager fees included in allocated share of Trust investment activities in the Statements of Changes in Net Assets Available for Benefits, With Fund Information for the years presented, were as follows:
 
    
For the Year Ended December 31,
    
2001
   
2000
     
1999
BellSouth Stock Fund
   
$
246
   
$
269
 
   
$
237
Indexed Stock Fund
   
 
18
   
 
(14
)
   
 
65
Interest Income Fund
   
 
157
   
 
151
 
   
 
145
Balanced Fund
   
 
43
   
 
26
 
   
 
30
Bond Fund
   
 
45
   
 
17
 
   
 
18
Allocated ESOP
   
 
133
   
 
125
 
   
 
—  
    
  
  
    
$
642
   
$
574
 
   
$
495
    
  
  

16

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)
 
 

 
4.    Plan Expenses—(continued)
 
For the mutual funds, investment manager fees are not paid directly from the Master Savings Trust. However, these investments are subject to mutual fund management fees which reduce the overall return of the respective mutual fund. These fees, expressed as percentages of fund assets, which were assessed against the mutual funds by their respective managers, were as follows:
 
    
For the Year Ended December 31,
    
2001
   
2000
   
1999
Vanguard Growth Index-Institutional
   
0.12%
   
0.12%
   
0.12%
Fidelity Growth & Income Portfolio
   
0.66%
   
0.67%
   
0.68%
T. Rowe Price Mid-Cap Growth
   
0.89%
   
0.87%
   
0.91%
DFA U.S. Small Cap Value II Fund
   
0.41%
   
0.44%
   
0.44%
DFA International Value II Fund
   
0.53%
   
0.50%
   
0.50%
DFA U.S. Large Cap Value II Fund
   
0.31%
   
0.37%
   
0.37%
 
5.    Tax Status
 
The Internal Revenue Service has determined and informed BellSouth by a favorable determination letter dated April 14, 1998 that the Plan and related Trust meet the requirements of Section 401(a) of the Code, and are exempt from federal income taxes under Section 501(a) of the Code.
 
The Plan was amended and restated effective July 1, 2001 to comply with the provisions of the GUST amendment to ERISA. The following acts are collectively referred to as the GUST amendment: the Retirement Protection Act of 1994, Uniformed Services Employment and Reemployment Rights Act of 1994, Small Business Job Protection Act of 1996, Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998. Management has filed the amended Plan documents with the Department of Labor and Internal Revenue Service and believes that the Plan continues to be in compliance with the Internal Revenue Code and is not aware of any course of action or series of events that have occurred that might adversely affect the Plan’s qualified status.
 
The federal income tax effects on participants with respect to the Plan are described in the SPD.
 
6.    Termination Priorities
 
BellSouth intends to continue the Plan indefinitely but reserves the right to terminate or amend it. In the event the Plan is terminated and if BellSouth or its subsidiaries sponsor another defined contribution plan, the participants may elect to have their account balances transferred to the other plan. If BellSouth or its subsidiaries do not sponsor such a plan, the participants would receive a lump-sum distribution of their account balances.

17

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)
 
 

 
7.    Interest in BellSouth Master Savings Trust
 
The assets of the Plan are held in the Master Savings Trust and are commingled with the assets of the BRSP. The assets of the Master Savings Trust are allocated to the Plan based upon the total of each individual plan participant’s share of the Master Savings Trust’s assets. The Plan’s allocated share of the total net assets of all funds in the Master Savings Trust was 30.37252% at December 31, 2001 and 31.80631% at December 31, 2000. The Plan’s allocated share of the net assets of each fund in the Master Savings Trust at December 31, 2001 and 2000 were as follows:
 
    
2001
   
2000
BellSouth Stock Fund
   
43.83355%
   
45.90979%
Indexed Stock Fund
   
12.65063%
   
13.79783%
Interest Income Fund
   
25.93407%
   
26.23836%
Vanguard Growth Index-Institutional
   
25.36455%
   
27.22200%
Fidelity Growth & Income Portfolio
   
25.16737%
   
27.07369%
Balanced Fund
   
18.20005%
   
17.97972%
Bond Fund
   
14.38763%
   
7.82108%
T. Rowe Price Mid-Cap Growth
   
23.89580%
   
25.23658%
DFA U.S. Small Cap Value II Fund
   
18.08438%
   
15.77238%
DFA International Value II Fund
   
14.70964%
   
13.60468%
DFA U.S. Large Cap Value II Fund
   
25.34689%
   
23.20607%
Participant Loans
   
35.77935%
   
36.75449%
Other
   
25.38325%
   
39.40465%
 

18

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BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

 
7.    Interest in BellSouth Master Savings Trust—(continued)
 
The financial position of the Master Savings Trust at December 31, 2001 and 2000 was as follows:
 
Assets:    
   
2001
   
2000
Investments at value:
              
BellSouth Stock Fund:
              
Shares of BellSouth Common Stock#
   
$
2,529,043
   
$
2,867,936
Temporary cash investments
   
 
11,323
   
 
15,254
Distributable shares 
   
 
54
   
 
18
Indexed Stock Fund:
              
Equity Index Fund#
   
 
1,021,525
   
 
1,279,516
Interest Income Fund:
              
General account investment contracts
   
 
33,422
   
 
74,600
Security backed investments
   
 
1,313,174
   
 
1,145,384
Temporary cash investments
   
 
41,780
   
 
48,616
Vanguard Growth Index-Institutional:
              
Securities
   
 
263,689
   
 
357,703
Fidelity Growth & Income Portfolio:
              
Securities
   
 
217,311
   
 
246,970
Balanced Fund:
              
Securities
   
 
108,688
   
 
114,758
Temporary cash investments
   
 
11,554
   
 
12,333
Bond Fund:
              
Securities
   
 
236,785
   
 
136,945
Temporary cash investments
   
 
20,791
   
 
4,954
T. Rowe Price Mid-Cap Growth:
              
Securities
   
 
197,142
   
 
209,152
DFA U.S. Small Cap Value II Fund:
              
Securities
   
 
131,938
   
 
83,136
DFA International Value II Fund:
              
Securities
   
 
36,381
   
 
44,852
Personal Choice Retirement Account:
              
Securities
   
 
40,849
   
 
51,004
Mutual Funds
   
 
25,122
   
 
29,181
Common trusts
   
 
2,197
   
 
2,508
Temporary cash investments
   
 
15,885
   
 
16,360
DFA U.S. Large Cap Value II Fund:
              
Securities
   
 
64,562
   
 
37,284
Participant Loans:
              
Loans to participants
   
 
106,468
   
 
108,781
Contribution Account†:
              
BellSouth Common Shares
   
 
4,830
   
 
5,086
Temporary cash investments
   
 
2,886
   
 
1,346
Distribution Account†:
              
Temporary cash investments
   
 
19,837
   
 
17,958
(Continued)

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Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

7.    Interest in BellSouth Master Savings Trust—(continued)
 
    
2001
   
2000
Expense Account†:
              
Temporary cash investments
   
 
762
   
 
2,540
Dividends and interest income receivable
   
 
8,682
   
 
9,029
Receivable for investments sold
   
 
4,260
   
 
474
Other receivables
   
 
—  
   
 
76
Variation margin receivable
   
 
318
   
 
—  
    
  
    
 
6,471,258
   
 
6,923,754
Liabilities:
              
Payable for investments purchased
   
 
81,991
   
 
36,300
Variation margin payable
   
 
—  
   
 
42
Other payables
   
 
2,264
   
 
392
    
  
Trust net assets (excluding ESOP Trusts)
   
 
6,387,003
   
 
6,887,020
               
Investment in ESOP Trusts:
              
Shares of BellSouth Common Stock allocated to participants#
   
 
1,953,046
   
 
2,034,525
Distributable shares
   
 
22
   
 
5
Shares of BellSouth Common Stock held for future allocation#
   
 
418,893
   
 
661,301
Temporary cash investments
   
 
20,351
   
 
21,672
    
  
Total investments
   
 
8,779,315
   
 
9,604,523
               
Liabilities:
              
Notes payable
   
 
212,831
   
 
306,959
    
  
Trust net assets
   
$
8,566,484
   
$
9,297,564
    
  
Investments at cost
   
$
7,366,744
   
$
7,371,056
    
  
#
Represents an individual investment which is 5% or more of the Net Assets of the Master Savings Trust.
†
These accounts are combined and presented as the “Other” fund in the accompanying financial statements.
 
The Master Savings Trust is party to derivative financial instruments for purposes other than trading. The most significant of the derivatives, guaranteed investment contracts (GICs) including synthetics, are used to offer a fixed interest rate of return over time, in which the principal and interest components can be accessed at book value. Synthetic GICs are actively managed, collateralized portfolios which offer increased credit quality over traditional GICs. Other derivative instruments, consisting of highly liquid exchange traded equity and debt futures are used primarily to rebalance the fixed income/equity allocation of the Trust’s portfolio. In addition, mortgage rolls (forward contracts) are used in combination with actively managed cash equivalents to provide enhanced yield from mortgage sector bonds.

20

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

 
7.    Interest in BellSouth Master Savings Trust—(continued)
 
Distributions from the BellSouth Stock Fund and the BellSouth Management Savings and ESOP Trust and the BellSouth Savings and Security ESOP Trust (the ESOP Trusts) that are payable in shares of BellSouth Common Stock are separated from the “Shares of BellSouth Common Stock” and “Shares of BellSouth Common Stock allocated to participants” lines and reflected as “Distributable shares.”
 
Assets in the BellSouth Stock Fund, Bond Fund, Indexed Stock Fund, mutual funds and some of the assets in the Balanced Fund are invested in securities which fluctuate in market value, therefore the values of the fund units fluctuate daily.
 
Assets in the Interest Income Fund are invested in the following types of financial vehicles:
 
 
·
Cash and Cash Equivalents—These are short-term money market investments, maturing in less than twelve months, that are necessary to meet daily liquidity needs.
 
 
·
General Account Investment Contracts—These contracts are also referred to as traditional investment contracts. An investment contract is termed “general account” when the assets committed to the contract are commingled with other general assets of the contract issuer. The contract issuer promises to return the invested principal plus a stated rate of interest upon maturity. The quality of the promise is a function of the financial condition of the contract issuer.
 
 
·
Security Backed Investments—These are generic terms which refer to investment contracts other than “traditional” general account investment contracts as defined above. These investments consist of a combination of marketable securities, owned directly by the Plan or as units of a separate account or trust owned by the Plan, and an investment contract that provides liquidity for eligible employee benefits at book value.
 
 
—
Group Trust Investment Contracts—Group Trust refers to the INVESCO Group Trust for Retirement Benefit Plans. The INVESCO Group Trust contains a series of commingled investment funds, available only to INVESCO clients, constructed to provide a stable value portfolio with the beneficial elements of various fixed income management strategies. The Plan’s investment in any one of the various INVESCO Group Trust Funds is unitized and may be “wrapped” by an independent financial institution through the issuance of an investment contract.
 
 
—
Separate Account Investment Contracts—An investment contract is termed “separate account” when the assets committed to the contract are segregated from the general assets of the contract issuer through the use of a specifically identifiable separate account. The separate account may be comprised of investments from one Plan or Trust, or comprised of investments from multiple qualified retirement Plans and Trusts. Though ownership of the assets held in a separate account is retained by the contract issuer, the assets are protected from liabilities arising from the contract issuers’ general operations. The investment performance of a separate account investment contract may be a function of the investment performance of the investments held in the separate account.
 
 
—
Synthetic Investment Contract—The term “synthetic” investment contract is used to describe a variety of investment contracts under which a Plan retains ownership of the invested assets, or owns units of an account or trust which holds the invested assets. A “synthetic” investment contract, also referred to as a “wrap” contract, is negotiated with an independent financial institution. Under the terms of these investment contracts, the contract issuer ensures the Plan’s ability to pay eligible employee benefits at book value. The investment performance of a synthetic investment contract may be a function of the investment performance of the invested assets.

21

Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

 
7.    Interest in BellSouth Master Savings Trust—(continued)
 
The value of the Interest Income Fund reflected in these financial statements is based upon the principal invested and the interest credited. The fair value of the Interest Income Fund, by investment type, at December 31, 2001 and 2000 was as follows:
 
    
December 31, 2001
    
December 31, 2000
  
General account investment contracts
   
$
33,422
 
   
$
74,600
 
Security backed investments:
                  
Underlying assets
   
 
1,358,287
 
   
 
1,171,635
 
Wrapper contracts
   
 
(45,113
)
   
 
(26,251
)
    
  
Total contracts
   
$
1,346,596
 
   
$
1,219,984
 
    
  
 
The contracts held by the Master Savings Trust in the Interest Income Fund are considered fully benefit-responsive in accordance with AICPA Statement of Position 94-4. The crediting interest rate was 5.77% at December 31, 2001 and 6.60% at December 31, 2000. The average yield was 6.24% in 2001 and 6.51% in 2000. Interest rates are reset on a semi-annual, quarterly or monthly basis to move the current book value of these investments toward the projected future market value over the life of the contract.
 
During 1990, the ESOP Trusts issued medium-term notes in the aggregate amount of $850 million to fund the purchase of BellSouth Common Stock to be utilized at later dates to fulfill match obligations. Shares purchased with such funds are released for allocation to participant accounts based on a prescribed schedule coinciding with payments on the ESOP notes.
 
Assets held in the Master Savings Trust are generally unavailable to service the ESOP debt; however, the notes are guaranteed by and are subject to direct recourse against BellSouth. BellSouth contributes to the ESOP Trusts an amount necessary, net of ESOP dividends and interest, to service the ESOP notes. Such contributions are classified as Supplemental Contributions in the accompanying Statements of Changes in Net Assets Available for Benefits, With Fund Information. These contributions are subject to the claims of holders of debt securities issued by the ESOP Trusts but are held at BellSouth and paid to the ESOP Trusts twice yearly to fund, on a same day basis, required payments by the ESOP Trusts on the notes. Such contributions would not remain in the ESOP Trusts unless there was a default on the debt securities by the ESOP Trustee after having received the required contributions from BellSouth. Therefore, holders of the debt securities should not rely on the assets of the ESOP Trusts in arriving at an investment decision with respect to the debt securities.
 
In addition to Supplemental Contributions, BellSouth contributes amounts necessary to purchase any additional shares required to meet the match obligations after shares released by the ESOP Trusts have been used. Such contributions are classified as Employing Company Contributions in the accompanying Statements of Changes in Net Assets Available for Benefits, With Fund Information.
 
In lieu of receiving cash dividends earned on shares of BellSouth Common Stock which have been allocated to participants from the ESOP Trusts, participant accounts are credited with equivalent shares of BellSouth Common Stock. Dividends on the related ESOP shares are transferred to the Unallocated ESOP Fund and are applied towards the service of the ESOP notes. The transfer of these earnings is classified as Transfer for Loan Repayment in the accompanying Statements of Changes in Net Assets Available for Benefits, With Fund Information.

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Table of Contents

BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)

 
7.    Interest in BellSouth Master Savings Trust—(continued)
 
BellSouth made supplemental cash contributions to the ESOP Trusts in the amount of $79,477 in 2001, $75,497 in 2000, and $73,389 in 1999, for the purpose of servicing the guaranteed debt.
 
A description of each debt issue is as follows:
 
BellSouth Management Savings and ESOP Trust:
 
Title
   
Amount
     
Interest Rate
     
Due Date
Amortizing Medium-Term Notes, Series A
   
$
275,000
     
9.125%
 
   
July 1, 2003
Amortizing Medium-Term Notes, Series A
   
$
275,000
     
9.19%
 
   
July 1, 2003
    
             
Total
   
$
550,000
              
    
             
 
BellSouth Savings and Security ESOP Trust:
 
Title
   
Amount
     
Interest Rate
     
Due Date
Amortizing Medium-Term Notes, Series A
   
$
300,000
     
9.125
%
   
July 1, 2003
 
Maturities of the ESOP Trusts’ long-term debt outstanding at December 31, 2001 were as follows:
 
    
2002
   
2003
   
Total
Maturities
   
$
104,648
   
$
108,183
   
$
212,831
    
  
  
 
Investment activities of the Master Savings Trust are allocated to the Plan based upon the total of each individual Plan participant’s share of the Master Savings Trust investment activities during the period ended December 31, 2001.
 
The Master Savings Trust investment activities for the years ended December 31, 2001, 2000, and 1999 were as follows:
 
    
For the Year Ended December 31,
  
    
2001
     
2000
     
1999
  
Investment Activities:
                           
Dividends on shares of BellSouth Common Stock
   
$
100,945
 
   
$
112,515
 
   
$
119,742
 
Interest Income Fund income
   
 
80,222
 
   
 
70,326
 
   
 
71,112
 
Other interest
   
 
19,928
 
   
 
37,067
 
   
 
66,375
 
Net change in unrealized appreciation/(depreciation) on investments
   
 
(802,173
)
   
 
(1,575,258
)
   
 
(1,264,789
)
Net realized gain on investments
   
 
227,660
 
   
 
589,455
 
   
 
1,084,574
 
Investment manager fees
   
 
(2,245
)
   
 
(1,741
)
   
 
(1,880
)
Other fees
   
 
(4,748
)
   
 
(3,021
)
   
 
(2,999
)
    
  
  
Net investment activities
   
$
(380,411
)
   
$
(770,657
)
   
$
72,135
 
    
  
  
 
8.    Subsequent Events
 
Effective January 1, 2002, the BellSouth Stock Fund was converted to an Employee Stock Ownership Plan Fund. This change will disallow transfers and contributions into the BellSouth Stock Fund during the three days prior to the ex-dividend date. In addition, participants invested in the BellSouth Stock Fund may elect to have their quarterly dividends either reinvested in the fund or passed-through and paid to them outside the Plan in cash as taxable ordinary income.
 
Effective February 1, 2002, participant balances for employees that transferred to the Cingular Wireless joint venture were transferred out of the Plan. The total asset transfer was $1,500.

23

Table of Contents
BELLSOUTH SAVINGS AND SECURITY PLAN
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
 
(Dollars in Thousands, Except Per-Participant Amounts)
8.    Subsequent Events—(continued)
Effective March 15, 2002, participants in the Plan are able to diversify their past and future company match, previously held in the Employee Stock Ownership Plan Fund.
 
Effective April 30, 2002, Fidelity Investments became the record keeper and service center for the Plan, replacing Metropolitan Life Insurance Company.
 
Effective May 1, 2002, the BellSouth Employee Stock Ownership Plan (PAYSOP) merged with the BellSouth Savings Plans. Participant accounts have been moved to the BellSouth Retirement Savings Plan (for management employees) or to the BellSouth Savings and Security Plan (for non-management employees) where each participant’s allocated shares have been placed in the BellSouth Stock Fund. The total asset transfer into the BellSouth Savings Plans was $226,301.

24

Table of Contents
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the BellSouth Savings and Security Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized.
 
BellSouth Savings and Security Plan
By: BellSouth Corporation, as Plan Administrator
 
By:    /s/    Salem C. Shunnarah
                                                                                               
          Salem C. Shunnarah
          (Executive Director)
 
Date:   June 12, 2002

25