Filed Pursuant to Rule 424(b)(3)
                                                      Registration No. 333-42535
 
TELEPHONE AND DATA SYSTEMS, INC.
 
30 North LaSalle Street, 40th Floor
Chicago, Illinois 60602
312/630-1900
 
                                                                       [LOGO]
 
                                 April 20, 1998
 
Dear Fellow Shareholders:
 
    The Special Meeting of Shareholders of the Company, called for April 27,
1998, is only a few days away. We are seeking your support for the Tracking
Stock Proposal and the related proposals described in the Proxy Statement/
Prospectus dated March 24, 1998, which was previously sent to you. A supplement
to the Proxy Statement/Prospectus (the "Supplement") discussing certain action
by the Board of Directors and certain recent developments is being delivered
herewith.
 
    As described in the Supplement, on April 17, 1998, the Board of Directors of
the Company determined to take certain action at the 1998 Annual Meeting of
Shareholders, assuming shareholders approve the Tracking Stock Proposal. If the
Tracking Stock Proposal is approved at the Special Meeting on April 27, 1998,
the Board of Directors will submit a proposal to shareholders at the Company's
1998 Annual Meeting, currently expected to occur in July 1998, to consider
certain amendments to the Restated Certificate of Incorporation of TDS Delaware
(the "Restated Certificate"), which the Board of Directors believes would
improve the corporate governance provisions of the Tracking Stock Proposal in
certain respects. The amendments that would be considered at the 1998 Annual
Meeting are as follows:
 
        1.  The Restated Certificate would be amended to require a vote by the
    holders of a majority of the Common Shares and Series A Common Shares, each
    voting separately as a class, in connection with any merger or consolidation
    of TDS that requires a shareholder vote.
 
        2.  The Restated Certificate would be amended to require a class vote by
    the holders of a majority of the Common Shares to increase the authorized
    number of Common Shares, and to require a class vote by the holders of a
    majority of the Series A Common Shares to increase the authorized number of
    Series A Common Shares.
 
        3.  The Restated Certificate would be amended to provide that TDS would
    be subject to the provisions of Section 203 of the Delaware General
    Corporation Law.
 
    Although the Company has received support for the Tracking Stock Proposal
from TDS shareholders, the TDS Board of Directors took this action based on the
objections of certain shareholders to the terms of the Tracking Stock Proposal.
The Board of Directors of TDS believes that these changes would improve the
corporate governance features of the Tracking Stock Proposal. These changes will
have the effect of retaining certain corporate governance protections which the
holders of Common Shares and Series A Common Shares currently have under Iowa
law.
 
    Credit Suisse First Boston and Salomon Smith Barney have acted as financial
advisors to the Company in connection with the Tracking Stock Proposal. BASED ON
THE ADVICE OF SUCH FIRMS, THE COMPANY BELIEVES THAT THE APPROVAL AND
IMPLEMENTATION OF THE TRACKING STOCK PROPOSAL SHOULD HAVE A POSITIVE EFFECT ON
THE OVERALL VALUE OF THE TDS COMMON EQUITY.
 
    The Board of Directors has studied the Tracking Stock Proposal, has
consulted with its financial and legal advisors, has carefully weighed potential
advantages against potential disadvantages, and has concluded that the positive
aspects of the Tracking Stock Proposal outweigh potential adverse aspects. THE
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TRACKING STOCK PROPOSAL,
BELIEVES THAT THE ADOPTION OF THE TRACKING STOCK PROPOSAL IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE TRACKING STOCK PROPOSAL AND THE RELATED PROPOSALS.
 
    WHETHER OR NOT YOU HAVE PREVIOUSLY SIGNED AND RETURNED A PROXY CARD, PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. If you do not return the enclosed proxy, any proxy previously returned
by you will remain valid and will be voted at the meeting. IT IS IMPORTANT THAT
THE LATEST DATED PROXY CARD VOTES YOUR SHARES FOR THE TRACKING STOCK PROPOSAL
AND THE RELATED PROPOSALS.
 
    The Tracking Stock Proposal and the related transactions are important to
the Company's long-term performance and to all shareholders of the Company. The
Tracking Stock Proposal is intended to have the following substantial benefits:

    GREATER MARKET RECOGNITION OF VALUES.  The Tracking Stock Proposal is
intended to result in greater market recognition of the value (individually and
collectively) of the Company and of the Company's three principal business
groups, thereby enhancing shareholder value over the long term, while at the
same time enabling the Company's businesses to preserve the benefits of being
part of a consolidated enterprise;
 
    INCREASED SHAREHOLDER FLEXIBILITY.  The Tracking Stock Proposal is intended
to provide shareholders with the opportunity to invest in separate securities
that specifically reflect the underlying businesses, depending upon their
investment objectives, as well as permit shareholders to continue to invest in
all of the TDS businesses through the Common Shares and Series A Common Shares;
 
    INCREASED FINANCING FLEXIBILITY.  The Tracking Stock Proposal is intended to
provide the Company with greater flexibility in raising capital and making
acquisitions, using equity securities specifically related to the Company's
principal business groups;
 
    INCREASED EMPLOYEE COMPENSATION FLEXIBILITY.  The Tracking Stock Proposal is
intended to enable the Company to more effectively tailor employee benefit plans
to provide incentives to employees of the Tracking Groups; and
 
    BENEFITS OF DELAWARE REINCORPORATION.  The Tracking Stock Proposal is
intended to allow the Company to benefit from Delaware's well-developed
corporate laws and substantial body of case law, which will provide a greater
measure of predictability with respect to corporate legal affairs, and will
offer clearer guidance with respect to legal issues that may arise as a result
of the existence of separate classes of Tracking Stock.
 
    The Supplement also describes certain developments relating to the offers by
TDS to acquire the publicly-traded shares of Aerial and U.S. Cellular which it
does not own. As discussed in the Supplement, the special committee of the board
of directors of Aerial has rejected the TDS offer relating to the Aerial Merger
and the special committee of the board of directors of U.S. Cellular has
expressed significant reservations with respect to the TDS offer relating to the
U.S. Cellular Merger. Although TDS believes that the acquisition of the
publicly-held shares of Aerial and U.S. Cellular would be desirable, TDS
believes that the Tracking Stock Proposal will provide substantial benefits to
the TDS shareholders even if TDS is unable to reach mutually acceptable
agreements with the Aerial and/or U.S. Cellular special committees.
 
    TDS desires to complete the Telecom Public Offering, the U.S. Cellular
Merger, the Aerial Merger and the Distribution by mid to late 1998. However,
there can be no assurance that the Telecom Public Offering, the U.S. Cellular
Merger, the Aerial Merger or the Distribution will be completed or, if they are
completed, that they will be completed on the terms described in the Proxy
Statement/Prospectus, as supplemented hereby. As disclosed in the Proxy
Statement/Prospectus dated March 24, 1998, if TDS cannot reach an agreement with
either the Aerial or U.S. Cellular special committees on terms that provide
mutual advantages to the Aerial and U.S. Cellular shareholders, respectively, on
the one hand, and the TDS shareholders, on the other hand, TDS may distribute
shares of tracking stock representing approximately 75% of TDS's interest in
Aerial and/or U.S. Cellular to TDS shareholders. Nevertheless, the Company will
not proceed with any action unless the Board determines that such action would
be in the best interests of the TDS shareholders.
 
    If the Tracking Stock Proposal is approved at the Special Meeting, the
reincorporation into Delware is expected to occur as soon as practicable
thereafter, subject to the receipt of all regulatory approvals, which are
anticipated by mid to late May 1998.
 
    YOUR VOTE IS VERY IMPORTANT. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD(S) IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IT IS IMPORTANT THAT THE LATEST
DATED PROXY CARD VOTES YOUR SHARES FOR THE TRACKING STOCK PROPOSAL AND THE
RELATED PROPOSALS.
 
    If you have any questions prior to the Special Meeting, please call the
Company's Information Agent, MacKenzie Partners, Inc., at 1-800-322-2885. We
look forward with pleasure to visiting with you at the Special Meeting.
 
                               Very truly yours,
 
                                                 
             [SIG]                                  [SIG]
LEROY T. CARLSON                                    LEROY T. CARLSON, JR.
Chairman                                            President and Chief Executive Officer


 

 
                                                 
        TELEPHONE AND DATA SYSTEMS, INC.,                   TELEPHONE AND DATA SYSTEMS, INC.,
               An Iowa Corporation                                A Delaware Corporation
            PROXY STATEMENT SUPPLEMENT                            PROSPECTUS SUPPLEMENT


 
                                 APRIL 20, 1998
 
                            ------------------------
 
    This Proxy Statement and Prospectus Supplement is being furnished to the
shareholders of Telephone and Data Systems, Inc., an Iowa corporation (the
"Company" or "TDS"), in connection with the solicitation of proxies by the Board
of Directors of TDS (the "Board"), for use at a Special Meeting of Shareholders
of TDS to be held at Harris Trust and Savings Bank, 111 West Monroe Street, 8th
Floor, Chicago, Illinois, in the Auditorium, on April 27, 1998, at 10:00 a.m.
Chicago time, and at any and all adjournments or postponements thereof (the
"Special Meeting"). It amends and supplements, and should be read in conjunction
with, the joint Proxy Statement/Prospectus of the Company and of Telephone and
Data Systems, Inc., a Delaware corporation ("TDS Delaware"), dated March 24,
1998. Capitalized terms used but not otherwise defined in this supplement have
the meanings assigned to such terms in the Proxy Statement/Prospectus. This
Supplement relates to the following matters:
 
I.  Amendments to Restated Certificate to be considered and 1998 Annual Meeting
    of Shareholders.
 
    On April 17, 1998, the Board of Directors of the Company determined to take
certain action at the 1998 Annual Meeting of Shareholders, assuming shareholders
approve the Tracking Stock Proposal at the Special Meeting on April 27, 1998. If
the Tracking Stock Proposal is approved, the Board of Directors will submit a
proposal to shareholders to consider certain amendments to the Restated
Certificate of Incorporation of TDS Delaware that would improve the corporate
governance provisions of the Tracking Stock Proposal. The amendments that would
be considered at the 1998 Annual Meeting of shareholders are as follows:
 
        1.  Paragraph (g) would be added to Section B.8 of Article IV of the
    Restated Certificate as follows:
 
       "(g) The Corporation shall not merge with or consolidate with any other
    corporation or other entity in a transaction which requires a vote of the
    shareholders of the Corporation under the DGCL unless, in addition to the
    vote required by the DGCL, such merger or consolidation is also approved by
    holders of a majority of the Common Shares and the Series A Common Shares,
    each voting separately as a class."
 
    The effect of the addition of the above section would be that any merger or
consolidation of TDS Delaware which requires a shareholder vote under the DGCL
will also require a class vote by a majority of the holders of the Common Shares
and Series A Common Shares, each voting separately as a class.
 
        2.  Paragraph 3 of Section A of Article IV of the Restated Certificate
    would be amended to delete the references to "Common Shares" and "Series A
    Common Shares" in such paragraph, as follows [deletions are shown in
    brackets]:
 
        "3. The number of authorized [Common Shares, Series A Common Shares,]
    Special Common Shares, Cellular Group Common Shares, Telecom Group Common
    Shares, Aerial Group Common Shares or Undesignated Shares may be increased
    or decreased at any time or from time-to-time (but not below the number of
    such shares then outstanding in such class, respectively) by the affirmative
    vote of the holders of a majority of the voting power of shares of capital
    stock of the Corporation entitled to vote on all matters (not including
    shares entitled to vote only in the election of directors or as otherwise
    required by law, including Section 242(b)(2) of the DGCL) pursuant to
    paragraph 8(c) of Section B of this Article IV."
 
    The effect of the above referenced deletions would be that, under the DGCL,
any increase or decrease in the authorized number of Common Shares will require
a class vote by a majority of the holders of Common Shares and that any increase
in the authorized number of Series A Common Shares will require a class vote by
a majority of the holders of Series A Common Shares.
 
        3.  Paragraph (f) of Section B.17 of Article IV of the Restated
    Certificate, which is repeated below in brackets, would be deleted, and
    paragraphs (g) and (h) thereof would be redesignated as paragraphs (f) and
    (g), respectively.
 
        [(f) In accordance with Section 203(b)(3) of the DGCL, the Corporation
    expressly elects not to be governed by Section 203 of the DGCL.]
 
    The effect of the deletion of the above referenced section would be to cause
TDS Delaware to be subject to the provisions of Section 203 of the DGCL.

    The Board's intention to take this action at the 1998 Annual Meeting of
Shareholders allows a prompt, separate vote on these corporate governance
provisions, while enabling the Company to promptly complete the Merger and
proceed with the Telecom Public Offering. The Company believes that delays
inherent in revising the existing proxy materials to include these changes as
part of the Tracking Stock Proposal would delay the advantages of the Merger and
the Telecom Public Offering and create unnecessary uncertainty.
 
    The Trustees of the TDS Voting Trust intend to vote in favor of all of the
above amendments, subject to approval by a vote of 75% in interest of the
beneficiaries of record of the TDS Voting Trust. It is anticipated that the
beneficiaries will approve the amendments by the requisite vote.
 
II. Recent Developments in Negotiations with Special Committees.
 
    TDS has held several meetings and substantive negotiations with the special
committee of the board of directors of Aerial relating to the proposed Aerial
Merger. Following the most recent meeting with TDS, the special committee of the
board of directors of Aerial advised TDS that it had determined to recommend
that the board of directors of Aerial reject the offer by TDS to acquire the
publicly-held shares of Aerial which TDS does not own. The Aerial special
committee has advised TDS that it would be prepared to consider a revised
proposal which "contains increased protections designed to preserve Aerial's
inherent value for its public stockholders and also embodies an increased equity
interest in the Aerial Group tracking stock for the Aerial public stockholders."
TDS intends to make a revised proposal to the Aerial special committee and to
continue to seek an agreement to acquire the Aerial Common Shares that it does
not own on mutually acceptable terms.
 
    With respect to the U.S. Cellular Merger, TDS has met once with, but has not
yet held substantive negotiations with, the special committee of the board of
directors of U.S. Cellular, which is continuing to conduct due diligence.
However, the special committee of the board of directors of U.S. Cellular has
expressed significant reservations relating to the offer by TDS to acquire the
publicly-held shares of U.S. Cellular that TDS does not own. TDS intends to
continue to seek an agreement to acquire the U.S. Cellular Common Shares that it
does not own on mutually acceptable terms.
 
    As disclosed in the Proxy Statement/Prospectus, if TDS cannot reach an
agreement with either the Aerial or U.S. Cellular special committees on terms
that provide mutual advantages to the Aerial and U.S. Cellular shareholders,
respectively, on the one hand, and the TDS shareholders, on the other hand, TDS
may distribute shares of tracking stock representing approximately 75% of TDS's
interest in Aerial and/or U.S. Cellular to TDS shareholders. The special
committee of the board of directors of Aerial has expressed the view that the
authorization and distribution of a second publicly-traded security reflecting
an interest in Aerial's common equity would not be in the best interests of
Aerial's public stockholders.
 
    Although TDS believes that the acquisition of the publicly-held shares of
Aerial and U.S. Cellular would be desirable, TDS believes that the Tracking
Stock Proposal will provide substantial benefits to the TDS shareholders even if
TDS is unable to reach mutually acceptable agreements with the Aerial and/or
U.S. Cellular special committees. While the Company believes that the Aerial
Merger and the U.S. Cellular Merger would provide some advantages to TDS
shareholders, TDS does not believe that it can agree to any terms which would
result in any significant transfer of value from TDS shareholders to the public
shareholders of Aerial or U.S. Cellular. However, TDS intends to continue to try
to reach an agreement with the Aerial and U.S. Cellular special committees on
terms that would be acceptable to the public shareholders of such corporations
as well as the TDS shareholders.
 
    TDS has file a Registration Statement with the Securities and Exchange
Commission relating to the offer and sale of up to 15,525,000 Telecom Group
Shares in the Telecom Public Offering.
 
    TDS desires to complete the Telecom Public Offering, the U.S. Cellular
Merger, the Aerial Merger and the Distribution by mid to late 1998. However,
there can be no assurance that the Telecom Public Offering, the U.S. Cellular
Merger, the Aerial Merger or the Distribution will be completed or, if they are
completed, that they will be completed on the terms described in the Proxy
Statement/Prospectus, as supplemented hereby. As described in the Proxy
Statement/Prospectus, if the Company is unable to negotiate mutually agreeable
terms with the special committees, the Company may effect all or any part of the
Distribution even if the U.S. Cellular Merger, the Aerial Merger or the Telecom
Public Offering have not taken place. Nevertheless, the Company will not proceed
with any action unless the Board determines that such action would be in the
best interests of the TDS shareholders.