NYNEX

                                  ANNUAL REPORT

                                      1995
<PAGE>

CONTENTS
--------
Introduction                                       1
Financial Highlights                               2
Letter to Share Owners                             4
Corporate Citizenship                              9
1995 Financial Results                             9
NYNEX Corporate Officers, Officers of Principal
  Operating Groups and Share Owner Information    51
NYNEX Board of Directors                          52

FOR INFORMATION ABOUT NYNEX'S 1996 ANNUAL MEETING OF SHARE OWNERS, SEE PAGE 51.


ABOUT THIS REPORT
-----------------
The NYNEX  1995  Annual  Report  and Proxy  Statement  is  printed  entirely  on
non-glossy,  recycled paper.  This is the first time that NYNEX has combined the
Annual Report and Proxy  Statement  into one  document.  Our goal is to create a
more convenient,  cost-effective  and  environmentally  responsible  share owner
document.    

VISIT THE "NYNEX CONNECTION" ON THE WORLD WIDE WEB (http://www.nynex.com). OTHER
NYNEX   INTERNET  WEB  SITES   INCLUDE  THE  NYNEX   INTERACTIVE   YELLOW  PAGES
(http://www.niyp.com);  NYNEX  CABLECOMMS  (http://www.nynex.co.uk/nynex/);  AND
NYNEX SCIENCE & TECHNOLOGY-ASIA (http://www.nynexbk.co.th/).

OUR CORPORATE MISSION
---------------------
NYNEX  Corporation's  mission is to be a  world-class  leader in helping  people
communicate  using  information  networks  and  services.   NYNEX  is  a  global
communications  and media  corporation that provides a full range of services in
the  northeastern  United  States  and  high-growth  markets  around  the world,
including  the United  Kingdom,  Thailand,  Gibraltar,  Greece,  Indonesia,  the
Philippines,  Poland,  Slovakia  and the  Czech  Republic.  NYNEX is a leader in
telecommunications,  wirefree  communications,  directory  publishing  and video
entertainment and information services.

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                                          Introduction 1
--------------------------------------------------------------------------------
    

NYNEX IN 1995:  OUR STORY FOR THE YEAR IS A POSITIVE  ONE:  NEW  SERVICES.  MORE
CUSTOMERS. EXCITING ALLIANCES. STRONG FINANCIAL RESULTS. SIGNIFICANT GROWTH. AND
A SOLID PLATFORM FOR GROWTH FOR THE YEARS TO COME....


<PAGE>

FINANCIAL HIGHLIGHTS

[The four tables below represent four bar graphs in printed Annual Report]

Earnings (Loss) Per Share 
(in dollars)

                   A        B
91..........    1.49     2.86
92..........    3.20     3.20
93..........   -0.95     3.00
94..........    1.89     2.97
95..........   -4.34     3.27

Return to Equity

                   A        B
91..........     6.4%    12.2%
92..........    13.8%    13.8%
93..........    -4.0%    12.5%
94..........     9.2%    14.4%
95..........   -25.4%    15.5%

Operating Revenues 
(dollars in billions)

                   A        C
91..........    13.3     12.9
92..........    13.2     12.8
93..........    13.4     13.0
94..........    13.3     12.6
95..........    13.4     13.1

Net Income (Loss) 
(dollars in millions)

                   A        B
91..........      601    1,151
92..........    1,311    1,311
93..........     -394    1,235
94..........      793    1,245
95..........   -1,850    1,397

A=Reported

B=Excluding restructure and other charges

C=As a result  of the  formation  of the Bell  Atlantic  NYNEX  Mobile  cellular
partnership in the third quarter of 1995,  cellular  results are now reported on
an equity basis rather than a consolidated  basis.  Revenues  adjusted to permit
comparison. For 1995, revenues are also adjusted for a change in presentation of
gross receipts tax.

<PAGE>
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NYNEX 1995 Annual Report                                 Financial Highlights  3
--------------------------------------------------------------------------------

                              



December 31,
(In millions, except per share 
data and total employees)                       1995         1994        1993
--------------------------------------------------------------------------------
OPERATING DATA
Operating Revenues                           $13,407    $13,307    $13,408
--------------------------------------------------------------------------------
Earnings (Loss) before Extraordinary
  Item and Cumulative Effect of Change
  in Accounting Principle                    $ 1,069    $   793    $  (272)
Extraordinary Item for the
  Discontinuance of Regulatory
  Accounting Principles, Net of Taxes        $(2,919)        --         --
Cumulative Effect of Change in Accounting
  for Postemployment Benefits,
  Net of Taxes                                    --         --       (122)
--------------------------------------------------------------------------------
Net Income (Loss)                            $(1,850)   $   793    $  (394)
PER SHARE DATA
Earnings (Loss) before Extraordinary
  Item and Cumulative Effect of Change
  in Accounting Principle                    $  2.50    $  1.89    $  (.66)
Extraordinary Item                           $ (6.84)        --         --
Cumulative Effect of Change in
  Accounting Principle                            --         --    $  (.29)
--------------------------------------------------------------------------------
Earnings (Loss)                              $ (4.34)   $  1.89    $  (.95)
Dividends                                    $  2.36    $  2.36    $  2.36
Book Value                                   $ 14.06    $ 20.26    $ 20.28
OTHER DATA
Total Assets                                 $26,220    $30,068    $29,458
Stockholders' Equity                         $ 6,079    $ 8,581    $ 8,416
Capital Expenditures*                        $ 3,188    $ 3,012    $ 2,717
Network Access Lines in Service                 17.1       16.6       16.0
Total Employees                               65,800     70,600     76,200
--------------------------------------------------------------------------------

1995  results  include an  extraordinary  charge of $2.9  billion,  or $6.84 per
share, for  discontinuance  of accounting under Statement 71 and a net charge of
$327.0  million,  or  $0.77  per  share,  for the  enhanced  pension  offer  and
non-recurring gains and charges.  1994 results include after-tax charges for the
enhanced  pension  offer of $452.8  million,  or $1.08 per share.  1993  results
include  after-tax  charges of $1.6  billion,  or $3.95 per share,  for business
restructuring  and other  charges,  primarily  related to  efforts  to  redesign
operations and to force reduction programs.

* Excludes   additions  under  capital  lease  obligations  and,  prior  to  the
  discontinuance  of Statement  71, the equity  component of allowance for funds
  used during construction.

<PAGE>
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4 Letter to Share Owners                                NYNEX 1995 Annual Report
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TO OUR SHARE OWNERS:

[picture]
IVAN SEIDENBERG 
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

ACCESS LINES IN THE NORTHEAST AND OVERSEAS*
(in millions)

[A chart appears in the printed report]

*Overseas  access lines  include  lines for NYNEX  CableComms,  TelecomAsia  and
Gibraltar NYNEX Communications Ltd.

In 1995, NYNEX made excellent progress on the road to becoming a global provider
of  communications,  entertainment  and information  products and services.  Our
growth -- and our strong  financial  results -- were fueled by some exciting new
customer  initiatives,  key  strategic  wins,  a strong  management  team and an
energized,  committed  work force.  I'm pleased to report the  following:  

o Net income  for the year was up 12.1  percent  to $1.4  billion,  or $3.27 per
share,  and included three straight  quarters of double-digit  earnings  growth.
These figures are adjusted for certain non-recurring items for 1994 and 1995.**

o  Consolidated  revenues  (which don't include  revenues from our Bell Atlantic
NYNEX Mobile joint  venture)  were up 3.8 percent to $13.1  billion -- driven by
strong volume growth across all businesses.

o Consolidated  operating  expenses rose 0.9 percent over 1994 to $10.3 billion.
This expense growth -- significantly lower than our revenue growth -- was driven
by across-the-board productivity gains. The combination of strong revenue growth
and productivity  gains expanded  operating  margins,  which rose 2.2 percentage
points in 1995 to 21.3 percent.

o The  number of access  lines in use  worldwide  rose by more than a million in
1995, to about 18 million.  In addition to 17.1 million lines in the  Northeast,
that includes  some 246,800  telecommunications  lines for United  Kingdom-based
NYNEX  CableComms;  710,000 lines for  TelecomAsia,  our  strategic  alliance to
expand  Bangkok's  telephone  network;   and  15,800  lines  for  our  Gibraltar
partnership.

We're  building  share owner value with new choices and freedoms,  and a renewed
focus on serving our existing customers, developing new markets domestically and
expanding our markets globally.

----------
**1995  results  exclude an  extraordinary  charge of $2.9  billion or $6.84 per
share, for  discontinuance of acccounting under Statement 71 and a net charge of
$327.0  million,  or  $0.77  per  share,  for the  enhanced  pension  offer  and
non-recurring gains and charges.  1994 results exclude after-tax charges for the
enhanced pension offer of $452.8 million, or $1.08 per share.

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                                Letter to Share Owners 5
--------------------------------------------------------------------------------


THE NEW MARKET FREEDOMS SPELLED OUT IN THE NATIONAL  LEGISLATION  COMPLEMENT THE
STATE REGULATORY BREAKTHROUGHS WE'VE ALREADY ACHIEVED.



NEW CHOICES, NEW FREEDOMS
-------------------------

A PLATFORM FOR GROWTH
The communications  reform bill signed into law by President Clinton in February
1996 helps us grow to our full  potential  -- and lets us take  advantage of new
freedoms  to  provide  a range of  services  that  include  new  communications,
information and  entertainment  choices.  

We intend to move  aggressively to meet all the requirements that will enable us
to offer long-distance services to our current customers and to new customers --
across the nation and around the globe.  And we are poised to offer a full array
of wireline and wirefree services -- voice, data,  information and entertainment
-- in packages tailored to meet customers' individual needs.

We worked  hard for this  legislation,  and so did many of you.  Thanks for your
letters  and calls to  Congress  in support of  telecommunications  reform.  You
helped make a difference in a tough legislative battle.

The new market freedoms spelled out in the national  legislation  complement the
state  regulatory   breakthroughs   we've  already  achieved.   With  "incentive
regulation" plans approved in New York,  Massachusetts and Maine,  we've brought
the regulation of more than 95 percent of our telecommunications operations into
line with  marketplace  realities.  These plans provide the right  framework for
growth -- and provide an incentive to operate more  efficiently.  In fact, NYNEX
already is using its new pricing  flexibility  to  introduce a number of popular
optional calling plans for business and residence customers.

SERVING OUR CUSTOMERS
---------------------
Today,  our  customers  want more  flexibility  and control.  We're  meeting the
"challenge of choice" through aggressive marketing,  impressive new services and
a continued focus on quality and customer satisfaction.  Our strategy -- to meet
customer requirements -- is reaping rewards:

o NYNEX's core  telecommunications  business in the Northeast experienced record
growth last year.  Access lines were up 3.4 percent over 1994.  And access usage
was up 8.6 percent.

o Sales of our  value-added  services -- such as NYNEX  PhoneSmart(R)  Services,
NYNEX Voice Messaging  Service and NYNEX  VoiceDialingSM  Service  (developed by
NYNEX Science & Technology, Inc., our leading-edge research and development lab)
-- grew  more  than 40  percent.  The  number of ISDN  lines in  service  nearly
doubled, to more than 90,000.

o Private line revenues,  led by sales of NYNEX Enterprise  Services,  rose more
than 3 percent in 1995, marking the first year of growth for spe-


NORTHEAST ACCESS LINES PER TELECOMMUNICATIONS EMPLOYEE
[A chart appears in the printed report]  
<PAGE>

--------------------------------------------------------------------------------
6 Letter to Share Owners                                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


CELLULAR CUSTOMERS 
(in thousands)

[A chart appears in the printed report]  

* 1995 figure  reflects the  formation of a joint  venture with Bell  Atlantic's
  wireless business.


cialized business  services since the mid-1980s.  And Centrex lines were up 14.5
percent, to a total of 1.4 million lines in service.

o We also introduced iMPOWER, our new strategic network vision. Working with IBM
and a  host  of  other  technology  companies,  we're  creating  an  information
infrastructure  -- the NYNEX Business Network  Architecture -- to provide voice,
data, image, video and multimedia services to knowledge workers.

Serving  customers  better with quality service and more choice is the reason we
continue to invest $2.4 billion  annually in our Northeast  wireline  network --
building an all-digital network that helps people communicate via voice, data or
video.

It's why we  continue to build and nurture  multilingual  sales  channels to tap
into high-growth ethnic markets.

And it's why we're  reinventing  our business around  customers.  Service on the
customer's  schedule will be the order of the day, along with  simplified,  more
flexible  bill-paying  options,  proactive  network  maintenance  and more.  Our
process  re-engineering  initiatives are focused on improving the quality of our
service.  And NYNEX will be able to handle increased demand for new products and
services more efficiently than ever.

SERVING  CUSTOMERS  BETTER WITH QUALITY SERVICE AND MORE CHOICE IS THE REASON WE
CONTINUE TO INVEST $2.4 BILLION ANNUALLY IN OUR NORTHEAST WIRELINE NETWORK.

When our re-engineering  initiatives are completed,  some 50 megacenters will be
in place -- down from about 400 service centers in 1993. And about 17,000 people
will have left the payroll through our special pension enhancement offer.

DEVELOPING NEW MARKETS DOMESTICALLY
-----------------------------------
At NYNEX,  the  world of  communications  is a world of  wireline  and  wirefree
solutions ... voice,  video and data services ... information and entertainment.
As we enter new lines of  business,  we're  focused on  increasing  revenue from
existing customers and building our customer base:

o In 1995, Bell Atlantic NYNEX Mobile Communications enjoyed 43 percent customer
growth  --  adding  more  than  1  million  new  customers  through   innovative
value-priced   offerings  such  as  TalkAlongSM  and   MobileReach(R)   roaming.
MobileReach enables the partnership's 3.4 million customers to take advantage of
the single largest cellular service  territory in the United States,  stretching
from Maine to South Carolina.

o To establish a national  presence in the wirefree  marketplace,  Bell Atlantic
NYNEX Mobile, along with the AirTouch/U S WEST cellular partnership, invested $1
billion  in  personal  communications  services  (PCS)  licenses.   We'll  begin
deploying  PCS in 1996.  When  combined with  existing  cellular  services,  the
potential market for this wirefree alliance is 165 million customers.

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                                Letter to Share Owners 7
--------------------------------------------------------------------------------


o Our TELE-TV joint  venture with Bell  Atlantic and Pacific  Telesis is getting
ready  to  entertain  you,  delivering   nationally  branded  entertainment  and
information services over our networks. As NYNEX and its partners work to deploy
full-service broadband networks, we plan to begin offering TELE-TV service later
this year through our investment in CAI Wireless.  This  investment will give us
the ability to reach up to 7 million NYNEX customers with digital wireless cable
technology.

o At NYNEX Information  Resources Company -- the premier directory  publisher in
the  Northeast  -- stronger  sales and process  improvements  led to 5.4 percent
revenue growth, double the growth rate of 1994. Information Resources introduced
the NYNEX Interactive  Yellow Pages on the World Wide Web  (http://www.niyp.com)
-- a service that enables  individuals to access the names,  addresses and phone
numbers of 16.5 million businesses throughout the United States.

EXPANDING OUR MARKETS GLOBALLY
------------------------------
NYNEX CableComms, the second largest cable TV and telecommunications operator in
the United Kingdom,  now passes 1.2 million of 2.7 million homes in 16 franchise
areas.  In 1995,  the  number of  residence  telecommunications  lines  grew 135
percent,  business  phone  lines  jumped 168  percent and the number of cable TV
customers grew 61 percent.  CableComms revenue growth more than doubled in 1995.
In June 1995,  we  completed an initial  public  offering of  CableComms  stock,
raising more than $600 million.

NYNEX  continues  to work with global  partners  in Europe and the  Asia/Pacific
region to pursue  high-growth  opportunities  overseas  --  capitalizing  on our
strength in building and managing complex telecommunications networks:

o Through  TelecomAsia,  our strategic  alliance with the CP Group,  we've built
1.56 million lines of a 2  million-line  network in Bangkok,  Thailand.  We also
received  government  approval  to build an  additional  600,000  lines.  UTV, a
TelecomAsia  subsidiary,  now  offers  cable TV  services  over the  fiber-optic
backbone of the TelecomAsia network.

o Through  our  interest  in another CP  company,  Orient  Telecom &  Technology
Holdings,  we're pursuing  telephone and cable  opportunities  in China -- where
only three phone lines exist for every 100 people.

o To help develop new services and technical strategies for our Bangkok networks
and the emerging  communications  markets of Southeast Asia,  NYNEX has opened a
research  and  development  lab in Thailand -- an overseas  arm of our Science &
Technology facility.

NYNEX CABLECOMMS SUBSCRIBERS* 
(in thousands)

[A chart appears in the printed report]   

*Includes subscribers for residence and business telecommunications services and
cable TV. Some customers subscribe to more than one service.
<PAGE>
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8 Letter to Share Owners                                NYNEX 1995 Annual Report
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o NYNEX,  along with  Telecom  Holding and  Benpres  Holdings  Corp.,  has begun
building  at least  300,000  new phone  lines in the  Philippines.  The  holding
company will provide local and international toll service on the island nation.

o NYNEX is the managing  sponsor of FLAG, our Fiber-optic  Link Around the Globe
project.  When FLAG is  completed  next year,  it will be the  longest  undersea
fiber-optic cable ever built -- a 17,000-mile cable system with 12 landing sites
from London to Tokyo,  including  China.  FLAG will have the  capacity to handle
600,000 calls simultaneously, delivering state-of-the-art broadband services. In
addition to NYNEX, the FLAG alliance includes leading  international  businesses
that have come together to finance construction of the cable.

o In 1995,  we announced a venture to bring  digital  cellular  phone service to
Indonesia -- a potential market of 195 million people.

o STET Hellas,  the Greek cellular  company in which we have a 20 percent stake,
is serving 124,000 customers, up 71 percent for the year.

o Revenue from our international  directory  publishing  efforts in Poland,  the
Czech Republic, Slovakia and Gibraltar is up 67 percent year over year. In 1995,
we distributed some 6.7 million directories overseas. NYNEX Information

WE'RE DELIVERING ON OUR OBJECTIVE OF STEADY EARNINGS GROWTH, DRIVEN BY INCREASED
REVENUE, ENHANCED PRODUCTIVITY AND SUPERIOR PERFORMANCE IN THE WORLD'S "HOTTEST"
INDUSTRY.

Resources publishes more than 338 different directories in the United States and
overseas.

NYNEX is a new kind of company in a newly  competitive  world.  Our share  owner
value-based  compensation  plan  --  which  includes  employee  stock  ownership
programs  --  gives  all of our  people  a stake in  working  for our  continued
success. And as we expand the scope of our business, we're keeping a sharp focus
on our  commitment  to "NYNEX  Winning  Ways." These guiding  principles,  which
include integrity,  diversity, teamwork and accountability,  define us as a team
and help us put our core values -- Quality, Ethics and Caring for the Individual
-- into action.

That's the NYNEX story in a  nutshell.  We're  delivering  on our  objective  of
steady earnings growth,  driven by increased revenue,  enhanced productivity and
superior  performance in the world's "hottest" industry.  We're making excellent
progress on our vision for  communications  and  multimedia in the Northeast and
around the globe.  And we're  building real  momentum for  continued  growth and
expansion in 1996 and beyond.

/s/ Ivan

IVAN  SEIDENBERG  
CHAIRMAN  AND 
CHIEF  EXECUTIVE OFFICER 

<PAGE>

CORPORATE CITIZENSHIP:
HELPING THE COMMUNITIES WE SERVE
--------------------------------

As a leading  corporate  citizen,  NYNEX gives high  priority to helping  people
communicate  through  technology -- and helping  people  enrich their lives.  In
1995, we distributed  approximately $19.5 million in grants,  matching gifts and
voluntary  recognition program awards. Our grant-making  philosophy is guided by
three priorities:

1) Improve the quality of education;
2) Promote long-term wellness by supporting health and human-services  programs;
   and
3) Promote diversity by sponsoring cultural and community partnerships.

For information about NYNEX's philanthropic  programs, or for a complete list of
contributions, write to, call or fax: NYNEX, Corporate Philanthropy, 1095 Avenue
of the Americas, New York, NY 10036. Phone: (800) 360-7955; Fax: (212) 398-0951.

The e-mail  address  for  Corporate  Philanthropy  is  notes.sdubose@a50vm1.trg.
nynex.com  Information  about our  philanthropic  programs  also is  featured on
NYNEX's World Wide Web site (http://www.nynex.com).


1995 
FINANCIAL 
RESULTS

CONTENTS
--------
Management's Discussion and Analysis of
  Financial Condition and Results of Operations   10
Selected Financial and Operating Data             25
Report of Independent Accountants                 26
Report of Management                              27
Consolidated Statements of Income                 28
Consolidated Balance Sheets                       29
Consolidated Statements of Changes in
  Stockholders' Equity                            30
Consolidated Statements of Cash Flows             31
Notes to Consolidated Financial Statements        32
Supplementary Information                         50
 
<PAGE>

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10  Management's Discussion and Analysis                NYNEX 1995 Annual Report
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

NATURE OF OPERATIONS
--------------------
NYNEX  Corporation  ("NYNEX") is a global  communications  and media corporation
that provides a full range of services in the northeastern  United States and in
high growth markets around the world. NYNEX has expertise in telecommunications,
wireless  communications,  directory  publishing,  and video  entertainment  and
information  services.  NYNEX's  principal  operating  subsidiaries are New York
Telephone Company ("New York Telephone") and New England Telephone and Telegraph
Company ("New England Telephone") (collectively,  the "telephone subsidiaries").
Intrastate communications services are regulated by various state public service
commissions ("state commissions"),  and interstate  communications  services are
regulated by the Federal Communications Commission ("FCC").

BUSINESS RESTRUCTURING
----------------------
NYNEX's 1993 results  included  pretax  charges of $2.1  billion  ($1.4  billion
after-tax)    for    business    restructuring,    predominantly    within   the
telecommunications    business.   Business   restructuring   resulted   from   a
comprehensive analysis of operations and work processes, resulting in a strategy
to redesign them to improve  efficiency and customer service,  to adjust quickly
to  accelerating  change,  to implement  work force  reductions,  and to produce
savings   necessary  for  NYNEX  to  operate  in  an  increasingly   competitive
environment.  

The 1993 charges were comprised of: $1.1 billion in employee  termination  costs
to reduce the work force by  approximately  16,800 employees by the end of 1996;
$626 million of process re-engineering  charges,  primarily for systems redesign
and work center  consolidation;  $283 million in costs  associated  with planned
exits from certain nontelecommunications  businesses; and $106 million for asset
write-offs and loss contingency accruals.

1995 AND 1994 ADDITIONAL CHARGES 
During 1994, NYNEX announced retirement  incentives to provide a voluntary means
of  implementing  substantially  all of the planned work force  reductions.  The
retirement  incentives  were to be  offered  at  different  times  through  1996
according to local force requirements and were expected to generate an estimated
additional  $2.0 billion in pretax  charges ($1.3 billion  after-tax)  over that
period of time as  employees  elected to leave the business  through  retirement
incentives  rather  than  through  the  severance  provisions  of the 1993 force
reduction plan. In 1995 and 1994,  respectively,  approximately  4,700 and 7,200
employees  accepted the incentive  plan. This resulted in $514.1 million ($326.8
million after-tax) and $693.5 million ($452.8 million after-tax),  respectively,
of  incremental  charges for the cost of  retirement  incentives.  The  reserves
established  in 1993 for severance have been and will continue to be transferred
primarily  to the  pension  liability  on a per  employee  basis as a result  of
employees'  accepting  the  retirement  incentives.  Much  of  the  cost  of the
enhancements will be funded by NYNEX's pension plans.

EMPLOYEE REDUCTIONS
The 1993  employee  termination  costs of $1.1  billion  were  comprised of $586
million for employee  severance payments  (including salary,  payroll taxes, and
outplacement  costs) and $520 million for  postretirement  medical  costs (total
after-tax  charges were $700  million).  These costs were for planned work force
reductions of 4,200 management employees and 12,600 nonmanagement  employees. At
December 31, 1994,  the actual  number of employees who elected to leave through
retirement  incentives  in 1994 and the  expectation  for 1995 and 1996  were as
follows:

                                     1994         1995         1996        Total
--------------------------------------------------------------------------------
Management                          3,700          500           --        4,200
Nonmanagement                       3,500        5,600        3,500       12,600
--------------------------------------------------------------------------------
Total                               7,200        6,100        3,500       16,800

At December 31, 1994,  the actual  additional  pretax charges for the retirement
incentives  and related  postretirement  medical costs in 1994, and the expected
additional  charges for 1995 and 1996 were as follows:  

(In millions)                        1994         1995         1996        Total
--------------------------------------------------------------------------------
Management                         $  191       $   31       $   --       $  222
Nonmanagement                         503          804          434        1,741
--------------------------------------------------------------------------------
Total                              $  694       $  835       $  434       $1,963

CURRENT STATUS  
During 1995, it became evident that the number of management  employees  leaving
under the  retirement  incentives  would  exceed the  original  estimate  due to
additional  management staff reduction efforts. It was also determined that, due
to  volume  of  business  growth,  the  expected  reduction  in  the  number  of
nonmanagement  employees  would be less and  would not be fully  realized  until
1998.
<PAGE>
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NYNEX 1995 Annual Report                Management's Discussion and Analysis  11
--------------------------------------------------------------------------------


The  actual  number  of  employees  who  elected  to  leave  through  retirement
incentives in 1994 and 1995 are as follows:

                                            1994            1995           Total
--------------------------------------------------------------------------------
Management                                 3,700           2,300           6,000
Nonmanagement                              3,500           2,400           5,900
--------------------------------------------------------------------------------
Total                                      7,200           4,700          11,900
--------------------------------------------------------------------------------

At the present time,  NYNEX expects the total number of employees who will elect
to take the  pension  enhancements  to be in the  range  of  17,000  to  18,000,
consisting of approximately 7,000 management and 10,000 to 11,000  nonmanagement
employees  depending on work volumes,  needs of the business,  and timing of the
incentive offers. 

NYNEX continues to monitor the estimated  additional charges to be recorded and,
at December 31, 1995,  still  anticipates  the  additional  charges to be in the
range of $2.0  billion  ($1.3  billion  after-tax),  despite the increase in the
expected number of employees who will elect to take the incentive. This estimate
is based on favorable  actuarial  experience for actual  postretirement  medical
costs,  and favorable  demographics of employees  actually  accepting the offer,
which have resulted in per capita  charges being  somewhat  lower than expected.
The actual additional  pretax charges for the retirement  incentives and related
postretirement medical costs in 1994 and 1995 are as follows:

(In  millions)                                1994          1995           Total
--------------------------------------------------------------------------------
Management                                    $191          $268            $459
Nonmanagement                                  503           246             749
--------------------------------------------------------------------------------
Total                                         $694          $514          $1,208
--------------------------------------------------------------------------------

At the present time, it is expected that the future  additional  pretax  charges
for retirement incentives will be approximately $600 to $800 million, consisting
of $100  million  for  management  and in the range of $500 to $700  million for
nonmanagement employees.

The actual severance reserves utilized and the application of the postretirement
medical  liability  established  in 1993 during  1994 and 1995 are shown  below:

SEVERANCE RESERVE 

(In millions)                                  1994          1995         Total#
--------------------------------------------------------------------------------
Management*                                    $303           $53           $356
Nonmanagement                                    34            29             63
--------------------------------------------------------------------------------
Total                                          $337           $82           $419
--------------------------------------------------------------------------------

*    1994  includes  $45 million of the 1991  severance  reserves  remaining  at
     December 31, 1993.

#    The severance utilization amounts in 1995 and 1994 are comprised of $79 and
     $315  million,  respectively,  of  severance  reserves  transferred  to the
     pension liability and $3 and $22 million, respectively,  utilized for other
     retiree costs.

POSTRETIREMENT MEDICAL LIABILITY

(In millions)                                 1994           1995          Total
--------------------------------------------------------------------------------
Management                                     $129           $20           $149
Nonmanagement                                    50            52            102
--------------------------------------------------------------------------------
Total                                          $179           $72           $251
--------------------------------------------------------------------------------

Assuming that employees will continue to leave under the retirement  incentives,
it is expected  that the  remaining  $212 million of severance  reserves will be
utilized and the remaining $269 million of the postretirement  medical liability
will  be  applied  in  the  years  1996  through  1998.  

PROCESS  RE-ENGINEERING
Approximately $626 million of the 1993 charges ($395 million after-tax) consists
of costs associated with  re-engineering  service delivery to customers.  During
the period 1994 through 1996, NYNEX is decentralizing the provision of residence
and  business  customer  service   throughout  the  region,   creating  regional
businesses to focus on unique markets, and centralizing  numerous operations and
support functions. At December 31, 1994, the actual 1994 utilization of reserves
for process  re-engineering  and the revised  expected  utilization for 1995 and
1996 were as follows: 

(In millions)                            1994        1995       1996       Total
--------------------------------------------------------------------------------
Systems redesign                         $108        $162         $2        $272
Work center
 consolidation                             27          97         49         173
Branding                                   21          21         --          42
Relocation                                 --           6          1           7
Training                                   --          21         28          49
Re-engineering
 implementation                            43          28         12          83
--------------------------------------------------------------------------------
Total                                    $199        $335        $92        $626
--------------------------------------------------------------------------------

SYSTEMS REDESIGN is the cost of developing new systems, processes and procedures
to facilitate  implementation of process re-engineering  initiatives in order to
realize  operational  efficiencies and enable NYNEX to reduce work force levels.
These  projects  consist of  radical  changes in the  applications  and  systems
supporting  business  functions to be  redesigned  as part of the  restructuring
plan. All of the costs associated with these projects are incremental to ongoing
operations.  Specifically,  only  software  purchases  and  external  contractor
expenses,  which are normally  expensed in accordance  with NYNEX  policy,  were
included in the 1993 restructuring  charges.  The business processes included in
systems  redesign  are  customer  contact,   customer   provisioning,   customer
operations,  and  customer  support.  
<PAGE>
--------------------------------------------------------------------------------
12  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


CUSTOMER  CONTACT  represents the direct  interface with the customer to provide
sales,  billing  inquiry and repair  service  scheduling  on the first  contact.
CUSTOMER  PROVISIONING  involves the development of the network  infrastructure,
circuit and dialtone provisioning and installation, and process standardization.
CUSTOMER  OPERATIONS  focuses on network  monitoring and  surveillance,  trouble
testing,  dispatch control, and proactive repair, with reliability as a critical
competitive advantage.  CUSTOMER SUPPORT facilitates low-cost,  reliable service
by providing support for the other three business processes.

WORK  CENTER   CONSOLIDATION   costs  are  incremental   costs  associated  with
establishing  work teams in fewer  locations  to take  advantage  of lower force
levels and system  efficiencies,  such as moving costs,  lease termination costs
(from the date premises are vacated),  and other consolidation  costs.  BRANDING
includes the costs to develop a single  "NYNEX" brand identity  associated  with
restructured  business  operations.   RELOCATION  costs  are  required  to  move
personnel to different  locations due to work center  consolidations and include
costs based on NYNEX's  relocation  guidelines  and the provisions of collective
bargaining agreements.  TRAINING costs are for training nonmanagement  employees
on  newly-designed,  cross-functional  job positions and  re-engineered  systems
created as part of the  restructuring  plan,  which will permit one  employee to
perform tasks  formerly  performed by several  employees,  and include  tuition,
out-of-pocket course development and administrative  costs,  facilities charges,
and  related  travel  and  lodging.   RE-ENGINEERING  IMPLEMENTATION  costs  are
incremental costs to complete re-engineering initiatives.

CURRENT STATUS 
At  December  31,  1995,  the actual 1994 and 1995
utilization of reserves and the revised expectation for 1996 are as follows: 

(In millions)                           1994        1995        1996       Total
--------------------------------------------------------------------------------
Systems  redesign                       $108        $207         $61        $376
Work center
 consolidation                            27          51          43         121
Branding                                  21          11           1          33
Relocation                                --           3           2           5
Training                                  --           6          12          18
Re-engineering
 implementation                           43          27           3          73
--------------------------------------------------------------------------------
Total                                   $199        $305        $122        $626
--------------------------------------------------------------------------------

SYSTEMS  REDESIGN:  During 1994, it was determined  that systems  redesign would
require a larger than anticipated  upfront effort to fully integrate  interfaces
between various systems and permit development of multi-tasking capabilities.  A
higher degree of complexity and additional  functionality required by real-time,
interactive systems contributed to the increase.  During 1995, systems estimates
increased due to the complexity  and  extensiveness  of integration  testing and
quality  assurance  processes.  Approximately  $84 and $44  million  relating to
software   systems  that  were  addressed  by  the  restructure   plan  but  not
specifically  provided  for in the 1993  accrual was  expensed in 1995 and 1994,
respectively.  

The actual 1994 and 1995  utilization  and the revised  expected  utilization in
1996 of the systems redesign reserves, by business process, are as follows:

(In millions)                              1994       1995       1996      Total
--------------------------------------------------------------------------------
Customer contact                            $ 52       $109       $30       $191
Customer provisioning                         11         21        --         32
Customer operations                           19         44        26         89
Customer support                              26         33         5         64
--------------------------------------------------------------------------------
Total                                       $108       $207       $61       $376
--------------------------------------------------------------------------------

WORK CENTER  CONSOLIDATION  was revised in 1994 for an increase in the number of
work centers from what was  originally  planned based on union  agreements.  The
revised estimate for 1996 is based on actual costs incurred to date and reflects
the  completion  of the  majority of the planned  work  centers.  Relocation  of
employees was revised downward in 1994 due to the increase in the number of work
centers and terms of the union  agreements.  At the end of 1995, the majority of
the work centers are complete. TRAINING was delayed in 1994 due to the timing of
the union  agreements  and the higher degree of complexity of systems  redesign;
total  expected  costs were  decreased  due to the planned use of more  in-house
training.  Training was  accomplished in 1995 through  in-house,  on-the-job and
multi-media training.  RE-ENGINEERING IMPLEMENTATION is winding down and will be
reported with the related projects in 1996.

OTHER RESTRUCTURING CHARGES 
Approximately  $283  million of the 1993  restructuring  charges  ($271  million
after-tax) related to NYNEX's sale or discontinuance of its information products
and services businesses,  including the sale of AGS Computers,  Inc. ("AGS") and
several of its business units and The BIS Group Limited  ("BIS").  These charges
included the  write-off of the net book value of the  businesses  and  estimated
provision for future  operating  losses and disposal costs.  NYNEX utilized $22,
$62  and  $185  million  in  1995,  1994  and  1993,   respectively,   of  these
restructuring reserves. It is expected that the remaining balance of $14 million
will be utilized in 1996.
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                Management's Discussion and Analysis  13
--------------------------------------------------------------------------------


An  additional  $106 million ($69  million  after-tax)  was recorded in 1993 for
write-offs of assets and accrual of loss contingencies  directly associated with
restructuring  at  other  nontelephone  subsidiaries.  These  reserves  were not
utilized  in 1995,  but were  utilized  in 1994 and 1993 in the  amounts  of $51
(primarily  for the  disposition  of NYNEX  Properties  Company) and $9 million,
respectively.  It is estimated that the remaining balance of $46 million will be
substantially utilized in 1996.

FUTURE CASH  EFFECTS AND COST SAVINGS 
The 1993  restructuring  charges had anticipated  approximately  $550 million in
cash outflows during the three-year  period from 1994 through 1996 for severance
and re-engineering  costs. In 1994, NYNEX implemented  retirement incentives and
no longer  expects to incur  significant  severance  costs for the planned  work
force reductions. Cash outflows for 1993 re-engineering accruals are expected to
total approximately $395 million ($125, $191, and $79 million in 1994, 1995, and
1996,   respectively).   Noncash   restructuring  charges  include  the  pension
enhancements, postretirement medical costs, charges related to discontinuance of
information products and services businesses,  and write-offs of assets at other
nontelephone  subsidiaries.  Capital  expenditures  for  1994  through  1996 are
expected to total  approximately  $560 million  ($170,  $230 and $160 million in
1994, 1995, and 1996, respectively), primarily related to systems re-engineering
and work  center  consolidation.  Over  time,  it is  anticipated  that  savings
generated by restructuring  will provide the funds required,  and any short-term
cash flow needs will be met through NYNEX's usual financing channels.

Since  the  inception  of  process   re-engineering   and  the  special  pension
enhancement  program in 1994,  approximately  11,900 employees have accepted the
retirement  incentives.  On an annualized  basis, this will equate to an average
reduction  in wages  and  benefits  of  approximately  $650  million.  Partially
offsetting  these cost savings will be the effects of wage and price  inflation,
growth  in  volume  of  business  and  higher  costs   attributable  to  service
improvements.

It is anticipated that the restructuring will result in reduced costs during the
period of restructuring  and reduced annual operating  expenses of approximately
$1.7 billion beginning in 1997. These savings include approximately $1.1 billion
in  reduced  wage and  benefit  expenses  due to lower work  force  levels,  and
approximately  $600 million in non-wage savings  including  reduced rent expense
for fewer work locations and lower purchasing costs.  Partially offsetting these
savings are higher costs due to inflation and growth in the business.

RESULTS OF OPERATIONS
---------------------
NYNEX  reported  a net loss for the  year  ended  December  31,  1995 of  $(1.8)
billion,  or $(4.34) per share.  Net income for the year ended December 31, 1994
was $792.6 million, or $1.89 per share. The net loss for the year ended December
31,  1993 was  $(394.1)  million,  or $(.95)  per  share.  

The net loss for 1995 includes an extraordinary charge and non-recurring charges
and credits  totaling $3.2 billion  after-tax,  or $7.61 per share.  Included in
this amount are: an  extraordinary  charge of $2.9 billion,  or $6.84 per share,
for the  discontinuance  of Statement of Financial  Accounting  Standards No. 71
("Statement  No.  71") (see Note B);  charges  of $549.5  million,  or $1.29 per
share, for non-recurring  items and for pension  enhancements;  a gain of $155.1
million, or $.36 per share, as a result of an initial public offering ("IPO") of
NYNEX's UK cable business (see Note J); and a net gain of $67.4 million, or $.16
per  share,  from the sale of  certain  cellular  properties  as a result of the
formation of the Bell Atlantic NYNEX Mobile cellular  partnership  ("BANM") (see
Note F).  Results for 1994 include an  after-tax  charge of $452.8  million,  or
$1.08 per share, for pension  enhancements.  Adjusting for these items, 1995 net
income was $1.4  billion,  an  increase  of 12.1% over  1994.  Results  for 1993
include  after-tax  charges of $1.6  billion,  or $3.95 per share,  for business
restructuring  and other charges.  Adjusting for these charges,  1993 net income
was $1.2 billion.

OPERATING  REVENUES for 1995 were $13.4 billion,  an increase of $100.3 million,
or .8%, over 1994.  Included in this increase  were changes in  presentation  in
1995 of gross receipts tax and revenues from NYNEX Mobile Communications Company
("NYNEX  Mobile")  as a result of the BANM  cellular  partnership  (see Note A).
Adjusting for these items,  operating  revenues increased 3.8% to $13.1 billion.
Revenues from the telephone  subsidiaries and Telesector  Resources Group,  Inc.
(collectively,  the "telecommunications group") increased 3.0% to $11.9 billion,
and revenues from NYNEX's other subsidiaries (the  "nontelephone  subsidiaries")
increased  11.6%,  to $1.2 billion.  Supporting the  telecommunications  group's
revenue growth were a 3.4% growth in access lines and an 8.6% increase in access
usage over last year.
<PAGE>
--------------------------------------------------------------------------------
14  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


Operating revenues for 1994 were $13.3 billion, a decrease of $101.2 million, or
 .8%,  from 1993.  Included in this  decrease  were  changes in  presentation  of
revenues from NYNEX Mobile and from information products and services businesses
that were sold in 1993 and 1994.  Adjusting for these items,  operating revenues
increased  .4% to $12.6  billion.  Revenues from the  nontelephone  subsidiaries
increased  6.4% to $1.1  billion,  supported  by  growth  in  NYNEX  CableComms'
customer base. Revenues from the telecommunications  group were essentially flat
at $11.5 billion, due principally to a revenue reduction ordered by the New York
State Public Service Commission ("NYSPSC").

OPERATING EXPENSES for 1995 were $11.3 billion, a decrease of $235.7 million, or
2.0%,  from 1994.  Included in this  decrease  (and as  described  below)  were:
pension enhancement charges in both periods;  non-recurring net charges in 1995;
and changes in  presentation  in 1995 of gross  receipts tax and  expenses  from
NYNEX  Mobile  as a  result  of the  BANM  cellular  partnership  (see  Note A).
Adjusting for these items, operating expenses were $10.3 billion, an increase of
$93.8  million,  or .9%. At the  telecommunications  group,  operating  expenses
increased $8.1 million, or .1%, and at the nontelephone subsidiaries,  operating
expenses increased $85.7 million, or 9.8%.

Operating expenses for 1994 were $11.6 billion,  a decrease of $1.5 billion,  or
11.7%,  from 1993.  Included in this  decrease  (and as  described  below) were:
business restructuring and other charges in 1993; pension enhancement charges in
1994;  and  changes in  presentation  of  expenses  from  NYNEX  Mobile and from
information  products and services  businesses  that were sold in 1993 and 1994.
Adjusting for these items, operating expenses were $10.2 billion, an increase of
$122.7 million,  or 1.2%. At the  telecommunications  group,  operating expenses
increased  $119.6  million,  or  1.3%,  and  at the  nontelephone  subsidiaries,
operating  expenses  were  essentially  flat. 

OPERATING  INCOME,  adjusting  for  non-recurring  items and the  year-over-year
change in the  operating  income of NYNEX  Mobile,  was $2.8 billion in 1995, an
increase of $381.9  million,  or 15.9%.  Operating  margin for 1995 improved 2.2
percentage points to 21.3% from 19.1%. This improvement  resulted from increased
productivity as adjusted  expense growth of .9% was outpaced by adjusted revenue
growth of 3.8%.

Operating  income,  adjusting  for  non-recurring  items and the  year-over-year
changes in the operating income of NYNEX Mobile and the information products and
services  businesses  that were sold,  was $2.4  billion in 1994,  a decrease of
$73.0 million, or 3.0%.  Operating margin for 1994 declined to 19.1% from 19.7%,
resulting from adjusted expense growth of 1.2% exceeding adjusted revenue growth
of .4%.

OPERATING REVENUES 

(In millions)                                 1995           1994           1993
--------------------------------------------------------------------------------
Local  service                           $ 6,722.2      $ 6,605.4      $ 6,472.9
Long  distance                             1,039.2        1,081.2        1,134.4
Network access                             3,557.5        3,447.0        3,387.2
Other                                      2,088.0        2,173.0        2,413.3
--------------------------------------------------------------------------------
Total operating revenues                 $13,406.9      $13,306.6      $13,407.8
--------------------------------------------------------------------------------

LOCAL SERVICE revenues increased $116.8 million,  or 1.8%, in 1995 due primarily
to a net $164  million  increase in demand  driven by growth in access lines and
sales of calling features.  This increase was partially offset by $35 million in
rate  reductions in New York and Maine, an $8 million  decrease  attributable to
potential  customer  billing  claims  at New York  Telephone,  and a $5  million
decrease  due to the 1994  reversal  of  previously  deferred  revenues in Rhode
Island.

Local service revenues increased $132.5 million,  or 2.0%, in 1994 due primarily
to: a net $240  million  increase  in demand  driven by growth in access  lines,
sales of calling features and higher usage associated with winter storms,  and a
$23  million  increase  in rates due to a rate  restructuring  in  Massachusetts
(offset by decreases in long distance rates mentioned  below),  partially offset
by a $135 million revenue reduction pursuant to an NYSPSC order.

LONG DISTANCE revenues  decreased $42.0 million,  or 3.9%, in 1995 due primarily
to: $24 million in required rate reductions at New England Telephone; $7 million
in price  reductions  in New  Hampshire;  and a decrease in demand for wide area
telecommunications  services  as a result of  customer  shifts  to lower  priced
services  offered by the telephone  subsidiaries and increased  competition.  It
should be noted that certain  competitive  losses in long distance  revenues are
mostly offset by increases in network access revenues.

Long distance revenues  decreased $53.2 million,  or 4.7%, in 1994 due primarily
to: $25 million in rate decreases due to the previously mentioned  Massachusetts
rate  restructuring;  $8 million in price  reductions  in New  Hampshire;  a $13
million  revenue  
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                Management's Discussion and Analysis  15
--------------------------------------------------------------------------------


reduction  pursuant to an NYSPSC order;  a $12 million shift in interstate  toll
revenues from long  distance to network  access at New York  Telephone;  and the
previously  mentioned  decrease  in  demand  for  wide  area  telecommunications
services.  These decreases were partially offset by increased demand for message
toll services.

NETWORK ACCESS revenues  increased $165.7 million,  or 4.8%, in 1995 excluding a
$55.2 million  decrease  attributable  to a change in the  presentation of gross
receipts  tax  collected  by New  York  Telephone  on  behalf  of  interexchange
carriers. (In the third quarter of 1995, as a result of a change in tax law, New
York  Telephone  was no longer  required to pay gross  receipts  tax to New York
State on  interstate  access  revenues.  Prior to this change,  these taxes were
collected from  interexchange  carriers and remitted to the taxing authority and
were included in both operating revenues and operating  expenses) (see OPERATING
EXPENSES.) The increase in Network access revenues  resulted from a $157 million
increase in interstate  demand  partially  offset by a $29 million  reduction in
interstate  rates,  and a $44 million  increase in intrastate  demand  partially
offset by a $10 million reduction in intrastate rates.

Network access revenues  increased $59.8 million,  or 1.8%, in 1994. There was a
$127 million  increase in interstate  demand  partially  offset by a $69 million
reduction in interstate  rates, and a $21 million increase in intrastate  demand
offset by a $24 million reduction in intrastate rates. In addition,  there was a
$12 million  increase at New York Telephone due to the  aforementioned  shift in
interstate  toll revenues and a $12 million  recognition of previously  deferred
revenues,  partially  offset by a $12 million revenue  reduction  pursuant to an
NYSPSC order.

OTHER revenues increased $235.2 million,  or 16.2%, in 1995, after adjusting for
a $320.2 million decrease  associated with the July 1, 1995  deconsolidation  of
NYNEX Mobile due to the formation of the BANM cellular  partnership (see Note A)
($399.8  million for six months of 1995 compared with $720.0  million for twelve
months of 1994).  The increase of $235.2 million  reflects the following:  NYNEX
CableComms  revenues  increased  $70.2  million,  more  than  doubling,  due  to
significant  increases  in  cable  television  customers  and in  residence  and
business telecommunication lines. NYNEX Information Resources revenues increased
$48.7  million,  or 5.4%,  due primarily to increased  Yellow Pages  advertising
revenues, from both domestic and international  directories.  Telecommunications
revenues  increased $110.2 million,  due to the following at New York Telephone:
(1) $109.2  million  due to the  cessation  of "setting  aside"  revenues in the
second   quarter  of  1995  as  a  result  of  an  NYSPSC   order   approving  a
performance-based  regulatory  plan (the  "Plan"),  (2) $10  million  due to the
elimination  of  the  deferral  of  intrastate  revenues  as  a  result  of  the
discontinuance  of  regulatory  accounting  principles  (see  Note B),  (3) $4.5
million from revenues  earned under a service  improvement  plan  implemented in
1994 and (4) $5 million recognized in connection with intraLATA  presubscription
("ILP") commitments that were met in 1995. These increases were partially offset
by a $22  million  decrease  in billing and  collection  revenues  pursuant to a
contract with AT&T Corp.

With respect to (1) above,  future  quarters will no longer  reflect the setting
aside of revenues of $38 million per quarter experienced in 1994 and early 1995.
At December 31, 1995,  $188 million of revenues  remains  deferred ($161 million
pursuant to the Plan and $27 million pursuant to the service  improvement  plan)
and will be recognized as commitments  are met or obligations are satisfied (see
STATE REGULATORY).

Other revenues decreased $89.4 million,  or 5.8%, in 1994, after adjusting for a
$279.5 million  increase  associated  with the  deconsolidation  of NYNEX Mobile
($720.0  million for 1994  compared  with $440.5  million for 1993) and a $430.4
million decrease  associated with the sale of information  products and services
businesses.   The   decrease   of  $89.4   million   reflects   the   following:
Telecommunications  revenues decreased $153.8 million, due principally to a $153
million revenue  reduction ordered by the NYSPSC.  NYNEX  Information  Resources
revenues  increased  $22.2  million,  or 2.5%,  reflecting  higher  Yellow Pages
advertising  revenues and increased revenues from the publication of directories
in the Czech Republic.  NYNEX CableComms revenues increased $37.0 million,  more
than doubling in 1994.

OPERATING EXPENSES 

(In millions)                             1995             1994             1993
--------------------------------------------------------------------------------
                                     $11,314.7        $11,550.4        $13,074.5
--------------------------------------------------------------------------------

OPERATING EXPENSES for 1995 were $11.3 billion, a decrease of $235.7 million, or
2.0%, from 1994.  Included in this decrease (as discussed  below) were:  pension
enhancement  charges in both  periods;  non-recurring  net charges in 1995;  and
changes in
<PAGE>
--------------------------------------------------------------------------------
16  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


presentation  in 1995 of gross  receipts tax and expenses from NYNEX Mobile as a
result of the BANM cellular  partnership.  Adjusting for these items,  operating
expenses were $10.3 billion, an increase of $93.8 million, or .9%.

Operating  expenses for 1994 were $11.6 billion, a decrease of $1.5 billion from
1993.   Included  in  this   decrease  (as  discussed   below)  were:   business
restructuring and other charges in 1993;  pension  enhancement  charges in 1994;
and changes in presentation  of expenses from NYNEX Mobile and from  information
products  and services  businesses  that were sold.  Adjusting  for these items,
operating expenses were $10.2 billion, an increase of $122.7 million, or 1.2%.

Operating expenses included pretax pension enhancement charges of $514.1 million
and $693.5 million in 1995 and 1994, respectively. The non-recurring net charges
in  1995  included:   (1)  accruals  of  $291.5   million   related  to  various
self-insurance  programs,  legal and  regulatory  contingencies,  operating  tax
provisions and revised benefit charges,  reflecting events that occurred in 1995
and additional information made available through revised estimates and analyses
completed during 1995, and (2) a $53.5 million net expense  reduction  resulting
primarily  from the  recognition  of a  pension  curtailment  gain  and  certain
non-recurring  charges  associated  with  the  formation  of the  BANM  cellular
partnership  (see Note F). There was a $55.2 million change in  presentation  in
1995 of  gross  receipts  tax  collected  by New York  Telephone  on  behalf  of
interexchange  carriers  (see NETWORK  ACCESS  revenues),  and a $332.9  million
decrease  associated with the deconsolidation of NYNEX Mobile as a result of the
BANM cellular  partnership  (see Note A) ($336.2  million for six months of 1995
compared with $669.1 million for twelve months of 1994).

At the  telecommunications  group, operating expenses were $9.3 billion in 1995,
an increase of $8.1  million,  or .1%.  Employee  related costs  increased  $9.5
million in 1995.  Higher salaries and wages  resulting  primarily from wage rate
and volume-related increases were substantially offset by reductions in the work
force and lower benefit  costs  (including  revised  estimates  associated  with
workers  compensation  accruals).  Offsetting these increases was a $1.4 million
net  decrease in  non-employee  costs,  primarily  as a result of  decreases  in
depreciation  and  amortization  (see Note B) offset  by  increases  in bad debt
expense,  advertising and marketing  costs,  and gross receipts taxes (primarily
from a tax settlement at New York Telephone). 

At the  nontelephone  subsidiaries,  operating  expenses were $959.9  million in
1995, an increase of $85.7 million,  or 9.8%.  This increase was almost entirely
due to the expansion of NYNEX CableComms.

Operating  expenses for 1994  included  pretax  pension  enhancement  charges of
$693.5 million.  Operating expenses for 1993 included business restructuring and
other charges of $2.2 billion.  There was a $290.5 million  increase  associated
with the  deconsolidation of NYNEX Mobile ($669.1 million for 1994 compared with
$378.6 million for 1993) and a $435.1 million decrease  associated with the sale
of information products and services businesses.

At the  telecommunications  group, operating expenses were $9.3 billion in 1994,
an increase of $119.6 million,  or 1.3%.  Employee related costs increased $38.0
million in 1994.  Higher  salaries and wages resulting from wage rate increases,
single  enterprise  employee  transfers,   and  volume-related   increases  were
partially  offset by reductions in the work force and lower  benefit  costs.  In
addition,  there was an $81.6 million increase in non-employee costs,  primarily
as a result of increases in depreciation and amortization, bad debt expense, and
contracted services, partially offset by decreases in property taxes.

GAIN ON SALE OF STOCK BY SUBSIDIARY  
An IPO of the shares of NYNEX CableComms  Group PLC ("UK  CableComms") and NYNEX
CableComms  Group  Inc.  ("US  CableComms")  (collectively,   "CableComms")  was
completed  in  June  1995.  The  offering  represented  33% of the  total  units
outstanding,  with NYNEX  retaining the balance.  Net proceeds from the offering
were  approximately  $610  million.  NYNEX  recognized  a pretax  gain of $264.1
million in recognition of the net increase in the value of NYNEX's investment in
CableComms (see Note J).

OTHER INCOME (EXPENSE) - NET 

(In millions)                      1995                1994                1993
--------------------------------------------------------------------------------
                                  $(4.9)             $(43.8)             $(97.0)
--------------------------------------------------------------------------------

OTHER INCOME  (EXPENSE) - NET for 1995  improved  $38.9  million over 1994.  The
principal  components of this change were a $70.3 million  non-recurring gain on
the sale of cellular  properties  in  connection  with the formation of the BANM
cellular  partnership (see Note F), partially offset by a $26.7 million increase
in minority  interest expense and $17.4 million from unrealized "mark to market"
valuation adjustments (see FINANCIAL INSTRUMENTS). 
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                 Management's Discussion and Analysis 17
--------------------------------------------------------------------------------


Other income  (expense) - net for 1994  improved  $53.2  million over 1993.  The
principal  components of this change were: in 1993, $84 million was expensed for
the interstate  portion of call premiums and other charges  associated  with the
refinancing of long-term debt,  partially  offset by an $11 million  increase in
minority interest expense in 1994. 

INTEREST EXPENSE 

(In millions)                       1995               1994                 1993
--------------------------------------------------------------------------------
                                  $733.9             $673.8               $659.5
--------------------------------------------------------------------------------

INTEREST  EXPENSE  for 1995  increased  $60.1  million,  or 8.9%,  over 1994 due
primarily to higher average interest rates of 7.2% compared to 6.5% in 1994. The
higher  average  interest  rates  are due to  increased  short-term  rates and a
lengthening  in the  maturity of the debt  portfolio  in the latter half of 1994
(77% long-term in 1995 compared to 70% in 1994). Total debt remained essentially
flat at $9.8 billion.  This increase in interest expense was partially offset by
a reversal in 1995 of $14 million of previously recorded interest on the revenue
set aside as ordered by the NYSPSC (see STATE REGULATORY).  

Interest  expense  for 1994  increased  $14.3  million,  or 2.2%,  over 1993 due
primarily  to an  increase in average  debt levels from $8.7  billion in 1993 to
$9.7 billion.  However, total debt decreased $214.6 million to $9.9 billion (see
CASH FLOWS FROM FINANCING ACTIVITIES). Average interest rates declined from 7.3%
in 1993 to 6.5% primarily as a result of long-term debt refinancings  throughout
1993.

INCOME (LOSS) FROM LONG-TERM INVESTMENTS 

(In millions)                       1995               1994                 1993
--------------------------------------------------------------------------------
                                  $ 92.9             $ 57.7              $(21.9)
--------------------------------------------------------------------------------

INCOME (LOSS) FROM LONG-TERM  INVESTMENTS  for 1995 improved  $35.2 million,  or
61.0%,  over 1994.  This  increase was due  primarily to equity  income of $90.7
million from the BANM cellular  partnership  (see Note F),  partially  offset by
losses from investments in the Tele-TV  Partnerships,  FLAG Limited ("FLAG") and
PCS Primeco.

Income (loss) from  long-term  investments  for 1994 improved $79.6 million over
1993,  principally as a result of $53 million of dividends received in 1994 from
Viacom Inc.  ("Viacom") and the $31 million effect of  restructuring  charges on
1993 amounts. 

INCOME TAXES

(In millions)                       1995               1994                 1993
--------------------------------------------------------------------------------
                                  $640.9             $303.7             $(172.7)
--------------------------------------------------------------------------------

INCOME TAXES for 1995 increased $337.2 million over 1994, attributable primarily
to an  increase  in  pretax  income  of $614.1  million,  or  56.0%,  and a five
percentage  point  increase  in  the  effective  tax  rate  for  1995  primarily
reflecting the discontinued  application of Statement No. 71 and a $71.7 million
deferred  tax  valuation  allowance  benefit  in  1994.
  
Income taxes for 1994 increased $476.4 million over 1993, attributable primarily
to an increase in pretax  income of $1.5  billion in 1994 and a reduction in the
effective tax rate for 1994 reflecting a $71.7 million reduction in the deferred
tax valuation allowance.

EXTRAORDINARY ITEM 
The  discontinued  application of Statement No. 71 required NYNEX, for financial
accounting  purposes,  to adjust  the  carrying  amount of  telephone  plant and
equipment and to eliminate non-plant  regulatory assets and liabilities from the
balance  sheet.  This change  resulted in an after-tax  charge of $2.9  billion,
consisting  of $2.2 billion to adjust  telephone  plant and  equipment  and $0.7
billion to write off  non-plant  regulatory  assets and  liabilities.  NYNEX now
utilizes  shorter  asset lives for certain  categories  of  telephone  plant and
equipment than those previously  approved by regulators.  The elimination of the
amortization  of net  regulatory  assets and the  effects of certain  changes in
accounting  policies are not expected to have a significant  impact on financial
results in future periods (see Note B).

CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
Management  believes  that NYNEX has adequate  internal  and external  resources
available  to finance  ongoing  operating  requirements,  business  development,
network expansion,  and new investments for the foreseeable future.
 
During 1995, net cash used in investing activities exceeded net cash provided by
operating activities by $218.1 million.  This difference was funded primarily by
IPO and minority interest proceeds and equity issuances.

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash  provided by operating  activities  was $3.6,  $3.7 and $3.7 billion in
1995,  1994  and  1993,  respectively.  In  1995,  cash  provided  by  operating
activities  
<PAGE>
--------------------------------------------------------------------------------
18  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


decreased $51.9 million. Net income excluding the extraordinary item and gain on
an  IPO  of  shares  of  CableComms  was  essentially  flat.   Depreciation  and
amortization    expense    decreased    $73.8   million,    primarily   at   the
telecommunications  group as discussed  above.  Changes in operating  assets and
liabilities provided $20.9 million of cash flows in 1995 over 1994, primarily as
a result of increased  trade  payables  partially  offset by increased  accounts
receivable. Costs associated with re-engineering activities reserved for in 1993
resulted  in cash  outlays  of $191  million  in 1995 and $125  million in 1994.
Pension enhancement charges in 1995 and 1994 did not materially affect operating
cash flows when recorded  since the cash outflows will be incurred  primarily by
the NYNEX Pension Plans in future years.

In 1994,  cash provided by operating  activities  increased  $49.5 million.  Net
income  decreased  $442.5 million from 1993, after excluding $1.6 billion due to
1993 business  restructuring  and other charges.  Depreciation  and amortization
expense increased $106.6 million,  primarily at the telecommunications  group as
discussed  above.  Changes in operating  assets and liabilities  provided $203.4
million  of cash  flows in 1994 over 1993,  primarily  as a result of  decreased
accounts  receivable and prepaid  expenses,  partially offset by decreased trade
payables.

Excluding the effects of  restructuring  charges,  Management  anticipates  cash
provided by operating  activities in 1996 to increase,  primarily as a result of
earnings growth.

CASH FLOWS FROM INVESTING ACTIVITIES 
Net cash used in investing  activities was $3.9,  $3.2 and $4.3 billion in 1995,
1994 and 1993, respectively.
 
CAPITAL  EXPENDITURES  in 1995 were $3.2 billion,  an increase of $175.9 million
over 1994. Rapid buildout of the cable television/telecommunications  network in
the United  Kingdom  continued.  The largest  component of capital  expenditures
continues  to be for the  telephone  subsidiaries.  These  capital  expenditures
continued at the same level over the three-year period, funded primarily through
cash  generated  from  operations,  and  it is  anticipated  that  1996  capital
expenditures  will be similarly funded.  Total capital  expenditures in 1996 are
projected to remain at a level comparable to 1995.

Capital  expenditures  in 1994 were $3.0 billion,  an increase of $295.0 million
over  1993 for the  construction  and  upgrade  of  mobile  cell  sites  and the
continued  buildout  of the cable  television/telecommunications  network in the
United Kingdom.

INVESTMENT IN LEASED ASSETS:  In 1995, the $71.6 million increase in investments
in leased  assets  was the result of  increased  activity  in the middle  market
portfolios at NYNEX Credit Company ("Credit Company").

In 1994,  decreased  investments  in leased assets were the result of heightened
competition in the leasing market.

OTHER INVESTING ACTIVITIES:  In 1995, cash flows from other investing activities
- net were $518.3  million,  $474.7  million  higher than in 1994 as a result of
investments   in:  PCS   Primeco  (a  venture  to  provide   national   wireless
communications  services),  BANX Partnership (a partnership  formed to invest in
wireless cable systems),  Bayan  Telecommunications  Holdings  Corporation,  the
Tele-TV Partnerships,  FLAG and P.T. Excelcomindo Pratama and from the effect of
cash received in 1994 from the exit from the  information  products and services
business,  partially  offset by $90  million of cash  received  from the sale of
cellular  properties  overlapping  with  Bell  Atlantic  Corporation's  cellular
properties prior to the formation of BANM.

In 1994,  cash flows from other  investing  activities - net were $43.6 million,
$1.3 billion lower than in 1993.  NYNEX did not make any  significant  long-term
investments  in 1994.  In  1993,  cash  outflows  resulted  from a $1.2  billion
investment in Viacom and  investments  in: Orient Telecom & Technology  Holdings
Ltd.  (to develop  telecommunications  opportunities  in China),  STET Hellas (a
Greek cellular project) and an additional investment in TelecomAsia  Corporation
Public Company Limited (for a network expansion project in Thailand). 

CASH FLOWS FROM FINANCING ACTIVITIES  
SHORT-TERM  AND  LONG-TERM  DEBT:  Total  debt was  essentially  flat in 1995 as
compared to 1994.  The debt ratio  increased  to 61.8% as of December  31, 1995,
compared  with 52.9% as of December 31, 1994,  primarily as a result of the $2.9
billion after-tax extraordinary charge which reduced equity.

During 1995,  commercial  paper decreased as a result of using the proceeds from
the  monetization of a portion of NYNEX's  investment in Viacom  Preferred Stock
(see VIACOM below). Credit Company issued $135 million of medium-term notes.

During 1994,  commercial paper and short-term debt decreased a net $1.7 billion,
due  primarily to the  repayment  of  commercial  paper  through the issuance of
long-term  debt. New York  Telephone  issued $450 million in debentures and $150
million in notes
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                Management's Discussion and Analysis  19
--------------------------------------------------------------------------------


and used the proceeds to repay  short-term  borrowings from NYNEX.  The proceeds
were, in turn, used by NYNEX to repay commercial paper borrowings. NYNEX Capital
Funding  Company  ("CFC") issued $863 million of  medium-term  notes in order to
reduce  NYNEX's  commercial  paper  requirements.  It is  estimated  that  these
refinancings   will  continue  to  result  in  an  annual  interest  savings  of
approximately  $62  million  for the next two  years,  with  savings  thereafter
varying as debt matures.

Total debt decreased  $214.6 million in 1994 as compared to 1993. The debt ratio
decreased to 52.9% as of December 31, 1994,  compared  with 53.9% as of December
31,  1993,  primarily  as a  result  of  the  $1.6  billion  after-tax  business
restructuring and other charges which reduced equity.

The  majority  of the  telephone  subsidiaries'  refinancing  charges  in  1993,
including call premiums,  were deferred and amortized for intrastate rate-making
purposes and were subsequently  eliminated as a result of the  discontinuance of
Statement No. 71.

ISSUANCE OF COMMON  STOCK:  In 1995,  1994 and 1993,  NYNEX  continued  to issue
common stock for employee  savings plans,  the Dividend  Reinvestment  and Stock
Purchase Plan ("DRISPP"),  stock  compensation  plans, and employee stock option
plans.  These issuances  increased equity by approximately $333 million in 1995,
$320 million in 1994, and $128 million in 1993.  The noncash  issuance of stock,
primarily  for  dividends in  connection  with DRISPP,  is $110,  $107,  and $30
million,  respectively.  The  dividends for common stock  remained  unchanged at
$2.36 per share in 1995, 1994 and 1993.

PURCHASE OF TREASURY  STOCK:  In October 1994,  NYNEX granted  additional  stock
options in connection with the employee stock option plans  established in 1992.
NYNEX purchased  treasury stock in 1993 and released shares into the open market
as stock  options were  exercised.  In November  1995,  NYNEX began  issuing new
shares of its common stock as stock options were exercised.

MINORITY  INTEREST:  Financing  cash flows in 1995  included net funds of $289.2
million primarily  provided by a minority  interest in the financing  structures
formed in  December  1993 and 1994 for the network  construction  program in the
United Kingdom and by the  monetization  proceeds (see VIACOM below).  Financing
cash flows in 1994 included net funds of $359.2 million primarily  provided by a
minority interest in the financing structures formed in the United Kingdom.

PROCEEDS FROM THE SALE OF STOCK BY SUBSIDIARY-NET:  During the second quarter of
1995,  $610 million of proceeds were  received  from the IPO of CableComms  (see
below).

CURRENT AND FUTURE FINANCING STRATEGIES  
CABLECOMMS:  NYNEX  CableComms  is  constructing  and  operating  a  $3  billion
broadband (high capacity)  network,  to be substantially  completed by 1997, for
the provision of cable  television  and  telecommunications  services in certain
licensed areas in the United Kingdom.

During 1993 (for licensed  areas in the Southern  United Kingdom or "South") and
1994 (for  licensed  areas in the Northern  United  Kingdom or  "North"),  NYNEX
entered  into a series  of  financing  transactions  that  coupled  a  financing
partnership and limited  liability  companies for funding  construction of up to
$425 million in the South and up to $1.1 billion in the North, for a total of up
to $1.5  billion  (as these  loans are  denominated  in pounds  sterling,  these
amounts are based on applicable year-end exchange rates). In connection with the
financing of the South and North,  NYNEX has  provided  certain  guarantees  and
indemnifications  to the financing  partnership and limited liability  companies
regarding  the  completion  of the  construction  program  and any breach of the
agreements  due to events  prior to the creation of the  entities.  This type of
financing could provide  significant  additional funds over the first five years
of each  financing to help  complete the funding of NYNEX  CableComms'  network.
Management  anticipates  having  sufficient  funds,  either  from these or other
funding sources, to complete construction of the network.

During  February 1995, two entities were formed:  a UK public limited  liability
company (UK CableComms) and a Delaware  corporation  (US  CableComms).  The sole
assets of UK CableComms and US CableComms are 90% and 10%, respectively,  of the
outstanding  stock of NYNEX  CableComms  Holdings,  Inc.  which  holds,  through
various  subsidiaries  and  partnerships,  interests  in  cable  television  and
telecommunications franchises, assets and operations in the United Kingdom.

An IPO was  completed in June 1995 of 305 million  equity  units of  CableComms.
These  units are traded as "stapled  units" and are  comprised  of one  ordinary
share of UK  CableComms  and one share of  common  stock of US  CableComms  (the
"Combined  Offering").  The Combined Offering represented 33% of the total units
outstanding, with NYNEX
<PAGE>
--------------------------------------------------------------------------------
20  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------

retaining the balance.  Net proceeds from the offering were  approximately  $610
million.  CableComms is using the proceeds to repay outstanding  revolving loans
under credit  facilities,  to fund a portion of the cost of  construction of its
network, and for operating cash flow and interest.

VIACOM:  In December  1995,  NYNEX entered into a contract for the  non-recourse
securitization   that  permits  a  monetization  of  approximately  50%  of  its
investment in the Viacom Series B Cumulative  Preferred  Stock,  of which 8% was
implemented  in  1995.  NYNEX  realized  proceeds  of  $100  million  from  this
monetization which were used to reduce outstanding commercial paper.

The term of the  monetization  transaction is five years at which time the third
party interest that provided the funding for this  transaction  will be redeemed
through the sale of the assets securitizing this transaction. Under the terms of
an extension agreement, NYNEX has the ability and intends to increase the amount
of  monetization up to $600 million by March 31, 1996 under terms and conditions
that are  substantially  the same as the December 1995  transaction.  NYNEX may,
upon meeting  certain  funding  requirements,  elect to purchase the third party
interests  or  terminate  the  transaction  and  cause  the  liquidation  of the
securitized assets.

At December 31, 1995,  NYNEX had $950  million of unissued,  unsecured  debt and
equity  securities  registered with the Securities and Exchange  Commission (the
"SEC").  The proceeds from the sale of these securities would be used to provide
funds to NYNEX and/or NYNEX's  nontelephone  subsidiaries  for their  respective
general  corporate  purposes.  At December  31,  1995,  CFC had $637  million of
unissued medium-term debt securities registered with the SEC. When issued, these
securities  will be  guaranteed  by NYNEX.  The proceeds  from the sale of these
securities  may be used to  provide  financing  for NYNEX  and the  nontelephone
subsidiaries. At December 31, 1995, New England Telephone and New York Telephone
had $500 and $250 million,  respectively, of unissued, unsecured debt securities
registered with the SEC.

In the third quarter of 1995,  an  independent  bond rating  agency  lowered its
rating of the long-term debt of NYNEX Corporation, which includes Credit Company
and CFC. The bond ratings of New York  Telephone and New England  Telephone were
reaffirmed at current  levels,  but the rating outlook on New England  Telephone
was placed on negative outlook by the agency. However,  Management believes that
the bond ratings are  indicative of strong credit  support for timely  principal
and interest payments in the foreseeable future.

On  November  10, 1995 NYNEX and Credit  Company  entered  into a $2.75  billion
unsecured  revolving credit facility,  with Chemical Bank as the  administrative
agent.  (Credit  Company  may borrow up to $300  million  under this  facility.)
Further,  NYNEX may request an increase in the aggregate  commitments  under the
facility  of up to $500  million.  The initial  term is for five years,  but the
borrowers  may  request  two  extensions  of the  facility,  in each case for an
additional  year.  Currently,  a fee of .075%  per annum is paid by NYNEX on the
aggregate  outstanding  commitments.  Under  the  terms  of the  agreement,  the
proceeds  may be  used to fund  working  capital  and/or  any  lawful  corporate
purposes,  including  support  of  outstanding  commercial  paper.  NYNEX had no
borrowings  under this credit  facility  at December  31,  1995.  However,  $1.9
billion of outstanding  commercial  paper borrowings was classified as Long-term
debt at  December  31,  1995  because  NYNEX  has the  intent to  refinance  the
commercial  paper  borrowings on a long-term  basis and has the ability to do so
under the credit facility.

The venture between NYNEX, Bell Atlantic  Corporation,  AirTouch  Communications
Inc.  and U S WEST Inc. is  comprised  of two  partnerships,  one of which,  PCS
Primeco,  participated  in the FCC auction of personal  communications  services
("PCS") licenses and bid a total of  approximately  $1.1 billion for licenses in
eleven cities, of which NYNEX's portion was approximately $277 million.  The bid
was paid upon grant of the licenses and final review of bidder qualifications by
the FCC in June of 1995.  NYNEX's  portion  of the bid was  funded  through  the
issuance of commercial  paper.  In 1996,  the venture plans to continue to build
markets  and build out the  network  for  prospective  offering  of  services to
customers.

FINANCIAL INSTRUMENTS 
Financial Risk Management  
-------------------------  
NYNEX  has  entered  into  transactions  involving  the use of
derivative  instruments as part of its financial risk  management  program.  The
purpose of this program is to manage  NYNEX's  aggregate  financial  risk and to
protect against adverse changes in foreign  exchange rates,  interest rates, and
other prices or rates, and to otherwise  facilitate NYNEX's 
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                Management's Discussion and Analysis  21
--------------------------------------------------------------------------------


financing strategy,  without holding or issuing any financial instruments solely
for trading purposes.

The  derivative  instruments  used to manage these risks may be  separated  into
three fundamental types:  forwards,  options and swaps. NYNEX assesses financial
exposures  and matches  its  derivative  positions  accordingly.  Liquidity  and
results of operations are not expected to be, but may be, materially affected by
NYNEX's  financing  strategy,  a portion of which is  accomplished  through  the
aforementioned risk management program.

NYNEX's  use of  derivatives  for risk  management  purposes is  represented  by
notional  amounts.  These notional values solely represent  contractual  amounts
that serve as the basis or reference amount upon which contractually  stipulated
calculations  are based.  Therefore,  these  amounts  are  intended  to serve as
general volume  indicators  only and are not indicative of the potential gain or
loss from market or credit risks, or future cash  requirements.  At December 31,
1995 and 1994, NYNEX had derivative  transactions maturing between 1995 and 2004
with  notional  amounts  as  follows  (categorized  by the  type of  risk  being
managed):

(In millions)                                                1995           1994
--------------------------------------------------------------------------------
Basis swaps/Swaptions                                    $1,001.0       $1,001.0
Foreign  currency/Interest  rate swaps                      928.4          928.4
Foreign currency  forwards (short dated)                    556.3             --
Interest rate swaps/Caps                                    279.2          285.9
Foreign  currency  swaps/Other                               60.0           61.5
Structured note swaps                                        55.0           55.0
--------------------------------------------------------------------------------
Total                                                    $2,879.9       $2,331.8
--------------------------------------------------------------------------------

BASIS  SWAPS:  In 1993,  NYNEX  entered  into  J.J.Kenny/  LIBOR basis  swaption
agreements as part of a risk management program to protect against the effect of
increased  corporate tax rates on Credit  Company's  leveraged lease  portfolio.
NYNEX  received  approximately  $12 million of  premiums  on the basis  swaption
agreements,  which were  exercised  in January of 1994.  The  recording of these
basis  swaps at fair  market  value  as of  December  31,  1995  resulted  in an
unrealized  mark to market  adjustment  of  approximately  $17.4  million net of
previously  unamortized  premium,  which is included in Other income (expense) -
net in the consolidated financial statements.

Foreign Exchange Risk and 
------------------------- 
Interest Rate Risk Management  
-----------------------------  
FOREIGN  CURRENCY/INTEREST  RATE SWAPS: NYNEX hedges the US Dollar value of many
of its  international  investments.  In some  cases,  direct  borrowings  in the
foreign  currency are used.  In other cases,  NYNEX uses  derivatives  to create
synthetic  non-US  Dollar  denominated  debt,  thereby  hedging or funding these
investments more cost-effectively and with greater flexibility.  Generally these
transactions involve a derivative contract which includes both interest rate and
foreign currency  components.  With respect to the foreign currency  components,
cumulative  net gains of $7.4 and $5.9  million at  December  31, 1995 and 1994,
respectively,  have been recorded as direct adjustments to Stockholders' equity.
In connection with managing the cost  associated  with the currency  components,
the interest rate swap components generally require NYNEX to receive interest at
a fixed rate averaging  approximately  3.4% and 3.3% as of December 31, 1995 and
1994,  respectively,  and  to  pay a  floating  interest  rate  (three-month  or
six-month LIBOR) which averaged approximately 6.1% and 6.0% on December 31, 1995
and 1994, respectively.

FOREIGN CURRENCY  FORWARDS (SHORT DATED): In connection with the receipt in 1995
of demand loans  denominated in UK pounds from NYNEX  CableComms,  NYNEX entered
into foreign currency forward contracts to manage the foreign currency exposures
associated with the loans' repayments.

INTEREST RATE  SWAPS/CAPS:  In order to manage  interest rate  exposures,  NYNEX
employs  various  strategies  primarily  involving  interest  rate  swaps  which
sometimes  incorporate interest rate options. The net costs of these options are
amortized to interest expense over the lives of the applicable agreements.

NYNEX has entered  into  several  interest  rate swap  agreements  to modify the
interest rate profile of its  liability  portfolio.  These swaps are  associated
with either a portion of commercial paper or non-callable  medium-term notes and
are  designed to achieve a targeted  mix of floating and fixed rate debt for the
NYNEX portfolio.  The following table indicates the types of interest rate swaps
used for this purpose and their weighted average interest rates.  Variable rates
are based on the expected future rates based on the yield curve at the reporting
date;  those may change  significantly  but are not  expected to have a material
effect on future cash flows. These swap contracts,  with remaining maturities of
between one and eight years, are as follows:

(In millions)                                               1995           1994 
--------------------------------------------------------------------------------
Receive-fixed swaps-notional amount                       $186.7         $186.7
 Average receive rate                                       6.60%          6.60%
 Average pay rate                                           5.48%          8.20%
Pay-fixed swaps-notional amount                           $ 92.5         $ 89.2
 Average pay rate                                           6.08%          6.34%
 Average receive rate                                       5.23%          8.45%
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
22  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


FOREIGN  CURRENCY  SWAPS/OTHER:  In order to  mitigate  the  impacts  of foreign
currency and interest rate  fluctuations on certain payments in conjunction with
the financing of the network  construction project in the UK, NYNEX entered into
two  cross-currency  swaps. The contract terms for these swap agreements include
foreign currency and interest rate components  which are settled  quarterly when
payments are made and  received.  For the swap  relating to the financing of the
franchises in the North  (entered into on December 19, 1994),  the exchange rate
is 1.5625 $/(pound). For the swap relating to the financing of the franchises in
the South  (entered  into on December 31,  1993),  the  exchange  rate is 1.4795
$/(pound).  The  swaps  require  NYNEX to pay in US  dollars  an  average  fixed
interest rate of 13% and 15.4% for the North and South financings, respectively,
and to receive a variable  interest rate based on 3-Month  LIBOR,  payable in UK
Pounds.  The net impact of activities related to the swaps is recorded in income
from continuing operations.

STRUCTURED  NOTE  SWAPS:  During  1994,  NYNEX  entered  into  three  derivative
contracts in connection with the issuance of three structured  medium-term notes
with a total principal  amount of $55 million in order to lower financing costs.
The three derivative  contracts have effectively  converted the structured notes
into standard  medium-term  notes with  effective  interest  rates of 7.18% ($20
million  principal),  7.785% ($10 million  principal)  and 3-Month LIBOR + 0.15%
($25 million principal).

Impact on Operations 
-------------------- 
In 1995, 1994, and 1993,  NYNEX's income from continuing  operations was reduced
by  $32.0,  $8.6 and  $10.7  million,  respectively,  from  all risk  management
activities.  The $32.0  million  reduction  in 1995 was  primarily  due to $17.4
million from an unrealized "mark to market"  valuation  adjustment for the basis
swaps. The remaining $14.6 million  reduction in 1995 and reductions in 1994 and
1993 were primarily due to the interest  expense  associated  with interest rate
management and synthetic non-Dollar debt.

NYNEX's policy  requires the evaluation of the hedging of  international  equity
investments  on a  case-by-case  basis.  By hedging  the foreign  currency  risk
associated with some of these investments,  NYNEX has incurred additional costs.
These  incremental  costs  reflect  the higher  cost of capital in the  relevant
international markets. For the hedges utilizing  derivatives,  these incremental
costs  have been  reflected  in  interest  expense  and in the fair value of the
respective   derivative   liabilities.   As  of  December  31,  1995  and  1994,
approximately  $(34.9) and  $(43.6)  million,  respectively,  of the fair market
value of derivative  (hedging)  liabilities  reflects any remaining  unamortized
incremental  cost of hedging equity  investments  in the UK and Thailand.  These
remaining  incremental  costs are discounted based upon the rates implied in the
yield curve at the reporting dates.  The interest expense  associated with these
hedges is managed as part of NYNEX's overall interest rate structure.


COLLECTIVE BARGAINING AGREEMENTS
--------------------------------
In May 1994, agreements were ratified with the Communications Workers of America
and the International  Brotherhood of Electrical Workers ("IBEW") in New York to
extend the collective  bargaining  agreements  through August 8, 1998. A similar
agreement  was  reached  with and  ratified by the IBEW in New England in August
1994.  There  will be  basic  wage  increases  of 10.5%  during  the life of the
agreements. The wage rates increased 4.0% in August 1995, and will increase 3.5%
and 3.0% in August  1996 and 1997,  respectively.  In 1997,  there may also be a
cost-of-living   adjustment.   The   agreements   also  provide  for  retirement
incentives,  a  commitment  to no  layoffs  or  loss of  wages  as a  result  of
company-initiated  "process change," an enhanced  educational  program and stock
grant and other incentives to improve service quality.


Competitive and Regulatory Environment
--------------------------------------
COMPETITION
NYNEX believes that,  while it will face  significantly  increased  risks in its
traditional  markets,  there will be significant  opportunities  in its many new
markets.

Federal and state regulators continue to adopt policies favoring competition and
have initiated  various  proceedings to further those  policies.  Those policies
will be advanced by the enactment of the  Telecommunications  Act of 1996, which
immediately opens NYNEX's local telecommunications  markets to full competition.
An increasing  number of national and global companies with substantial  capital
and marketing  resources are expected to enter many of NYNEX's local markets. At
the same  time,  the 1996 Act  frees  NYNEX to enter  the long  distance,  video
entertainment  and information  markets.  NYNEX is granted  immediate relief for
long distance calling (both U.S. and international)  originating  outside of the
NYNEX region, as well as for long distance ser-
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                Management's Discussion and Analysis  23
--------------------------------------------------------------------------------


vices  incidental to wireless,  video and  information  services,  and for video
programming.

Most of the services that NYNEX provides in its local telecommunications markets
have been facing  increasing  competition for the past several years.  NYNEX has
responded by obtaining increased pricing flexibility under incentive regulation,
introducing  new services,  and  improving  service  quality.  Increases in 1995
Private Line/Special Access revenues, and the number of Centrex "win-backs" from
PBX  vendors  indicate  NYNEX's  ability  to  respond  effectively  in its  most
competitive markets.

Competition for intraLATA toll revenues has intensified,  beginning in 1994 with
the increased  marketing of "dial-around"  programs by inter-exchange  carriers.
However, to date, the "retail" toll revenues NYNEX has lost to such programs are
being offset in part by increased  revenues from wholesale  access charges.  ILP
began in New York in late  1995  and was  completed  in  February  1996.  Future
wholesale pricing is the subject of pending regulatory proceedings.

In the highly competitive interstate access market, NYNEX received a waiver from
the FCC in 1995, to de-average  switched  access rates in the  metropolitan  New
York  LATA  and  introduce  a  new  fixed   monthly   charge  paid  directly  by
interexchange  carriers.  This has  enabled  NYNEX to  charge  prices  that more
accurately reflect the market conditions in its most competitive area.

To provide  interLATA  long distance  service for calls  originating  within its
region,  NYNEX must meet certain  technical and regulatory  requirements and the
FCC must determine it to be in the public interest.

NYNEX  considers  itself well  positioned to enter the  in-region  long distance
business quickly,  as in New York and Massachusetts it already meets many of the
requirements  of this  competitive  "checklist."  NYNEX  provides  for  physical
collocation of competitors' facilities and has signed interconnection agreements
which include number  portability  and reciprocal  compensation  for terminating
traffic  with  local  exchange  competitors.   NYNEX  has  also  unbundled  many
components  of its network and offers them on a wholesale  basis,  and completed
ILP in New York in February 1996.

Significant regulatory developments of 1995 are discussed below.

STATE REGULATORY   
During  1995 the  telephone  subsidiaries  were able to  replace  rate of return
regulation with price  regulation  plans in New York,  Massachusetts  and Maine,
which  represent  approximately  95% of their access lines  collectively.  These
state regulatory plans eliminate the telephone subsidiaries' obligation to share
earnings with customers,  allow the companies greater flexibility to vary prices
to meet  competition and impose service  quality  performance  measurements.  In
January 1996, New England  Telephone filed a proposed price regulation plan with
the Rhode Island Public Utilities Commission.

Massachusetts 
------------- 
INCENTIVE  PLAN: In  Massachusetts,  the price  regulation  plan approved by the
Massachusetts  Department  of Public  Utilities  ("MDPU")  governs  New  England
Telephone's  Massachusetts  intrastate  operations  through August 2001. Certain
residence  exchange  rates are  capped,  and  pricing  rules  limit New  England
Telephone's  ability  to  increase  prices  for most  services.  The  MDPU  also
established a quality of service index and ordered that New England  Telephone's
inability  to meet the  performance  levels in any given month would result in a
one-twelfth  of one  percent  increase  in the  productivity  offset used in the
annual  price cap filing.  New  England  Telephone's  initial  price plan tariff
filing,  which became  effective in September  1995,  contains rate changes that
will result in an annual revenue  reduction of  approximately  $38 million.  The
MDPU's Order has been appealed to the Supreme Judicial Court of Massachusetts.

COMPETITION PROCEEDING:  In 1995, hearings commenced in the MDPU's investigation
of intraLATA  and local  exchange  competition  in  Massachusetts.  The MDPU has
indicated  that  among the  matters  it  intends  to  address  are  collocation,
interconnection of networks,  intraLATA toll  presubscription,  telephone number
assignment and portability and universal service funding.

New York 
-------- 
INCENTIVE  PLAN: In 1995,  the NYSPSC  approved with  modifications  a Plan that
changes the manner in which New York  Telephone  will be regulated by the NYSPSC
over the next  five to seven  years.  Prices  are  capped at  current  rates for
"basic" services such as residence and business  exchange access,  residence and
business local calling and LifeLine service, and price reduction commitments are
established  for a number of  services,  including  toll and  intraLATA  carrier
access services. Certain prices may be adjusted
<PAGE>
--------------------------------------------------------------------------------
24  Management's Discussion and Analysis                NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


annually based on an inflation  index and costs  associated with NYSPSC mandates
and other defined "exogenous"  events.  Depending on whether the Plan remains in
effect  for five or seven  years,  New York  Telephone's  prices  will have been
decreased by an amount that, based on current volumes of business, would produce
an aggregate  revenue reduction over the term of the plan of $1.1 billion at the
end of five years, or $1.9 billion at the end of seven years.

The  Plan  also  establishes  service  quality  targets  with  stringent  rebate
provisions  if New York  Telephone is unable to meet some or all of the targets,
and sets an accelerated  schedule for the provision of ILP. New York Telephone's
compliance  tariffs under the Plan became  effective on a temporary  basis as of
September 1, 1995, and will remain  temporary  pending the NYSPSC Staff's review
and investigation.

The   NYSPSC  has   rejected   various   petitions   that  had  been  filed  for
reconsideration  of the  order  approving  the  Plan and  indicated  that it had
approved a Staff plan for monitoring New York  Telephone's  compliance.  In late
1995, MCI Communications  Corporation  ("MCI") commenced a proceeding in the New
York Supreme Court  seeking to overturn the NYSPSC's  orders with respect to the
Plan.  MCI  challenges  the lack of an earnings  cap and  asserts  that New York
Telephone's  rates should be further reduced  annually by the amount of the $153
million set-aside.

COMPETITION II PROCEEDING: In 1995, the NYSPSC issued an order resolving certain
issues in its  proceeding on local exchange  competition in New York State.  New
York  Telephone  must  provide  White Pages  directory  listings at no charge to
customers of competitive  local exchange carriers  ("CLECs"),  but may negotiate
fees with CLECs for delivery of the directories to their  customers.  The NYSPSC
also  established  a  reciprocal  compensation  scheme for the payment of access
rates  when New York  Telephone  and CLECs  terminate  traffic  on each  other's
networks. In general, the NYSPSC's plan permits "full-service, facilities-based"
local exchange carriers to pay a lower rate than other carriers will be required
to pay. The NYSPSC also  determined  that New York Telephone must, upon request,
provide  services  to  interconnect  CLECs  that  are  collocated  in  New  York
Telephone's central offices.

The  NYSPSC  also  directed  New  York  Telephone  to  file  tariffs  to  remove
restrictions on the resale of residential services,  effective February 1996, or
to show cause why such restrictions should not be removed.

In January 1996,  following New York Telephone's  show-cause response requesting
more  time  for   implementation,   the   NYSPSC   issued  an  order   requiring
implementation,  with  respect to both  residential  and business  services,  in
October 1996.

The NYSPSC has issued orders resolving various procedural and operational issues
related to ILP. The NYSPSC approved New York  Telephone's  proposal to implement
ILP for  analog  central  offices  as those  switches  are  replaced  by digital
equipment.  By the end of February 1996, New York Telephone had  implemented ILP
in all of its digital switching systems.

OTHER:  In 1991,  the NYSPSC  authorized  a $250  million  increase  in New York
Telephone's  rates,  of which $47.5 million  annually  remains subject to refund
pending   resolution  of  certain  issues   related  to  New  York   Telephone's
transactions  with other NYNEX  affiliates in 1984-1990.  In 1995,  the NYSPSC's
independent  consultant  concluded  its  final  report  detailing  findings  and
recommendations,  and an NYSPSC  administrative  law judge  issued a  procedural
ruling for future hearings and the filing of evidence. In January 1996, New York
Telephone  filed  notice  with the NYSPSC of its  intention  to open  settlement
discussions  in this case and  requested an extension of the date for the filing
of testimony.

FEDERAL REGULATORY 
PRICE CAP PLAN: The telephone  subsidiaries are subject to incentive  regulation
in the form of price caps.  Price cap limits are subject to adjustment each year
to reflect inflation,  a productivity  factor and certain other cost changes. In
1995, the FCC issued a Notice of Proposed Rulemaking  regarding the productivity
factor used by local  exchange  carriers  ("LECs") in the FCC price cap formula.
The  Proposed  Rulemaking  will  consider  changes in the  determination  of the
productivity  factor,  the recognition of exogenous costs, the extent of carrier
sharing,  and the  formula  for  calculating  the price  cap  index for  certain
services.  The FCC expects to issue an order in time for the final changes to be
reflected  in LECs'  rates as of July 1996.  The FCC has also issued a Notice of
Proposed  Rulemaking  to determine how the price cap rules should be modified to
accommodate  increasing  levels of competition.  The FCC asked for comments on a
proposal  by the  telephone  subsidiaries  that  earnings  sharing be reduced or
eliminated  as an LEC  implements  measures  to  promote  competition  for local
exchange  services.  The FCC  has  indicated  that it  intends  to  establish  a
rulemaking proceeding in 1996 to consider reform of the rules
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report               Selected Financial and Operating Data  25
--------------------------------------------------------------------------------


concerning the structure of access  charges.  This rulemaking  proceeding  would
consider  changes that might be necessary as competition  increases in the local
telephone market.

OTHER FEDERAL  REGULATORY:  In January 1996, the FCC issued a Notice of Proposed
Rulemaking  addressing  the charges  made for  interconnection  between LECs and
wireless  carriers.  Currently,  such charges are established by contracts under
the jurisdiction of the state regulatory commissions.  The FCC requested comment
on its tentative  conclusion to require,  pending the completion of its Proposed
Rulemaking, reciprocal "bill-and-keep" compensation arrangements under which the
originating  carrier  would no longer pay the  terminating  carrier  for access.
Adoption of the proposed  procedure would have a negative effect on the revenues
of the LECs, including the telephone  subsidiaries.  The telephone  subsidiaries
plan to participate actively in the proceeding.

During 1996, the FCC will conduct a number of rulemaking proceedings in order to
implement the Telecommunications Legislation enacted in February 1996.

In February 1996,  New England  Telephone  advised the FCC that it  relinquished
authorization  to  construct  advanced  video  dialtone  network  facilities  in
portions of Massachusetts and Rhode Island.

SELECTED FINANCIAL AND OPERATING DATA 
<TABLE>
<CAPTION>
(In millions, except per share amounts)              1995       1994       1993       1992      1991
----------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>       <C>         <C>       <C>     
Operating  revenues                              $ 13,407    $13,307   $ 13,408    $13,183   $13,255
Operating expenses                               $ 11,315    $11,550   $ 13,075    $10,655   $11,665
Interest  expense                                $    734    $   674   $    660    $   685   $   726
Earnings (loss) before extraordinary item
 and cumulative effect of change in
 accounting principle                            $  1,069    $   793   $   (272)   $ 1,311   $   601
Extraordinary item for the discontinuance
of regulatory accounting principles,
 net of taxes                                    $ (2,919)   $    --   $     --    $    --   $    --
Cumulative effect of change in accounting for
 postemployment benefits, net of taxes           $     --    $    --   $   (122)   $    --   $    --
Net income (loss)                                $ (1,850)   $   793   $   (394)   $ 1,311   $   601
Earnings (loss) per share before extraordinary
 item and cumulative effect of change in
 accounting principle                            $   2.50    $  1.89   $   (.66)   $  3.20   $  1.49
Extraordinary item per share                     $  (6.84)   $    --   $     --    $    --   $    --
Cumulative effect per share of change in
 accounting principle                            $     --    $    --   $   (.29)   $    --   $    --
Earnings (loss) per share                        $  (4.34)   $  1.89   $   (.95)   $  3.20   $  1.49
Dividends per share                              $   2.36    $  2.36   $   2.36    $  2.32   $  2.28
Property, plant and equipment-net                $ 17,055    $20,623   $ 20,250    $19,973   $19,915
Total assets                                     $ 26,220    $30,068   $ 29,458    $27,732   $27,503
Long-term debt                                   $  9,337    $ 7,785   $  6,938    $ 7,018   $ 6,833
Stockholders' equity                             $  6,079    $ 8,581   $  8,416    $ 9,724   $ 9,120
Book value per share                             $  14.06    $ 20.26   $  20.28    $ 23.51   $ 22.38
Capital expenditures+                            $  3,188    $ 3,012   $  2,717    $ 2,450   $ 2,499
Network access lines in service                      17.1       16.6       16.0       15.6      15.3
----------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
See Management's  Discussion and Analysis of Financial  Condition and Results of
Operations  for  the  effect  of  non-recurring  items  on  1995  results,   and
restructuring  charges on 1995, 1994 and 1993 results of operations.  Results of
operations  for 1991  include  $841  million of pretax ($550 million  after-tax)
restructuring charges.

+    Excludes  additions  under  capital  lease  obligations,  and  prior to the
     discontinuance  of Statement No. 71, the equity  component of allowance for
     funds used during construction.
<PAGE>
--------------------------------------------------------------------------------
26  Report of Independent Accountants                   NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


REPORT OF INDEPENDENT ACCOUNTANTS

To the Share Owners and Board of Directors of NYNEX Corporation:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  NYNEX
Corporation  and its  subsidiaries  as of December  31,  1995 and 1994,  and the
related consolidated  statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period  ended  December  31, 1995.
These  consolidated   financial  statements  are  the  responsibility  of  NYNEX
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated  financial  statements based on our audits. 

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of NYNEX
Corporation  and its  subsidiaries  as of December  31,  1995 and 1994,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1995,  in  conformity  with  generally  accepted
accounting principles.

As discussed in Note B to the consolidated  financial statements,  in the second
quarter of 1995, NYNEX Corporation discontinued accounting for the operations of
its telephone  subsidiaries in accordance with Statement of Financial Accounting
Standards No. 71,  "Accounting  for the Effects of Certain Types of Regulation."
Additionally,  as discussed in Note D to the consolidated  financial statements,
in the fourth quarter of 1993, NYNEX Corporation  adopted Statement of Financial
Accounting  Standards  No.  112,   "Employers'   Accounting  for  Postemployment
Benefits" retroactive to January 1, 1993.

/s/ Coopers & Lybrand L.L.P.
 
COOPERS & LYBRAND L.L.P.
New York, New York 
February 5, 1996
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                                Report of Management  27
--------------------------------------------------------------------------------


REPORT OF MANAGEMENT

Management  of  NYNEX  Corporation  and  its  subsidiaries   ("NYNEX")  has  the
responsibility for preparing the accompanying  consolidated financial statements
and for their integrity and objectivity.  The financial statements were prepared
in accordance  with  generally  accepted  accounting  principles,  which require
management  to make  estimates and  assumptions  that affect  reported  amounts.
Actual results could differ from those estimates.  In Management's  opinion, the
consolidated financial statements are fairly presented. Management also prepared
the other  information  in this report and is  responsible  for its accuracy and
consistency  with  the  consolidated  financial  statements.   

The  consolidated  financial  statements  have been audited by Coopers & Lybrand
L.L.P.  ("Coopers & Lybrand"),  independent  accountants,  whose appointment was
ratified by NYNEX's  stockholders.  Management  has made  available to Coopers &
Lybrand  all of NYNEX's  financial  records  and  related  data,  as well as the
minutes  of  stockholders'  and  directors'  meetings.  Furthermore,  Management
believes  that all  representations  made to Coopers & Lybrand  during its audit
were valid and appropriate.

Management of NYNEX has established and maintains an internal control  structure
that is  designed  to  provide  reasonable  assurance  as to the  integrity  and
reliability of the consolidated  financial statements,  the protection of assets
from  unauthorized  use or  disposition,  and the  prevention  and  detection of
fraudulent financial  reporting.  The concept of reasonable assurance recognizes
that the cost of the internal  control  structure should not exceed the benefits
to be derived.  The internal control structure provides for appropriate division
of responsibility  and is documented by written policies and procedures that are
communicated  to employees  with  significant  roles in the financial  reporting
process.  Management  monitors the internal  control  structure for  compliance,
considers  recommendations  for improvement from both the internal  auditors and
Coopers & Lybrand,  and updates  such  policies  and  procedures  as  necessary.
Monitoring  includes an internal auditing  function to independently  assess the
effectiveness  of the internal  controls  and  recommend  possible  improvements
thereto.  Management  believes that the internal  control  structure of NYNEX is
adequate to accomplish the objectives  discussed herein.  

The Audit  Committee of the Board of Directors,  which is comprised of directors
who are not employees, meets periodically with Management, the internal auditors
and  Coopers & Lybrand to review the manner in which they are  performing  their
responsibilities and to discuss matters relating to auditing,  internal controls
and  financial  reporting.  Both the  internal  auditors  and  Coopers & Lybrand
periodically  meet  privately  with the Audit  Committee  and have access to the
Audit Committee at any time.

Management also recognizes its  responsibility  for conducting  NYNEX activities
under  the  highest   standards  of  personal  and   corporate   conduct.   This
responsibility  is  accomplished  by  fostering  a  strong  ethical  climate  as
characterized  in  NYNEX's  Code  of  Business  Conduct,   which  is  publicized
throughout NYNEX. This code of conduct addresses,  among other things, standards
of personal  conduct,  potential  conflicts  of  interest,  compliance  with all
domestic  and  foreign  laws,   accountability  for  NYNEX  property,   and  the
confidentiality of proprietary  information.  

/s/Ivan Seidenberg 

IVAN SEIDENBERG
Chairman and Chief Executive Officer 


/s/Peter M. Ciccone

PETER M. CICCONE 
Vice President and Comptroller
<PAGE>
--------------------------------------------------------------------------------
28  Consolidated Statements of Income                   NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, (In millions, except per share amounts)   1995          1994          1993
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>           <C>       
OPERATING REVENUES
        Local service                                                $ 6,722.2     $ 6,605.4     $ 6,472.9
        Long distance                                                  1,039.2       1,081.2       1,134.4
        Network access                                                 3,557.5       3,447.0       3,387.2
        Other                                                          2,088.0       2,173.0       2,413.3
----------------------------------------------------------------------------------------------------------
        Total operating revenues                                      13,406.9      13,306.6      13,407.8
----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
        Maintenance and support                                        3,069.0       3,039.7       3,194.2
        Depreciation and amortization                                  2,566.8       2,640.6       2,534.0
        Marketing and customer services                                1,422.2       1,415.7       1,441.1
        Taxes other than income                                        1,015.6         993.2       1,038.9
        Selling, general and administrative                            2,484.5       2,639.7       4,031.1
        Other                                                            756.6         821.5         835.2
----------------------------------------------------------------------------------------------------------
        TOTAL OPERATING EXPENSES                                      11,314.7      11,550.4      13,074.5
----------------------------------------------------------------------------------------------------------
Operating income                                                       2,092.2       1,756.2         333.3
Gain on sale of stock by subsidiary [Note J]                             264.1            --            --
Other income (expense) - net                                              (4.9)        (43.8)        (97.0)
Interest expense                                                         733.9         673.8         659.5
Income (loss) from long-term investments                                  92.9          57.7         (21.9)
----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, extraordinary item
        and cumulative effect of change in accounting principle        1,710.4       1,096.3        (445.1)
Income taxes                                                             640.9         303.7        (172.7)
----------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item and cumulative
        effect of change in accounting principle                       1,069.5         792.6        (272.4)
Extraordinary item for the discontinuance of regulatory
        accounting principles, net of taxes [Note B]                  (2,919.4)           --            --
Cumulative effect of change in accounting for
        postemployment benefits, net of taxes [Note D]                      --            --        (121.7)
----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                    $(1,849.9)    $   792.6     $  (394.1)
----------------------------------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item and
        cumulative effect of change in accounting principle          $    2.50     $    1.89     $    (.66)
Extraordinary item per share                                             (6.84)           --            --
Cumulative effect per share of change in accounting
        principle                                                           --            --          (.29)
----------------------------------------------------------------------------------------------------------
Earnings (loss) per share                                            $   (4.34)    $    1.89     $    (.95)
----------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding                            426.5         418.8         412.7
----------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                         Consolidated Balance Sheets  29
--------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (In millions, except share amounts)                             1995         1994
----------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>      
ASSETS
  Current assets:
  Cash and temporary cash investments                                   $    93.2    $   137.5
  Receivables (net of allowance of $221.6 and $226.7, respectively)       2,636.2      2,532.5
  Inventories                                                               141.3        173.3
  Prepaid expenses                                                          360.2        361.2
 Deferred charges and other current assets                                  456.5        593.5
---------------------------------------------------------------------------------------------- 
 Total current assets                                                     3,687.4      3,798.0
---------------------------------------------------------------------------------------------- 
  Property, plant and equipment - net                                    17,055.3     20,623.4
  Long-term investments [Note F]                                          3,286.2      1,999.4
  Deferred charges and other assets                                       2,191.1      3,647.2
----------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                          $26,220.0    $30,068.0
----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 
Current liabilities:
  Accounts payable                                                      $ 2,902.2    $ 2,668.2
  Short-term debt                                                           506.6      2,128.8
  Other current liabilities                                                 583.7      1,053.5
----------------------------------------------------------------------------------------------
  Total current liabilities                                               3,992.5      5,850.5
----------------------------------------------------------------------------------------------
  Long-term debt                                                          9,336.9      7,784.5
  Deferred income taxes                                                   1,650.2      3,364.7
  Unamortized investment tax credits                                        198.8        304.4
  Other long-term liabilities and deferred credits                        3,885.0      3,615.3
  
  Minority interest, including a portion subject
          to redemption requirements [Note J]                             1,077.4        567.2
  
  Commitments and contingencies [Notes G, M, N, Q and S]
  
  Stockholders' equity:
  Preferred  stock - $1 par  value, 70,000,000 shares authorized               --           --
  Preferred stock - Series A Junior Participating - $1 par value,
          5,000,000 shares authorized                                          --           --
  Common stock - $1 par value, 750,000,000 shares authorized                447.2        439.7
  Additional paid-in capital                                              6,566.9      6,942.0
  Retained earnings                                                            --      2,208.2
  Treasury stock - (14,756,356 and 16,102,683 shares,
          respectively, at cost)                                           (591.1)      (644.3)
  Deferred compensation - LESOP Trust                                      (343.8)      (364.2)
----------------------------------------------------------------------------------------------
  TOTAL STOCKHOLDERS' EQUITY                                              6,079.2      8,581.4
----------------------------------------------------------------------------------------------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $26,220.0    $30,068.0
----------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
--------------------------------------------------------------------------------
30  Consolidated Statements of Changes in               NYNEX 1995 Annual Report
    Stockholder's Equity
--------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                             Deferred
                                                                     Additional                          Compensation         Total
                                                 Common     Common      Paid-In      Retained    Treasury       LESOP  Stockholders'
(In millions)                                    Shares      Stock      Capital      Earnings       Stock       Trust        Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>      <C>        <C>           <C>          <C>         <C>          <C>      
Balance, December 31, 1992                        214.2    $ 214.2    $ 6,520.0     $ 3,958.7    $ (572.9)   $ (396.3)    $ 9,723.7
   Employee benefit
     and dividend
     reinvestment plans                             2.3        2.3        100.3            --       (67.0)       16.0          51.6
   Stock split [Note K]                           214.6      214.6           --        (206.4)       (8.2)         --            --
   Dividends
     ($2.36 per common share)                        --         --           --        (974.8)         --          --        (974.8)
   Other                                             --         --          4.2           4.9          --          --           9.1
   Net loss                                          --         --           --        (394.1)         --          --        (394.1)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993                        431.1    $ 431.1    $ 6,624.5     $ 2,388.3    $ (648.1)   $ (380.3)    $ 8,415.5
   Employee benefit
     and dividend
     reinvestment plans                             8.6        8.6        317.4            --         3.8        16.1         345.9
   Dividends
     ($2.36 per common share)                        --         --           --        (993.0)         --          --        (993.0)
   Other                                             --         --           .1          20.3          --          --          20.4
   Net income                                        --         --           --         792.6          --          --          792.6
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                        439.7    $ 439.7    $ 6,942.0     $ 2,208.2    $ (644.3)   $ (364.2)    $ 8,581.4
   Employee benefit
     and dividend
     reinvestment plans                             7.1        7.1        273.5            --        53.4        20.4         354.4
   Dividends [Note K]
     ($2.36 per common share)                        --         --       (674.4)       (337.1)         --          --      (1,011.5)
   Other                                             .4         .4         25.8         (21.2)        (.2)         --           4.8
   Net loss                                          --         --           --      (1,849.9)         --          --      (1,849.9)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                        447.2    $ 447.2    $ 6,566.9     $      --    $ (591.1)   $ (343.8)    $ 6,079.2
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At  December  31,  1995,  there were  894,833  stockholders  of record of common
shares.

See accompanying notes to consolidated financial statements.
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report               Consolidated Statements of Cash Flows  31
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31, (In millions)                            1995        1994        1993

CASH FLOWS FROM OPERATING ACTIVITIES:*
<S>                                                                <C>          <C>        <C> 
--------------------------------------------------------------------------------------------------------
  Net income (loss)                                                $  (1,849.9) $     792.6  $    (394.1)
--------------------------------------------------------------------------------------------------------
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Extraordinary item, net of taxes                                     2,919.4           --           --
  Depreciation and amortization                                        2,566.8      2,640.6      2,534.0
  Amortization of unearned lease income - net                            (92.1)       (82.0)       (91.7)
  Deferred income taxes - net                                            156.8       (160.2)      (671.1)
  Deferred tax credits - net                                             (42.0)       (49.8)       (59.7)
  Gain on sale of stock by subsidiary                                   (264.1)          --           --
  Changes in operating assets and liabilities:
    Receivables                                                         (212.6)       (93.4)       (56.9)
    Inventories                                                           25.9         (4.1)        17.3
    Prepaid expenses                                                     (12.3)       (55.0)        14.8
    Deferred charges and other current assets                            118.3        255.9       (303.7)
    Accounts payable                                                     359.4       (190.2)       284.4
    Other current liabilities                                           (257.8)       290.2        (47.7)
  Other - net                                                            232.0        355.1      2,424.6
--------------------------------------------------------------------------------------------------------
  Total adjustments                                                    5,497.7      2,907.1      4,044.3
--------------------------------------------------------------------------------------------------------
  NET CASH PROVIDED BY OPERATING ACTIVITIES                            3,647.8      3,699.7      3,650.2
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                (3,188.1)    (3,012.2)    (2,717.2)
  Investment in leased assets                                           (245.4)      (173.8)      (241.5)
  Cash received from leasing activities                                   85.9         67.0         57.7
  Other investing activities - net                                      (518.3)       (43.6)    (1,349.5)
--------------------------------------------------------------------------------------------------------
  NET CASH USED IN INVESTING ACTIVITIES                               (3,865.9)    (3,162.6)    (4,250.5)
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of commercial paper and short-term debt                    13,940.3     18,230.0     14,438.6
  Repayment of commercial paper and short-term debt                  (13,981.2)   (19,905.6)   (11,985.6)
  Issuance of long-term debt                                             136.4      1,556.2      2,410.9
  Repayment of long-term debt and capital leases                        (144.5)      (127.9)      (141.3)
  Debt refinancing and call premiums                                        --           --     (3,120.3)
  Issuance of common stock                                               222.7        213.2         98.3
  Purchase of treasury stock                                                --           --        (92.3)
  Dividends paid                                                        (899.4)      (882.5)      (944.1)
  Minority interest                                                      289.2        359.2          5.0
  Proceeds from sale of stock by subsidiary - net                        610.3           --           --
--------------------------------------------------------------------------------------------------------
  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                    173.8       (557.4)       669.2
--------------------------------------------------------------------------------------------------------
  Net (decrease) increase in Cash and temporary cash investments         (44.3)       (20.3)        68.9
  Cash and temporary cash investments at beginning of year               137.5        157.8         88.9
--------------------------------------------------------------------------------------------------------
  CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR               $      93.2  $     137.5  $     157.8
--------------------------------------------------------------------------------------------------------
</TABLE>

* Excludes non-cash effects of deconsolidation of cellular subsidiary in 1995.
  (See Note F.)

See accompanying notes to consolidated financial statements.
<PAGE>
--------------------------------------------------------------------------------
32 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

A. ACCOUNTING POLICIES
----------------------

NATURE OF OPERATIONS
NYNEX  Corporation  ("NYNEX") is a global  communications  and media corporation
that provides a full range of services in the northeastern United States
and  in  high  growth  markets   around  the  world.   NYNEX  has  expertise  in
telecommunications,  wireless  communications,  directory publishing,  and video
entertainment and information services.  Intrastate  communications services are
regulated by various state public service commissions ("state commissions"), and
interstate  communications  services are regulated by the Federal Communications
Commission   ("FCC").   

The  communications  and media  industry  continues  to  experience  fundamental
changes  at  an  ever-increasing  pace.   Telecommunications,   information  and
entertainment  services are  converging in the market,  driven by technology and
released by landmark federal  legislation  that will remove historic  regulatory
barriers.  These changes are likely to have a  significant  effect on the future
financial  performance of many  companies in the industry.  NYNEX cannot predict
the effect of such competition on its business.

NYNEX is implementing a major  restructuring  of its business,  has entered into
domestic strategic alliances,  and is expanding globally in select international
markets in order to respond  to  competition.  In  addition,  NYNEX is  pursuing
reforms in  telecommunications  policy at both the state and federal levels.  In
February,  the  Telecommunications  Act  of  1996  was  signed  into  law.  This
legislation  will  lead to the  development  of  competition  in local  and long
distance telephone service, cable television,  and information and entertainment
services.

BASIS OF PRESENTATION  
The  consolidated  financial  statements  include the  accounts of NYNEX and its
subsidiaries.  Investments in entities in which NYNEX does not have control, but
has the ability to exercise significant  influence over operations and financial
policies,  are  accounted for using the equity  method.  Other  investments  are
accounted for using the cost method.

The  consolidated  financial  statements  have been prepared in accordance  with
generally accepted accounting  principles ("GAAP").  GAAP requires Management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
The 1994 and 1993  consolidated  financial  statements have been reclassified to
conform to the current year's format.

In the second  quarter of 1995,  NYNEX  discontinued  using GAAP  applicable  to
regulated  entities for the operations of New York Telephone  Company ("New York
Telephone")  and New England  Telephone  and  Telegraph  Company  ("New  England
Telephone") (collectively, the "telephone subsidiaries") (see Note B).

In  the  third  quarter  of  1995,  NYNEX  deconsolidated   certain  assets  and
liabilities  of  NYNEX  Mobile   Communications   Company  ("NYNEX  Mobile"),  a
wholly-owned  subsidiary  of NYNEX,  in  exchange  for an equity  interest  in a
cellular   partnership  between  NYNEX  and  Bell  Atlantic  Corporation  ("Bell
Atlantic") (see Note F). As a result,  NYNEX Mobile's results for the first half
of 1995 were  reported  on a  consolidated  basis.  For the second half of 1995,
NYNEX's  share of the  partnership's  results  were  reported on an equity basis
included in Income (loss) from long-term investments.

Upon  the   deconsolidation   of  NYNEX  Mobile,   Management   reassessed   its
determination  of reportable  segments and concluded that a dominant  portion of
NYNEX's  operations  is in a single  industry  segment.  In the third quarter of
1995,  NYNEX  discontinued  reporting  segment  information  in accordance  with
Statement of Financial  Accounting  Standards No. 14,  "Financial  Reporting for
Segments of a Business Enterprise." This change had no effect on NYNEX's results
of operations or financial position.

CASH AND TEMPORARY CASH  INVESTMENTS  
Temporary  cash  investments  are liquid  investments  with  maturities of three
months  or  less.   Temporary  cash   investments  are  stated  at  cost,  which
approximates market value.

INVENTORIES 
The telephone  subsidiaries'  inventories consist of materials and supplies that
are carried  principally at average cost.  Inventories  purchased for resale are
carried at the lower of cost or market (determined using weighted average cost).
Certain other inventories are carried at the lower of cost or market (determined
on a last-in, first-out basis).

PROPERTY, PLANT AND EQUIPMENT
Property,  plant and equipment is stated at its original cost and is depreciated
on a  straight-line  
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 33
--------------------------------------------------------------------------------


basis  over its  useful  life.  When  depreciable  plant is  disposed  of by the
telephone   subsidiaries,   the  carrying   amount  is  charged  to  accumulated
depreciation.

As a result of the implementation of Statement of Financial Accounting Standards
No.  101,  "Regulated  Enterprises  -  Accounting  for  the  Discontinuation  of
Application  of FASB  Statement No. 71"  ("Statement  No.  101"),  in the second
quarter of 1995, the telephone subsidiaries began recording depreciation expense
using  shorter  asset lives based on  expectations  as to the  revenue-producing
lives  of  the  assets  (see  Note  B),  calculated  on a  straight-line  basis.
Previously,   depreciation  rates  used  by  the  telephone   subsidiaries  were
prescribed by the FCC and by the state commissions for interstate operations and
for intrastate operations,  respectively, and were calculated on a straight-line
basis using the concept of "remaining life."

CAPITALIZED  INTEREST COST 
As a result of the  application of Statement No. 101,  capitalized  interest for
the  telephone  subsidiaries  is  recorded  as a cost  of  telephone  plant  and
equipment  and a reduction of interest,  in  accordance  with the  provisions of
Statement of Financial Accounting Standards No. 34,  "Capitalization of Interest
Cost"  ("Statement  No. 34").  Previously,  regulatory  authorities  allowed the
telephone  subsidiaries  to  capitalize  interest,  including  an  allowance  on
shareowner's  equity,  as a cost of  constructing  certain  plant and as income,
included  in Other  income  (expense)-net.  Such  income was  realized  over the
service  life of the plant as the  resulting  higher  depreciation  expense  was
recovered through the rate-making  process.  All other subsidiaries  account for
capitalized interest in accordance with Statement No. 34.

FINANCIAL  INSTRUMENTS
NYNEX manages certain  portions of its exposure to foreign currency and interest
rate  fluctuations  through a variety of strategies and instruments.  Generally,
foreign  currency  derivatives  and forwards  are valued  relative to the period
ending spot rate. Gains and losses  applicable to these derivatives are recorded
to income  currently with the exception of amounts  related to foreign  currency
derivatives  that  have  been  identified  as a hedge of a net  investment  in a
foreign  subsidiary,  which are recorded as adjustments to Stockholders'  equity
until the related subsidiary is sold or substantially  liquidated.  The interest
elements of these foreign currency  derivatives are recognized to income ratably
over the life of the  contract.  Interest  rate swaps and related  interest rate
derivatives (swaptions,  caps) identified as hedges are generally not carried at
fair value.  Rather,  interest rate swap receipts or payments are  recognized as
adjustments to interest expense as received or paid. Swap  termination  payments
and  fees or  premiums  applicable  to  swaptions  and caps  are  recognized  as
adjustments to interest expense over the lives of the agreements.

COMPUTER SOFTWARE COSTS 
The  telephone  subsidiaries  capitalize  initial  right-to-use fees for central
office  switching  equipment,  including  initial  operating  system and initial
application  software costs. For non-central office equipment,  only the initial
operating system software is capitalized.  Subsequent additions,  modifications,
or upgrades of initial  software  programs,  whether  operating  or  application
packages,  are expensed.  NYNEX CableComms capitalizes initial right-to-use fees
for  switching  equipment,   including  initial  operating  system  and  initial
application  software costs.  All  nontelephone  subsidiaries  expense  computer
software acquired or developed for internal use as incurred.

REFINANCING  CHARGES 
As a result of the application of Statement No. 101, the telephone  subsidiaries
no longer defer call premiums and other charges  associated  with the redemption
of long-term  debt, and previously  deferred  refinancing  costs were eliminated
(see Note B).  The  intrastate  portion  of these  costs had been  deferred  and
amortized  over periods  stipulated  by the state  commissions.  The  interstate
portion had been expensed as required by the FCC.

INCOME TAXES
Effective  January 1, 1993,  NYNEX  adopted  Statement of  Financial  Accounting
Standards  No.  109,  "Accounting  for  Income  Taxes"  ("Statement  No.  109").
Statement No. 109 requires that deferred tax assets and  liabilities be measured
based on the  enacted  tax  rates  that  will be in effect in the years in which
temporary differences are expected to reverse.

For the telephone  subsidiaries,  prior to the application of Statement No. 101,
the treatment of excess deferred taxes resulting from the reduction of tax rates
in prior years was subject to federal income tax and regulatory rules.  Deferred
income  tax  provisions  of the  telephone  subsidiaries  were  based on amounts
recognized for rate-making  purposes.  The telephone  subsidiaries  recognized a
deferred tax liability and established a corresponding  regulatory asset for tax
benefits previously flowed through to ratepayers. The major temporary difference
that gave rise to the net deferred  tax  liability  is  depreciation,  which for
income tax  purposes  is  determined  based on  accelerated  methods and shorter
lives. Statement of 
<PAGE>
--------------------------------------------------------------------------------
34 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


Financial  Accounting  Standards No. 71,  "Accounting for the Effects of Certain
Types of Regulation" ("Statement No. 71"),required the telephone subsidiaries to
reflect the additional  deferred income taxes as regulatory assets to the extent
that they would be recovered in the rate-making  process. In accordance with the
normalization  provisions  under  federal tax law,  the  telephone  subsidiaries
reversed excess deferred taxes relating to depreciation of regulated assets over
the regulatory lives of those assets. For other excess deferred taxes, the state
commissions  generally  allowed  amortization  of excess deferred taxes over the
reversal period of the temporary  difference  giving rise to the deferred taxes.
As a  result  of the  application  of  Statement  No.  101,  income  tax-related
regulatory assets and liabilities were eliminated (see Note B).

The Tax Reform Act of 1986 repealed the investment tax credit ("ITC"), effective
January 1, 1986. As required by tax law, ITC for the telephone  subsidiaries was
deferred  and is  amortized  as a reduction  to tax expense  over the  estimated
service lives of the related assets giving rise to the credits.

B. DISCONTINUANCE OF
REGULATORY ACCOUNTING PRINCIPLES
--------------------------------

In the second quarter of 1995, NYNEX discontinued  accounting for the operations
of the telephone subsidiaries in accordance with the provisions of Statement No.
71.  As a  result,  NYNEX  recorded  an  extraordinary  non-cash  charge of $2.9
billion, net of income taxes of $1.6 billion.

The  operations  of the  telephone  subsidiaries  no longer met the criteria for
application  of  Statement  No.  71  due  to  a  number  of  factors  including:
significant  changes in regulation  (achievement of price regulation rather than
rate-of-return  regulation  in New York,  Massachusetts  and Maine,  and ongoing
efforts  to  achieve  price  regulation  in  the  remaining  jurisdictions);  an
intensifying   level  of  competition;   and  the  increasingly  rapid  pace  of
technological  change.  Under  Statement  No. 71,  NYNEX had  accounted  for the
effects  of  rate  actions  by  federal  and  state  regulatory  commissions  by
establishing   certain   regulatory   assets  and  liabilities,   including  the
depreciation  of its telephone plant and equipment using asset lives approved by
regulators and the deferral of certain costs and obligations  based on approvals
received from  regulators.  NYNEX had continually  assessed its position and the
recoverability  of its  telecommunications  assets with respect to Statement No.
71.

Telephone  plant and equipment was adjusted  through an increase in  accumulated
depreciation,  to reflect the difference  between recorded  depreciation and the
amount of depreciation  that would have been recorded had NYNEX not been subject
to rate  regulation.  Gross plant was written off where fully  depreciated,  and
non-plant  regulatory  assets and  liabilities  were eliminated from the balance
sheet.

The after-tax  extraordinary  charge  recorded  consists of $2.2 billion for the
adjustment  to telephone  plant and equipment and $0.7 billion for the write-off
of non-plant regulatory assets and liabilities.

The net decrease of $3.6 billion to telephone  plant and equipment was supported
by a depreciation  analysis,  which identified  inadequate  depreciation reserve
levels  which  NYNEX   believes   resulted   principally   from  the  cumulative
under-depreciation  of  telephone  plant  and  equipment  as  a  result  of  the
regulatory  process.  An impairment analysis was performed that did not identify
any additional amounts not recoverable from future operations.  ITC amortization
was  accelerated  as a result of the reduction in asset lives of the  associated
telephone plant and equipment.

The major  elements of the write-off of non-plant  regulatory net assets were as
follows:

(In  millions)                                           Pretax        After-tax
--------------------------------------------------------------------------------
Compensated  absences                                    $173.2           $109.4
Deferred  pension  costs                                  381.1            239.5
Refinancing  costs                                        255.6            166.5
Deferred  taxes                                          --                 55.7
Other                                                     130.8             85.6
--------------------------------------------------------------------------------
Total                                                    $940.7         $ 656.7 
--------------------------------------------------------------------------------
     
With the adoption of Statement No. 101, NYNEX now uses estimated asset lives for
certain  categories of telephone plant and equipment that are shorter than those
approved  by   regulators.   These  shorter  asset  lives  result  from  NYNEX's
expectations as to the  revenue-producing  lives of the assets.  A comparison of
average asset lives before and after the  discontinuance of Statement No. 71 for
the most significantly  affected  categories of telephone plant and equipment is
as follows:

                                                        Average lives (in years)
                                                       -------------------------
                                                       Composite
                                                       Regulator-
                                                        Approved       Economic
                                                       Asset Lives   Asset Lives
--------------------------------------------------------------------------------
Digital Switching                                           16.5           12.0
Circuit - Other                                             10.5            8.0
Aerial Metallic Cable                                       21.0           17.0
Underground Metallic Cable                                  25.0           15.0
Buried Metallic Cable                                       24.0           17.0
Fiber                                                       26.0           20.0
--------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 35
--------------------------------------------------------------------------------


The application of Statement No. 101 does not change the telephone subsidiaries'
accounting and reporting for regulatory purposes.

C. INCOME TAX
-------------

The components of income tax expense (benefit) are as follows:

(In millions)                              1995*         1994         1993**
--------------------------------------------------------------------------------
Federal:
Current                                      $469.2        $488.7       $ 466.9
Deferred - net                                 67.8        (191.5)       (611.9)
Deferred tax credits - net                    (42.0)        (49.8)        (59.7)
--------------------------------------------------------------------------------
                                              495.0         247.4        (204.7)
--------------------------------------------------------------------------------
State and local:
Current                                        51.3          18.7          88.1
Deferred - net                                 89.0          31.3         (59.2)
--------------------------------------------------------------------------------
                                              140.3          50.0          28.9
--------------------------------------------------------------------------------
Foreign                                         5.6           6.3           3.1
--------------------------------------------------------------------------------
Total                                        $640.9        $303.7       $(172.7)
--------------------------------------------------------------------------------

 *Does not include the deferred tax benefit of $1.6 billion  associated with the
  Extraordinary item for the discontinuance of regulatory accounting principles.

**Does not include the deferred  tax benefit of $67.5  million  associated  with
  the Cumulative effect of change in accounting for postemployment benefits.

A reconciliation  between the federal income tax expense  (benefit)  computed at
the statutory rate and NYNEX's effective tax expense (benefit) is as follows:

(In millions)                                1995       1994      1993
--------------------------------------------------------------------------------
Federal income tax expense
(benefit) computed at the
statutory rate                               $598.6     $383.7    $(155.8)

a. Amortization of investment tax
   credits                                    (31.3)     (55.9)     (65.8)

b. Amortization of excess
   deferred federal taxes due
   to change in the tax rates                  (8.2)     (48.1)     (66.8)

c. State and local
   income taxes, net of
   federal tax benefit                         91.2       32.5       18.8

d. Depreciation of certain
   taxes and payroll-related
   construction costs
   capitalized for financial
   statement purposes, but
   deducted for income tax
   purposes in prior years                      5.0       20.5       31.6

e. Capital loss carryforwards
   and reversal of valuation
   allowance on capital loss
   carryforwards                              (16.1)     (58.6)      87.1

f. Other items - net                            1.7       29.6      (21.8)
--------------------------------------------------------------------------------
Income tax expense (benefit)                 $640.9     $303.7    $(172.7)
--------------------------------------------------------------------------------
 
Not included in "c" above are gross  receipts  taxes that New York  Telephone is
subject  to in lieu of a state  income  tax.  Temporary  differences  for  which
deferred income taxes have not been provided by the telephone  subsidiaries  are
represented  principally by "d" above. Upon the  discontinuance of Statement No.
71 (see Note B), items "b" and "d" above have been eliminated.

The components of current and non-current deferred tax assets and liabilities at
December 31, 1995 and 1994 are as follows:

(In millions)                                1995                  1994
--------------------------------------------------------------------------------
                                     Assets  Liabilities     Assets  Liabilities
--------------------------------------------------------------------------------
Depreciation and
  amortization                     $     --    $1,676.8    $     --    $3,150.0
Leveraged leases                         --       976.2          --       917.7
Restructuring
  charges                             286.1          --       502.9          --
Employee benefits                   1,440.0       178.3     1,228.2       189.7
Unamortized ITC                        68.0          --       168.2          --
Deferred publishing
  revenues                            167.0          --       134.4          --
Other                                 374.6       542.2       229.8       646.2
--------------------------------------------------------------------------------
Total deferred taxes                2,335.7     3,373.5     2,263.5     4,903.6
--------------------------------------------------------------------------------
Valuation allowance*                  (29.7)         --       (42.2)         --
--------------------------------------------------------------------------------
Net deferred
  tax assets                       $2,306.0    (2,306.0)   $2,221.3    (2,221.3)
--------------------------------------------------------------------------------
Net deferred
  tax liabilities                        --    $1,067.5          --    $2,682.3
--------------------------------------------------------------------------------

* A valuation  allowance was  established  in 1993  primarily for capital losses
  generated from the exit from the information  products and services  business.
  During 1995 and 1994,  the  valuation  allowance  decreased by $12.5 and $71.7
  million, respectively, primarily due to tax planning strategies.

During  1995,  income   tax-related   regulatory  assets  and  liabilities  were
eliminated as a result of the discontinued  application of Statement No. 71 (see
Note B).

At December 31, 1994, the telephone subsidiaries had recorded approximately $631
million in deferred  charges and  deferred  taxes  representing  the  cumulative
amount of income  taxes on temporary  differences  that were  previously  flowed
through to  ratepayers.  This deferral had been  increased for the tax effect of
future  revenue  requirements  and was  being  amortized  over the  lives of the
related  depreciable  assets  concurrently  with their  recovery  in rates.  The
telephone  subsidiaries had recorded a regulatory liability at December 31, 1994
of  approximately  $519 million,  in Other  long-term  liabilities  and deferred
credits  and  in  Other  current  liabilities.  A  substantial  portion  of  the
regulatory  liability  related to the 1986  reduction in the  statutory  federal
income tax rate and  unamortized  ITC. This liability had been increased for the
tax effect of future revenue requirements.
<PAGE>
--------------------------------------------------------------------------------
36 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


D. EMPLOYEE BENEFITS
-------------------

PENSIONS
Substantially  all NYNEX  employees  are  covered by one of two  noncontributory
defined benefit pension plans (the "Plans").  Benefits for management  employees
are based on a modified career average pay plan while benefits for nonmanagement
employees are based on a  nonpay-related  plan.  Contributions  are made, to the
extent  deductible  under the  provisions  of the Internal  Revenue  Code, to an
irrevocable  trust for the sole  benefit of  pension  plan  participants.  Total
pension (benefit) for 1995, 1994 and 1993 was $(269.3),  $(290.6),  and $(167.0)
million, respectively. The components are as follows:

(In millions)                             1995         1994         1993 
--------------------------------------------------------------------------------
Estimated return on plan assets:
  Actual                                $(3,079)     $    74      $(1,964)
  Deferred portion                        1,872       (1,265)         833
--------------------------------------------------------------------------------
  Net                                    (1,207)      (1,191)      (1,131)
Service cost                                179          237          199
Interest cost on projected                                      
  benefit obligation                        984          884          928
Other - net                                (225)        (221)        (163)
--------------------------------------------------------------------------------
Net pension (benefit)                   $  (269)     $  (291)     $  (167)
--------------------------------------------------------------------------------
                                                              
The  pension  benefit  for 1995,  1994,  and 1993  includes  the  effect of plan
amendments and changes in actuarial assumptions for the discount rate and future
compensation levels.

The following  table sets forth the Plans' funded status and amounts  recognized
in the consolidated balance sheets:

  December  31,  (In  millions)                     1995        1994
--------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
  obligation, including vested benefits of
  $12,319 and $10,147, respectively              $13,323     $11,048
--------------------------------------------------------------------------------
Plan assets at fair value, primarily listed   
  stock, corporate and governmental debt      
  and real estate                                $15,782     $13,681
Less: Actuarial present value of projected    
  benefit obligation                              14,546      12,070
--------------------------------------------------------------------------------
Excess of plan assets over projected          
  benefit obligation                               1,236       1,611
Unrecognized prior service cost                   (1,685)     (2,029)
Unrecognized net gain                             (1,010)       (862)
Unrecognized transition asset                       (428)       (488)
--------------------------------------------------------------------------------
Accrued pension cost                             $(1,887)    $(1,768)
--------------------------------------------------------------------------------
                                            
The assumptions used to determine the projected  benefit  obligation at December
31, 1995 and 1994 include a discount rate of 7.25% and 8.50%, respectively,  and
an increase in future  compensation levels of 4.1% and 4.5%,  respectively,  for
management employees,  and 4.0% in both years for nonmanagement  employees.  The
expected  long-term  rate of return on pension  plan  assets  used to  calculate
pension  expense  was 8.9% in 1995,  1994 and 1993.  The  actuarial  projections
included herein anticipate plan improvements for active employees in the future.

As a result of work force reductions primarily through retirement  incentives in
1995 and 1994, partially offset by the 1995 formation of the Bell Atlantic NYNEX
Mobile  cellular  partnership  ("BANM") (see Note F), NYNEX incurred  additional
pension costs of $396.9 and $758.2 million, respectively. In 1995, this cost was
comprised of a charge for special  termination  benefits of $725.4 million and a
curtailment gain of $328.5 million,  partially offset by 1993 severance reserves
of $78.5 million which were transferred to the pension liability.  In 1994, this
cost was  comprised  of a charge for  special  termination  benefits of $1,142.5
million  and a  curtailment  gain of $384.3  million,  partially  offset by 1993
severance reserves of $314.8 million.

POSTRETIREMENT  BENEFITS  OTHER  THAN PENSIONS  
NYNEX  provides  certain  health care and life  insurance  benefits  for retired
employees and their families.  Substantially all of NYNEX's employees may become
eligible for these benefits if they reach pension  eligibility while working for
NYNEX.

Effective  January 1, 1993,  NYNEX  adopted  Statement of  Financial  Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"  ("Statement  No.  106").  Statement  No. 106 changed the  practice of
accounting for  postretirement  benefits from recognizing  costs as benefits are
paid to  accruing  the  expected  cost of  providing  these  benefits  during an
employee's  working life.  NYNEX is recognizing  the  transition  obligation for
retired  employees and the earned  portion for active  employees  over a 20-year
period. The cost of health care benefits and group life insurance was determined
using the unit credit cost actuarial method.

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 37
--------------------------------------------------------------------------------
    

Net postretirement  benefit cost for 1995, 1994, and 1993 includes the following
components:

(In  millions)                                     1995        1994        1993
--------------------------------------------------------------------------------
Service  cost                                    $ 44.0      $ 56.6      $ 45.6
Interest cost                                     385.2       373.0       333.6
Estimated return on plan assets                  (194.6)      (41.3)      (92.6)
Deferred asset gain (loss)                        102.1       (47.1)        9.4
Amortization of transition obligation             177.4       178.7       177.6
--------------------------------------------------------------------------------
Net postretirement benefit cost                  $514.1      $519.9      $473.6
--------------------------------------------------------------------------------

The  following  table sets forth the funded  status and amounts  recognized  for
postretirement benefit plans:

December 31, (In millions)                                 1995          1994
--------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
  attributable to:
  Retirees                                              $(4,025.7)    $(3,880.0)
  Fully eligible plan participants                         (705.0)       (648.2)
  Other active plan participants                           (896.2)       (516.9)
--------------------------------------------------------------------------------
Total accumulated postretirement benefit
  obligation                                             (5,626.9)     (5,045.1)
Fair value of plan assets                                 1,230.8       1,081.8
--------------------------------------------------------------------------------
Accumulated postretirement benefit
  obligation in excess of plan assets                    (4,396.1)     (3,963.3)
Unrecognized net loss (gain)                                257.7         (21.1)
Unrecognized prior service cost                             136.2         146.1
Unrecognized transition obligation                        2,853.4       3,048.8
--------------------------------------------------------------------------------
Accrued postretirement benefit cost                     $(1,148.8)    $  (789.5)
--------------------------------------------------------------------------------

The actuarial  assumptions  used to determine the 1995 and 1994  obligation  for
postretirement  benefit plans under  Statement No. 106 are as follows:  discount
rate of 7.25% and 8.50%, respectively;  weighted average expected long-term rate
of return on plan assets of 8.4% in both years;  weighted  average salary growth
rate of 4.0% and 4.2%, respectively;  medical cost trend rate of 11.6% and 12.6%
in 1995 and 1994,  respectively,  grading down to 4.5% in 2008;  and dental cost
trend rate of 4.0% and 4.5% in 1995 and 1994, respectively, grading down to 3.0%
in 2002.

A one  percent  increase  in the  assumed  health care cost trend rates for each
future year would have  increased the aggregate of the service and interest cost
components of net postretirement benefit cost for 1995, 1994, and 1993 by $30.0,
$30.0, and $29.2 million, respectively, and would have increased the accumulated
postretirement  benefit  obligation  at December 31, 1995 and 1994 by $360.0 and
$361.6 million, respectively.

As a result of work  force  reductions,  NYNEX  recorded  an  additional  $519.5
million of  postretirement  benefit cost in 1993 accounted for as a curtailment.
Due to the work force reduction  retirement  incentives in 1995 and 1994 and the
1995 formation of BANM, NYNEX incurred additional  postretirement  benefit costs
of $182.2 and $429.0 million,  respectively. In 1995, this cost was comprised of
a  curtailment  loss of $109.3  million  and a charge  for  special  termination
benefits of $72.9  million,  partially  offset by $72.7  million  accrued for in
1993. In 1994,  this cost was comprised of a curtailment  loss of $325.3 million
and a charge for  special  termination  benefits  of $103.7  million,  partially
offset by $178.9 million accrued for in 1993.

NYNEX  established two separate  Voluntary  Employees'  Beneficiary  Association
Trusts ("VEBA Trusts"),  one for management and the other for nonmanagement,  to
begin  prefunding  postretirement  health care  benefits.  At December 31, 1992,
NYNEX had transferred  excess pension assets,  totaling $486 million,  to health
care benefit accounts within the pension plans and then contributed those assets
to the VEBA Trusts.  No  additional  contributions  were made in 1995,  1994 and
1993. The assets in the VEBA Trusts consist primarily of equity and fixed income
securities.  Additional  contributions  to the VEBA  Trusts  are  evaluated  and
determined by Management.

REGULATORY  TREATMENT  
With  respect to  interstate  treatment,  in 1994 the FCC's  1993 order  denying
exogenous  treatment of additional  costs recognized under Statement No. 106 was
overturned  in  the  court.   Tariff  revisions  were  filed  by  the  telephone
subsidiaries  with  the  FCC in 1994 to  amend  price  cap  indices  to  reflect
additional  exogenous costs  recognized  under Statement No. 106,  including $42
million of costs  already  accrued,  increased  annual  costs of $21 million and
increased  rates of $2.2 million.  Commencing  December 30, 1994,  the telephone
subsidiaries began collecting these revenues, subject to possible refund pending
resolution of the FCC Common Carrier Bureau's  investigation.  The annual update
to the price cap rates,  effective August 1, 1995,  included tariff revisions to
recover  approximately  $21  million  of  exogenous  costs  resulting  from  the
implementation of Statement No. 106.
<PAGE>
--------------------------------------------------------------------------------
38 Notes to Consolidated Statements                    NYNEX 1995 Annual Report
--------------------------------------------------------------------------------
     

With respect to intrastate treatment,  in January 1994 the New York State Public
Service Commission  ("NYSPSC") approved New York Telephone's plan for regulatory
accounting  and  rate-making  treatment.  They  allowed  the  adoption  of  both
Statement  No. 106 and  Statement  of  Financial  Accounting  Standards  No. 87,
"Employers'  Accounting  for  Pensions"  ("Statement  No.  87"),  on  a  revenue
requirement  neutral basis,  providing for the amortization of existing deferred
pension costs within a ten-year period,  and eliminating the need for additional
deferrals of Statement No. 106 and Statement No. 87 costs.  The NYSPSC  required
New York Telephone to write-off $75 million of previously deferred pension costs
in 1993. In December 1994, New York Telephone  amortized $39 million of deferred
pension costs according to this  accounting  plan.  Upon the  discontinuance  of
Statement No. 71, remaining deferred pension costs were eliminated (see Note B).

New  England  Telephone  implemented  a  similar  plan in  each  of its  states,
providing for immediate  adoption of Statement No. 106 and Statement No. 87 on a
revenue  requirement  neutral basis,  amortization of existing  deferred pension
costs within a ten-year period,  and  discontinuance of additional  deferrals of
Statement  No. 106 and  Statement No. 87 costs.  In December  1994,  New England
Telephone  amortized  $12.1 million of deferred  pension costs according to this
accounting plan. Upon the discontinuance of Statement No. 71, remaining deferred
pension costs were eliminated (see Note B).

POSTEMPLOYMENT  BENEFITS  
NYNEX adopted Statement of Financial  Accounting  Standards No. 112, "Employers'
Accounting for  Postemployment  Benefits"  ("Statement  No. 112"), in the fourth
quarter of 1993,  retroactive  to January 1, 1993.  Statement No. 112 applies to
postemployment benefits,  including workers' compensation,  disability plans and
disability   pensions,   provided  to  former  or  inactive   employees,   their
beneficiaries,  and covered  dependents after employment but before  retirement.
Statement No. 112 changed NYNEX's method of accounting from recognizing costs as
benefits are paid to accruing the expected  costs of providing  these  benefits.
The initial  effect of adopting  Statement  No. 112 was reported as a cumulative
effect of a change in accounting principle and resulted in a one-time,  non-cash
charge of $189.2 million ($121.7 million after-tax) in 1993.

E. PROPERTY, PLANT AND EQUIPMENT - NET
--------------------------------------

The components of property, plant and equipment-net are as follows:

December 31, (In millions)                                    1995        1994
--------------------------------------------------------------------------------
Buildings                                                  $ 2,943.7   $ 2,847.9
Telephone plant and equipment                               30,100.9    29,902.0
Furniture and other equipment                                1,543.3     1,548.6
Other                                                          141.0       148.6
--------------------------------------------------------------------------------
Total depreciable property,                           
  plant and equipment                                       34,728.9    34,447.1
Less: accumulated depreciation                              18,679.3    14,843.7
--------------------------------------------------------------------------------
                                                            16,049.6    19,603.4
Land                                                           142.7       155.6
Plant under construction and other                             863.0       864.4
--------------------------------------------------------------------------------
Total property, plant and                             
   equipment - net                                         $17,055.3   $20,623.4
--------------------------------------------------------------------------------
                                        
The  discontinued  application of Statement No. 71 resulted in a net decrease to
telephone plant and equipment of $3.6 billion,  primarily through an increase in
accumulated depreciation (see Note B).

F. LONG-TERM INVESTMENTS
------------------------

A reconciliation of NYNEX's equity and cost method investments is as follows:

(In  millions)                                           1995            1994 
--------------------------------------------------------------------------------
Beginning  of  year,  equity  method                   $  301.2        $  245.2
Additional  investments                                 1,095.4           177.2
Equity in net income  (loss)                               33.8            (9.4)
Dividends  received                                        (4.7)           (4.2)
Other                                                      71.8          (107.6)
--------------------------------------------------------------------------------
End of year,  equity  method                            1,497.5           301.2
Cost  method investments                                1,788.7         1,698.2
--------------------------------------------------------------------------------
Total  long-term investments                           $3,286.2        $1,999.4
--------------------------------------------------------------------------------

NYNEX's  long-term  investments  include  equity and cost method  investments in
domestic  and  international   interests,   including  cellular,   real  estate,
telecommunications, and publishing ventures.

Effective  January 1, 1994,  NYNEX  adopted  Statement of  Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities"  ("Statement  No.  115").  Statement No. 115  specifically  excludes
equity  securities  accounted for under the equity method and equity  securities
accounted for under the cost method that do not have readily  determinable  fair
market values.

BELL ATLANTIC NYNEX MOBILE CELLULAR PARTNERSHIP
Effective  July 1, 1995,  NYNEX and Bell Atlantic  completed the  combination of
substantially all of their domestic cellular  properties by contributing them to
a  partnership,  BANM,  to own and operate  
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes To Consolidated Statements 39
--------------------------------------------------------------------------------


these properties. The combination represents the consummation of the transaction
that was agreed to and announced in June 1994. Bell Atlantic owns  approximately
62.4% of BANM, and NYNEX owns approximately 37.6%. The partnership is controlled
jointly by NYNEX and Bell Atlantic.

NYNEX  contributed  certain  cellular assets and liabilities of NYNEX Mobile,  a
wholly-owned  subsidiary of NYNEX,  in exchange for an equity  interest in BANM.
Subject to post-closing  adjustments,  NYNEX  deconsolidated  approximately $640
million  of  net  assets  and  recorded  an  equity  method  investment  in  the
partnership.

As a condition to the completion of the combination,  in July 1995, NYNEX Mobile
sold  certain  of its  cellular  properties  overlapping  with  Bell  Atlantic's
cellular  properties to SNET Cellular,  Inc. As a result of the formation of the
partnership,  NYNEX  recorded a net after-tax  gain of $67.4  million  resulting
primarily  from  the  sale of  overlapping  cellular  properties  and a  pension
curtailment.

OTHER LONG-TERM  INVESTMENTS 
1995 investments included the following:  a $282.5 million additional investment
in the venture between NYNEX, Bell Atlantic,  AirTouch  Communications  Inc. and
U S WEST  Inc. which will  provide  national  wireless  personal  communications
services;  an additional  $35.6 million  investment in the Tele-TV  Partnerships
between  NYNEX,  Bell  Atlantic,  and Pacific  Telesis  Group  formed to develop
programming and other products and services for  transmission  over wireline and
wireless  networks;  a $33.9  million  investment  in  Bayan  Telecommunications
Holdings  Corporation   ("BayanTel"),   a  newly-formed  holding  company  whose
subsidiaries have been awarded licenses to provide  telecommunications  services
in certain regions of the Philippines;  a $28.5 million additional investment in
FLAG Limited  ("FLAG")  which will  construct a submarine  cable system from the
United Kingdom to Japan; a $55.0 million investment in P.T. Excelcomindo Pratama
("Excelcom"),  a newly formed  Indonesian  corporation  which holds a license to
operate  a  nationwide  cellular  business  in  Indonesia;  and a $50.0  million
investment in BANX Partnership between NYNEX and Bell Atlantic which will invest
in wireless cable systems.

NYNEX did not make any significant long-term investments in 1994.

G. FINANCIAL COMMITMENTS AND GUARANTEES
---------------------------------------
As of December 31, 1995, NYNEX had invested approximately $46.5 million in FLAG.
NYNEX is the managing  sponsor of FLAG and holds a 38% equity interest and a 41%
funding  obligation  in  the  venture.  Under  the  terms  of the  FLAG  project
documentation  and the  related  financing  agreements,  NYNEX's  obligation  to
furnish  its  pro  rata  share  of  funding   would  require   additional   cash
contributions  of  approximately  $181 million to FLAG.  The  contributions  are
anticipated to be completed by the end of 1997.

A $950 million limited  recourse debt facility was made available to the project
by a number of major lending institutions.  As of December 31, 1995, $50 million
of this facility was  utilized.  Under the terms of the  financing,  the funding
FLAG shareholders have entered into contingent  sponsor support agreements which
could require additional payments in an aggregate amount of $500 million by such
shareholders  on a pro rata basis upon the occurrence of certain  limited events
of  default.  These  events of  default  represent  risks of a type that  equity
shareholders  typically  are required to assume in  construction  projects,  and
which the FLAG  shareholders  consider  to be  unlikely  to occur.  The  maximum
contingent  payment  each  funding  shareholder  may be  required to make may be
reduced in the  future on a pro rata  basis  based  primarily  on the  remaining
amount of FLAG's outstanding debt which, in turn, is dependent upon the level of
sales.

NYNEX's  allocable  percentage of the contingent  sponsor support  commitment is
51%, up to a maximum of $255 million. This includes an additional 10% share that
NYNEX assumed on behalf of another shareholder in return for a fee. In addition,
NYNEX has backstopped,  for a fee, the guarantee of the parent  corporation of a
third shareholder of its contingent  sponsor support obligation in an amount not
to exceed $95 million.  This backstop  obligation would be triggered only upon a
failure by such parent  corporation to fulfill the obligations under its primary
guarantee,  if required to do so upon the default of its  subsidiary to make any
payment under the  aforementioned  contingent  sponsor support  agreement.  This
contingent obligation of NYNEX is itself supported by a reimbursement  agreement
between NYNEX and the shareholder and further supported by a direct guarantee by
that shareholder's parent corporation in favor of NYNEX.

<PAGE>
--------------------------------------------------------------------------------
40 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


NYNEX  maintains  a  33%  equity  interest  in  the  Tele-TV  Partnerships  (the
"Partnerships"),  and Bell Atlantic and Pacific Telesis Group are equal partners
in this venture.  As of December 31, 1995, NYNEX had invested  approximately $37
million  into the  Partnerships.  NYNEX is  obligated  to make  additional  cash
contributions  on a pro  rata  basis of  approximately  $79  million,  currently
anticipated to be completed by the end of 1998.

NYNEX holds a 15%  interest in  BayanTel.  As of December  31,  1995,  NYNEX had
invested  approximately  $34 million in BayanTel  and is  committed to invest an
additional $14 million over the next two years.

In December 1995, NYNEX invested $55 million in Excelcom for a 23% interest, and
in January 1996,  NYNEX invested an additional  $60 million.  Under the terms of
the partnership agreement,  NYNEX is currently obligated to invest an additional
$72 million by October 1997.

As of December  31,  1995,  New York  Telephone  had  deferred  $188  million of
revenues ($161 million under an NYSPSC-approved  regulatory plan associated with
commitments  for  fair  competition,  universal  service,  service  quality  and
infrastructure improvements, and $27 million for a 1994 service improvement plan
obligation).  These  revenues  will  be  recognized  as  commitments  are met or
obligations  are satisfied  under the plans.  If New York Telephone is unable to
meet certain of these  commitments,  the NYSPSC has the authority to require New
York Telephone to refund these revenues to customers.
  
In December 1995, Telesector Resources Group, Inc. ("Telesector  Resources"),  a
NYNEX  subsidiary,  entered into purchase  agreements with various  suppliers to
purchase,  on behalf of the  telephone  subsidiaries,  equipment and software to
upgrade  the  network.  The  purchase  agreements  are over  five  years  with a
commitment of approximately $550 million.

H. LONG-TERM DEBT
-----------------

Interest rates and maturities on long-term debt outstanding are as follows:

                                                                 December 31,
(In millions)               Interest Rates      Maturities    1995        1994
--------------------------------------------------------------------------------
Refunding Mortgage Bonds:   3 3/8% - 7 3/4%    1997 - 2006  $  620.0   $  675.0
                                6% - 7 1/2%    2007 - 2011     425.0      425.0
Debentures:                 4 1/2% - 7 3/8%    1999 - 2008     780.0      780.0
                                7% - 9 3/5%    2010 - 2017     898.6      918.7
                            6 5/7% - 9 3/8%    2022 - 2033   1,900.0    2,250.0
Notes                           4% -10 1/7%    1997 - 2009   2,736.7    2,683.3
Other                                                        1,951.9       30.5
Unamortized discount - net                                     (36.5)     (47.9)
--------------------------------------------------------------------------------
                                                             9,275.7    7,714.6
--------------------------------------------------------------------------------
Long-term capital lease obligations                             61.2       69.9
--------------------------------------------------------------------------------
Total long-term debt                                        $9,336.9   $7,784.5
--------------------------------------------------------------------------------

The annual  requirements  for principal  payments on long-term  debt,  excluding
capital leases, are $497.8,  $481.2,  $265.0,  $491.0 and $232.0 million for the
years 1996 through 2000, respectively.

The Refunding  Mortgage  Bonds and $3.2 billion of the  telephone  subsidiaries'
Debentures  outstanding  at December  31, 1995 are  callable,  upon thirty days'
notice,  by the  respective  telephone  subsidiary,  after the required  term of
years.

Substantially  all of New York Telephone's  assets are subject to lien under New
York Telephone's  Refunding  Mortgage Bond indenture.  At December 31, 1995, New
York Telephone's total assets were approximately $11.6 billion.

Pursuant to the indentures for certain of its debentures, New York Telephone has
covenanted  that it will not issue  additional  funded debt  securities  ranking
equally with or prior to such  debentures  unless it has  maintained an earnings
coverage of 1.75 for  interest  charges  (excluding  extraordinary  items) for a
period of any 12 consecutive months out of the 15-month period prior to the date
of proposed  issuance.  As a result of the 1993 and 1994 business  restructuring
charges (see Note R),  beginning in March 1994,  New York Telephone did not meet
the earnings  coverage  requirement.  As of December 31, 1994 and 1995, New York
Telephone met the earnings coverage requirement.

<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 41
--------------------------------------------------------------------------------


On November 10, 1995,  NYNEX and NYNEX Credit  Company  ("Credit  Company")
entered into a $2.75 billion unsecured revolving credit facility,  with Chemical
Bank as the administrative  agent. (Credit Company may borrow up to $300 million
under this  facility.)  Further,  NYNEX may request an increase in the aggregate
commitments  under the facility of up to $500  million.  The initial term is for
five years,  but the  borrowers may request two  extensions of the facility,  in
each case for an additional year. Currently, a fee of .075% per annum is paid by
NYNEX  on  the  aggregate  outstanding  commitments.  Under  the  terms  of  the
agreement,  the proceeds may be used to fund working  capital  and/or any lawful
corporate purposes, including support of outstanding commercial paper. NYNEX had
no borrowings  under this credit  facility at December 31, 1995.  However,  $1.9
billion of outstanding  commercial  paper borrowings was classified as Long-term
debt at December 31, 1995 and  presented  in "Other" in the table above  because
NYNEX has the intent to refinance the commercial paper borrowings on a long-term
basis and has the ability to do so under the credit facility.

At  December  31,  1995,  the  following   unissued  debt  securities  were
registered with the Securities and Exchange Commission (the "SEC"): $250 million
of New  York  Telephone  unsecured  securities,  $500  million  of  New  England
Telephone  unsecured  securities,  and $637  million  of NYNEX  Capital  Funding
medium-term debt securities (when issued, these securities will be guaranteed by
NYNEX).

At December 31, 1995,  NYNEX had $950 million of unissued,  unsecured  debt
and equity  securities  registered  with the SEC. The proceeds  from the sale of
these  securities  would  be used to  provide  funds  to  NYNEX  and/or  NYNEX's
nontelephone subsidiaries for their respective general corporate purposes.

I. SHORT-TERM DEBT
------------------

NYNEX's short-term borrowings and related weighted average interest rates are as
follows:
                                                                    Weighted
                                                                     average
                                                                    interest
                                                                      rates

December 31, (In millions)                   1995       1994     1995      1994
--------------------------------------------------------------------------------
Commercial paper and short-term debt       $   --   $1,987.4      6.0%      6.0%
Debt maturing within one year               497.8      132.3      7.3%      6.8%
Current portion of long-term
  capital lease obligations                   8.8        9.1
--------------------------------------------------------------------------------
Total short-term debt                      $506.6   $2,128.8
--------------------------------------------------------------------------------

As  previously  discussed,  at December  31,  1995,  NYNEX had an unused line of
credit amounting to $2.75 billion through an unsecured revolving credit facility
with an initial term of five years. This line of credit,  together with cash and
temporary cash investments, may be used to support outstanding commercial paper.
As such, $1.9 billion of outstanding  commercial paper borrowings was classified
as Long-term debt at December 31, 1995.

$350 million of New England Telephone's Debentures are repayable on November 15,
1996,  in  whole  or in  part,  at the  option  of the  holder,  and as such are
classified as Short-term debt at December 31, 1995.

J. MINORITY INTEREST
--------------------

December 31, (In millions)                                     1995         1994
--------------------------------------------------------------------------------
Portion subject to redemption requirements                   $731.2       $390.5
Portion non-redeemable                                        346.2        176.7
--------------------------------------------------------------------------------
Total                                                      $1,077.4       $567.2
--------------------------------------------------------------------------------

FINANCING OF OPERATIONS IN THE UNITED KINGDOM
On December 31, 1993, a financing  arrangement was entered into for the southern
cable  franchises in the United Kingdom (the "South").  Prior to this financing,
two partnerships  were formed:  South  CableComms,  L.P.  ("SC"),  and Chartwell
Investors  L.P.  ("Chartwell"),   both  Delaware  limited  partnerships.   These
partnerships  and their  subsidiaries  are legal entities  separate and distinct
from NYNEX, as are their assets and liabilities.  Two wholly-owned  subsidiaries
of NYNEX  contributed  assets,  consisting of cash and stock,  with an aggregate
initial  market  value  of $130  million  and a book  value of $109  million  at
December 31,  1993,  to SC in exchange for general  partnership  interests,  and
Chartwell  contributed  $20  million  in cash to SC in  exchange  for a  limited
partner interest.

Prior to March 31, 1995, the financing  arrangements  for the South were similar
in substance to, but  structurally  different from, those for the northern cable
franchises in the United Kingdom (the "North"). On March 31, 1995, the financing
structure  for the South was changed to closely  resemble the  structure for the
North (see explanation of transaction  below) as it existed at December 1994. In
preparation for this 
<PAGE>

--------------------------------------------------------------------------------
42 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


restructure,  SC distributed to its partners  intercompany  loans  receivable of
$295 million in the form of  dividends.  These loans were payable to SC from the
southern cable franchises.  Of these dividends,  $214 million was distributed to
Chartwell and $81 million was distributed to the two  wholly-owned  subsidiaries
of NYNEX (the "NYNEX South general partners").  The NYNEX South general partners
in turn  distributed the $81 million to NYNEX, who in turn contributed it to two
other wholly-owned NYNEX subsidiaries (the "NYNEX South members").

In connection  with the financing  restructure  to facilitate an initial  public
offering ("IPO"), a new entity was formed, South CableComms L.L.C.  ("SCLLC"), a
Delaware  limited  liability   company.   Chartwell   contributed  its  existing
partnership  interests in SC having a book value of $8 million and loans of $214
million  to SCLLC,  and,  as a result,  is no longer a partner  in SC. The NYNEX
members contributed the aforementioned $81 million of loans to SCLLC.

All of the  partners of  Chartwell  and members of SCLLC have  committed to make
future  capital  contributions  as required by the various  documents,  and with
respect to Chartwell's  commitment,  such contributions must be matched by NYNEX
subsidiaries.  As of December 31, 1995, total cumulative  contributions to SCLLC
were as follows: $200 million from the NYNEX South members and $295 million from
Chartwell;  and  total  cumulative  contributions  to SC were as  follows:  $474
million from the NYNEX South general partners and $128 million from SCLLC.

SC's purpose is to manage and protect a portfolio of assets, which is being used
to fund the construction,  operations and working capital  requirements of cable
television  and  telecommunications  systems  in certain  licensed  areas in the
South.  SCLLC's  purpose  is to  provide  funding  arrangements  to SC  and  its
operating  companies  in the South with the  proceeds  of capital  contributions
received  from its  members.  A  wholly-owned  subsidiary  of NYNEX  manages and
controls  the  business and  operations  of SCLLC.  SC and SCLLC are included in
NYNEX's consolidated financial statements,  and Chartwell's interest in SCLLC is
reflected  in  "Minority  interest,  including a portion  subject to  redemption
requirements."

NYNEX also  contributed cash to Chartwell in exchange for an initial 20% limited
partnership  interest.  The purpose of Chartwell is to invest up to $426 million
(based on the applicable  year-end exchange rate) over a five-year  contribution
term in SCLLC, and the funding of Chartwell  consists of equity and amounts made
available  to it,  subject  to the  satisfaction  of funding  conditions,  under
existing arrangements with financial  institutions.  A portion of the funding is
collateralized  by  Chartwell's  assets,  is  non-recourse  to the  partners  of
Chartwell,  and bears  interest at market  rates.  It includes  representations,
warranties,  covenants  and events of default  customary in  financings  of this
nature.  The  remaining  term of the funding  arrangement  is eight years,  with
repayments  beginning in 1999,  and Chartwell is entitled to receive  cumulative
preferential  distributions  from  SCLLC  sufficient  to  meet  these  repayment
requirements.  The  redemption  requirements  are $30  million  for 1999 and $52
million for 2000.  For  financial  reporting  purposes,  NYNEX's  investment  in
Chartwell is reflected in "Long-term investments" and is accounted for under the
equity method.

On December 19, 1994,  a financing  arrangement  was entered into for the North.
Prior to this  financing,  three  entities were formed:  North  CableComms  L.P.
("NCLP"), a Delaware limited partnership;  North CableComms, L.L.C. ("NCLLC"), a
Delaware limited liability company; and Winston Investors L.L.C. ("Winston"),  a
Delaware limited liability  company.  These entities and their  subsidiaries are
legal  entities  separate  and  distinct  from  NYNEX,  as are their  assets and
liabilities.  Three  subsidiaries  of NYNEX  ("NYNEX  North  general  partners")
contributed stock to NCLP in exchange for general partnership interests (with an
aggregate  market  value of $827  million  and an  aggregate  book value of $142
million at December 19, 1994).  NCLLC contributed $79 million in cash to NCLP in
exchange for a limited partnership  interest.  Two wholly-owned  subsidiaries of
NYNEX ("NYNEX North members")  contributed in the aggregate $82 million in cash,
and Winston  contributed  $225  million in cash,  each for member  interests  in
NCLLC.

All of the  partners of NCLP and members of NCLLC have  committed to make future
capital contributions as required by the various documents,  and with respect to
Winston's commitment, such contributions must be matched by NYNEX contributions.
As of  December  31,  1995,  total  cumulative  contributions  to NCLLC  were as
follows:  $214  million  from the NYNEX  North  members  and $385  million  from
Winston;  and  total  cumulative  contributions  to NCLP were as  follows:  $401
million from the NYNEX North general partners and $209 million from NCLLC.

NCLP's  purpose is to manage and protect a portfolio  of assets,  which is being
used to fund the  construction,  operations and working capital  requirements of
cable television and telecommunications systems in certain licensed areas in the
North. NCLLC's pur-
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 43
--------------------------------------------------------------------------------


pose is to provide funding  arrangements to NCLP and its operating  companies in
the North with the proceeds of capital contributions  received from its members.
A  wholly-owned  subsidiary  of NYNEX  manages and  controls  the  business  and
operations  of NCLLC.  NCLP and  NCLLC  are  included  in  NYNEX's  consolidated
financial statements,  and Winston's interest in NCLLC is reflected in "Minority
interest, including a portion subject to redemption requirements."

NYNEX also  contributed  cash to Winston in  exchange  for an initial 20% equity
interest.  The purpose of Winston is to invest up to $1.1 billion  (based on the
applicable year-end exchange rate) over a five-year  contribution term in NCLLC,
and the  funding of Winston  consists  of equity and  amounts  available  to it,
subject to the satisfaction of funding conditions,  under existing  arrangements
with  financial  institutions.  A portion of the  funding is  collateralized  by
Winston's assets, is non-recourse to the partners of Winston, and bears interest
at market rates. It includes representations,  warranties,  covenants and events
of default  customary in  financings of this nature.  The remaining  term of the
funding  arrangement  is nine years,  with  repayments  beginning  in 2000,  and
Winston is entitled to receive cumulative preferential  distributions from NCLLC
sufficient to meet these repayment requirements. The redemption requirements are
$36 million for 2000. For financial  reporting  purposes,  NYNEX's investment in
Winston is reflected in "Long-term  investments"  and is accounted for under the
equity method.

NYNEX provides certain performance  guarantees to Chartwell and Winston, and for
the first five years, a completion guarantee that requires a specified number of
homes be passed by the  network  in the South and in the North by  December  31,
1998 and 1999,  respectively (subject to one-year  extensions).  At December 31,
1995 and 1994,  the  related  construction  program was  progressing  toward the
appropriate targets for release from the completion guarantee.  In order to gain
release  from the  completion  guarantee,  NYNEX must  demonstrate  that various
financial ratios, based on, among other things,  operating cash flows, and other
tests such as material compliance with communication licenses, are satisfied. If
the  construction  program does not meet such tests and these shortfalls are not
cured within a specified time period, the completion  guarantee will necessitate
payments to be made directly to Chartwell or Winston, as appropriate. NYNEX also
provides indemnifications to these entities, among others, in respect of certain
liabilities, including all liability, loss or damage incurred as a result of any
breach of the agreements set forth, and tax indemnifications  relating to events
prior to the  creation  of SC,  SCLLC,  NCLP and NCLLC.  In  addition,  NYNEX is
required to maintain certain  financial and operating  standards and may, at any
time,  elect to purchase the equity interest in Chartwell and Winston on certain
terms.

During February 1995, two entities were formed:  NYNEX CableComms Group PLC ("UK
CableComms"),  a public limited liability company incorporated under the laws of
England and Wales, and NYNEX CableComms Group Inc. ("US CableComms"), a Delaware
corporation (both being referred to collectively as "CableComms").  Prior to the
IPO discussed  below,  both were  wholly-owned  subsidiaries of NYNEX.  Both are
separate and distinct  legal  entities.  The sole assets of UK CableComms and US
CableComms  are 90% and 10%,  respectively,  of the  outstanding  stock of NYNEX
CableComms  Holdings,   Inc.  which  holds,  through  various  subsidiaries  and
partnerships,  interests in cable television and telecommunications  franchises,
assets and operations in the United Kingdom.

An IPO was  completed in June 1995 of 305 million  equity  units of  CableComms.
These  units are traded as "stapled  units" and are  comprised  of one  ordinary
share of UK  CableComms  and one share of  common  stock of US  CableComms  (the
"Combined Offering").  Of the 305 million units issued,  170,222,000 were issued
as units at a price of 137 pence per unit in the United Kingdom,  and 13,477,800
were  issued as  American  Depository  Shares  ("ADS")  at $21.81 per ADS in the
United States,  each ADS comprising 10 units. The Combined Offering  represented
33% of the total  units  outstanding,  with NYNEX  retaining  the  balance.  Net
proceeds from the offering were approximately $610 million.  CableComms is using
the proceeds to repay outstanding  revolving loans under credit  facilities,  to
fund a portion of the cost of  construction  of its network,  and for  operating
cash flow and interest.

NYNEX's policy is to recognize in income any gains or losses related to the sale
of stock by an investee. NYNEX recognized an after-tax gain on the IPO of $155.1
million in the second quarter of 1995, net of $109.0 million in deferred  taxes,
in  recognition  of the net  increase  in the  value of  NYNEX's  investment  in
CableComms.

OTHER FINANCING  
In November 1993,  NYNEX invested $1.2 billion in Viacom Inc.  ("Viacom") for 24
million shares of Viacom Series B Cumulative Preferred Stock 
<PAGE>
--------------------------------------------------------------------------------
44 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


("Viacom Preferred"),  carrying an annual dividend of five percent. The stock is
convertible into shares of Viacom Class B non-voting  common stock at a price of
$70 per share.

In  December  1995,   NYNEX  entered  into  a  contract  for  the   non-recourse
securitization   that  permits  a  monetization  of  approximately  50%  of  its
investment in the Viacom  Preferred,  of which 8% was implemented in 1995. NYNEX
realized  proceeds of $100  million  from this  monetization  which were used to
reduce outstanding commercial paper. In connection with this transaction,  NYNEX
has invested in three newly  formed  Delaware  limited  liability  companies:  a
majority owned and controlled  subsidiary,  "Weatherly Holdings L.L.C.", and its
50% owned and controlled  subsidiary,  "Kipling  Associates  L.L.C."  (Weatherly
Holdings L.L.C. and Kipling  Associates  L.L.C. are collectively  referred to as
the "Monetization Subsidiaries"), and a third-party owned and controlled entity,
"Mandalay  Investors L.L.C." (the "Outside  Member"),  which has invested in the
Monetization  Subsidiaries.  These  companies  are legal  entities  separate and
distinct from NYNEX, as are their assets and liabilities.

At the time of  formation,  NYNEX  contributed,  in the  aggregate,  two million
shares of Viacom  Preferred with a book value of $100 million and $35 million in
cash for its member  interests  in the  Monetization  Subsidiaries.  The Outside
Member  contributed  $100  million  in cash for its member  interest  in Kipling
Associates  L.L.C. and $10 thousand in cash for its member interest in Weatherly
Holdings L.L.C. The Monetization  Subsidiaries have approximately $12 million in
cash which has been loaned to NYNEX,  cash  equivalents,  the Viacom  Preferred,
certain intercompany  financial obligations and approximately 2.4 million shares
of NYNEX common stock. The purpose of the Monetization Subsidiaries is to manage
and protect their financial assets for sale or distribution at a later date. The
Monetization   Subsidiaries  are  included  in  NYNEX's  consolidated  financial
statements,  and the Outside Member's interest in the Monetization  Subsidiaries
is reflected in "Minority  interest,  including a portion  subject to redemption
requirements." NYNEX has invested $10 thousand in cash in the Outside Member for
a less than 1% ownership interest,  which is accounted for under the cost method
and is included in "Long-term investments."

In connection with the monetization of the Viacom Preferred,  NYNEX has provided
certain indemnifications to the Monetization Subsidiaries and the Outside Member
including certain tax indemnifications. The term of the monetization transaction
is five years at which time the Outside  Member's  interest in the  Monetization
Subsidiaries  will be  redeemed  through  the  liquidation  of the  Monetization
Subsidiaries'  assets. Under the terms of an extension agreement,  NYNEX has the
ability  and  intends  to  increase  the amount of the  monetization  up to $600
million by March 31, 1996 under terms and conditions that are  substantially the
same as the December 1995  transaction.  NYNEX may, upon meeting certain funding
requirements,  elect to purchase the member  interests of the Outside  Member in
the  Monetization  Subsidiaries  or  terminate  the  transaction  and  cause the
liquidation of the assets of the Monetization Subsidiaries.

K. STOCKHOLDERS' EQUITY
-----------------------
PREFERRED STOCK
NYNEX's  certificate of incorporation  provides authority for the issuance of 75
million shares of Preferred  stock,  $1.00 par value, in one or more series with
such  designations,   preferences,  rights,  qualifications,   limitations,  and
restrictions as NYNEX's Board of Directors may determine.

COMMON STOCK 
On July 15, 1993, the Board of Directors of NYNEX declared a two-for-one  common
stock split in the form of a 100 percent stock dividend,  payable  September 15,
1993 to holders of record at the close of business on August 16, 1993.

As of November 1, 1993, NYNEX discontinued purchasing shares of its common stock
and began issuing new shares in  connection  with employee  savings  plans,  the
Dividend  Reinvestment  and Stock Purchase Plan, stock  compensation  plans, and
stock option plans.

DIVIDENDS DECLARED 
FROM ADDITIONAL PAID-IN  CAPITAL 
The second,  third,  and a portion of the fourth  quarter  1995  dividends  were
declared from Additional paid-in capital.

SHAREHOLDER  RIGHTS  AGREEMENT
In October 1989, NYNEX adopted a Shareholder Rights Agreement, pursuant to which
shareholders  received a dividend distribution of one right for each outstanding
share of NYNEX's  common  stock.  As a result of the  two-for-one  common  stock
split, the rights have been adjusted so that shareholders 
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 45
--------------------------------------------------------------------------------


receive one right for every two shares of common stock.  Each right entitles the
shareholder  to buy  1/100  of a share  of  $1.00  par  value  Series  A  Junior
Participating Preferred Stock from NYNEX at an exercise price of $250 per right.
5 million shares of this Preferred  Stock have been  authorized,  with 3 million
shares  reserved  for exercise of the rights.  The rights,  which are subject to
adjustment, will not be exercisable or separable from the common stock until ten
days  following  a public  announcement  that a person  or  group  has  acquired
beneficial  ownership of 15% or more of NYNEX's  outstanding common stock or ten
business  days  following the  commencement  of, or public  announcement  of the
intent to commence,  a tender or exchange offer by a beneficial  owner of 15% or
more of the outstanding common stock.

If any person  becomes the  beneficial  owner of 15% or more of the  outstanding
common stock, each holder of a right will receive,  upon exercise at the right's
then  current  exercise  price,  common  stock having a value equal to twice the
exercise price. If NYNEX is acquired in a merger or business combination,  or if
50% or more of NYNEX's  assets or earning power is sold,  each right holder will
receive,  upon exercise at the right's then current exercise price, common stock
in the new  company  having a value  equal to twice  the  exercise  price of the
right.

NYNEX may exchange  rights for shares of common stock or redeem  rights in whole
at a price of $.01 per right at any time  prior to their  expiration  on October
31, 1999.

LEVERAGED  STOCK  OWNERSHIP  PLAN
In February 1990,  NYNEX  established a leveraged  employee stock ownership plan
("LESOP")  and loaned $450 million to the LESOP Trust  ("internal  LESOP note").
The LESOP Trust used the proceeds to purchase, at fair market value, 5.6 million
shares of NYNEX's  common  stock held in treasury.  NYNEX issued and  guaranteed
$450 million of 9.55% Debentures, the proceeds of which were principally used to
repurchase  5.4  million  shares  in  the  open  market,  completing  the  stock
repurchase plan. The Debentures  require payments of principal  annually and are
due May 1, 2010. Interest payments are due semiannually.  The Debentures and the
internal LESOP note are recorded as Long-term debt and as Deferred compensation,
respectively.  Deferred  compensation will be reduced as shares are released and
allocated to participants.

NYNEX  maintains  savings plans that cover  substantially  all of its employees.
Under these  plans,  NYNEX  matches a certain  percentage  of eligible  employee
contributions.  Under  provisions  of the Savings Plan for  Salaried  Employees,
NYNEX's matching  contributions  are allocated to employees in the form of NYNEX
stock from the LESOP Trust,  based on the  proportion  of principal and interest
paid by the LESOP Trust in a year to the  remaining  principal  and interest due
over the life of the internal  LESOP note.  Compensation  expense is  recognized
based  on  the  shares  allocated  method.   LESOP  shares  are  not  considered
outstanding until they are allocated to participants.

NYNEX's  matching  contributions  to the  savings  plans  and any  change in the
required  contribution as a result of leveraging this obligation are recorded as
compensation  expense.  Compensation expense applicable to the savings plans for
1995, 1994 and 1993 was $77.2,  $88.2 and $81.3 million,  respectively,  and has
been reduced by $25.9, $26.1, and $26.2 million, respectively, for the dividends
paid on LESOP shares used to service the internal LESOP note. As of December 31,
1995 and 1994,  the  number of shares  allocated  to the LESOP  were 2.2 and 1.9
million,  respectively,  and the  number of shares  held by the LESOP for future
allocation were 8.6 and 9.1 million, respectively.

L. STOCK OPTION PLANS
---------------------
NYNEX has stock option plans for key management employees under which options to
purchase  NYNEX common stock are granted at a price equal to or greater than the
market  price of the stock at the date of grant.  The 1990  Stock  Option  Plan,
which  expired on December  31,  1994,  permitted  the grant of options  through
December  1994 to  purchase  up to 4 million  shares.  In  January  1995,  NYNEX
established  the 1995 Stock  Option  Plan,  that permits the grant of options no
later than  December  31,  1999 to  purchase  up to 20 million  shares of common
stock; options may not be exercisable for a period less than one year or greater
than ten years from date of grant.

Both the 1990 and the 1995 Stock Option Plans for key management employees allow
for the granting of stock  appreciation  rights  ("SARs") in tandem with options
granted.  Upon exercise of a SAR, the holder may receive  shares of common stock
or cash  equal to the  excess of the  market  price of the  common  stock at the
exercise  date  over the  option  price.  SARs may be  exercised  in lieu of the
underlying option only when those options become exercisable.
<PAGE>
--------------------------------------------------------------------------------
46 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


Effective March 31, 1992, NYNEX established stock option plans for nonmanagement
employees and for management  employees other than those eligible to participate
in the 1990 and 1995 Stock Option Plans.  Employees were granted  options,  with
the number of options  varying  according to employee level, to purchase a fixed
number of shares of NYNEX  common  stock at the market price of the stock on the
grant date.  Fifty  percent of the options  could be exercised one year from the
grant date,  with the  remaining  fifty percent  exercisable  two years from the
grant date.  These options expire ten years from the grant date. In October 1994
and January 1996, employees were granted additional options under these plans.

The  following  summarizes  the activity for those shares under option under the
various stock option plans including the related SARs:

                                                                     Price Range
Stock Options                                       Shares             Per Share
--------------------------------------------------------------------------------
Outstanding at December 31, 1992                 9,453,140      $27.60 to $88.13
Granted prior to stock split                       806,891      $70.63 to $88.88
Exercised prior to stock split                    (644,196)     $31.34 to $88.13
Canceled prior to stock split                      (79,473)     $69.13 to $88.13
Stock split                                      9,519,950
Granted after stock split                           16,595      $42.32 to $46.07
Exercised after stock split                       (281,500)     $16.50 to $44.07
Canceled after stock split                        (106,605)     $21.91 to $44.07
SSI net activity*                                  (16,412)     $13.80 to $18.98
--------------------------------------------------------------------------------
Outstanding at December 31, 1993                18,668,390      $13.80 to $46.07
Granted                                         14,724,360      $37.94 to $39.88
Exercised                                         (261,131)     $21.91 to $36.13
Canceled                                          (716,391)     $32.97 to $44.07
--------------------------------------------------------------------------------
Outstanding at December 31, 1994                32,415,228      $24.69 to $46.07
Granted                                          3,169,470      $33.00 to $50.19
Exercised                                       (3,559,057)     $24.69 to $42.66
Canceled                                          (353,216)     $35.32 to $44.07
--------------------------------------------------------------------------------
Outstanding at December 31, 1995                31,672,425      $32.75 to $50.19
--------------------------------------------------------------------------------
                                                      
* NYNEX acquired  Stockholder  Systems,  Inc. ("SSI") in 1990, and SSI employees
  could  exercise SSI options for NYNEX common stock.  SSI was sold in 1994, and
  SSI options are no longer exercisable.

For the year ended December 31,
(Number of shares)                                1995        1994         1993
--------------------------------------------------------------------------------
Stock appreciation rights:
Outstanding at
        beginning of year                        1,864       1,864       29,247
Granted                                             --          --           --
Exercised                                       (1,864)         --       (7,551)
Canceled                                            --          --      (23,571)
Stock split                                         --          --        3,739
--------------------------------------------------------------------------------
Outstanding at end of year                          --       1,864        1,864
--------------------------------------------------------------------------------

There were 20,977,556 and 16,604,260  stock options  exercisable at December 31,
1995 and 1994, respectively.  In January 1996, options to purchase approximately
11 million  shares of common  stock were  granted  under the stock  option plans
established on March 31, 1992, and options to purchase  approximately  5 million
shares of common stock were granted under the 1995 Stock Option Plan.

M. LEASES
---------
NYNEX leases certain  facilities and equipment  used in its  operations.  Rental
expense  was  $381.4,  $310.5  and  $337.0  million  for  1995,  1994 and  1993,
respectively.  At  December  31,  1995,  the  minimum  lease  commitments  under
noncancelable leases for the periods shown are as follows:


(In millions)                                              Operating    Capital
--------------------------------------------------------------------------------
1996                                                         $142.0        $19.7
1997                                                          113.4         15.8
1998                                                          102.8         14.9
1999                                                           86.4         11.5
2000                                                           69.0         11.3
Thereafter                                                    389.7        381.6
--------------------------------------------------------------------------------
Total minimum lease payments                                 $903.3        454.8
Less: executory costs                                            --         11.4
--------------------------------------------------------------------------------
Net minimum lease payments                                       --        443.4
Less: interest                                                   --        370.8
--------------------------------------------------------------------------------
Present value of net minimum lease payments                      --        $72.6
--------------------------------------------------------------------------------

Credit Company is the lessor in leveraged and direct  financing lease agreements
under which commercial  aircraft,  railroad cars,  industrial  equipment,  power
generators,  residential real estate,  telecommunications and computer equipment
are  leased  for  terms of 3 to 35  years.  Minimum  lease  payments  receivable
represent   unpaid   rentals,   less   principal  and  interest  on  third-party
non-recourse debt relating to leveraged lease transactions. Since Credit Company
has no general  liability for this debt, the related principal and interest have
been  offset  against the  minimum  lease  payments  receivable.  Minimum  lease
payments  receivable  are  subordinate  to the debt, and the debt holders have a
security interest in the leased equipment.
<PAGE>
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                     Notes to Consolidated Statements 47
--------------------------------------------------------------------------------


At December 31, 1995 and 1994, the net investment in leveraged leases was $407.7
and $406.7 million,  respectively, and in direct financing leases was $186.1 and
$133.7 million,  respectively. The components of Credit Company's net investment
in these  leases are  included in Deferred  charges and other  assets and are as
follows:

December 31, (In millions)                                 1995           1994 
--------------------------------------------------------------------------------
Minimum  lease  payments  receivable                     $1,826.7       $1,561.2
Unguaranteed residual  value                              1,165.2        1,027.6
Initial  direct costs                                         1.3            1.2
Less: Unearned income                                     1,301.6        1,127.2
      Deferred income taxes                               1,073.5          900.2
      Allowance for uncollectibles                           24.3           22.2
--------------------------------------------------------------------------------
Net investment                                           $  593.8       $  540.4
--------------------------------------------------------------------------------

At December 31, 1995, future minimum lease payments receivable,  in millions, in
excess of debt service  requirements on  non-recourse  debt related to leveraged
and direct financing leases, are collectible as follows: $70.7 in 1996; $70.9 in
1997; $68.0 in 1998; $59.6 in 1999; $44.5 in 2000; and $1,513.0 thereafter.

N. FINANCIAL INSTRUMENTS
------------------------
RISK MANAGEMENT, OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
NYNEX  has   entered   into   transactions   in   financial   instruments   with
off-balance-sheet  risk, to reduce its exposure to market and interest rate risk
in its short-term and long-term securities.  NYNEX entered into various interest
rate, currency,  and basis swap transactions,  with an aggregate notional amount
of $2.9 billion and $2.3 billion at December 31, 1995 and 1994, respectively, to
manage  interest  rate,   foreign  exchange  rate,  and  tax  exposures.   These
transactions mature at various dates from 1995 through 2004.

Risk in these  transactions  involves both risk of  counterparty  nonperformance
under the contract  terms and risk  associated  with  changes in market  values,
interest  rates,  and  foreign  exchange  rates.  The  counterparties  to  these
contracts consist of major financial institutions and organized exchanges. NYNEX
continually  monitors its positions and the credit ratings of its counterparties
and limits  the amount of  contracts  it enters  into with any one party.  While
NYNEX may be exposed to credit  losses in the event of  nonperformance  by these
counterparties,  it does not anticipate such losses,  due to the  aforementioned
control procedures. The settlement of these transactions is not expected to, but
may,  have a material  effect  upon  NYNEX's  financial  position  or results of
operations.

A description  of NYNEX's  financial  instruments  is presented in  Management's
Discussion and Analysis on pages 20-22.

FAIR VALUE OF FINANCIAL  INSTRUMENTS 
The  following  table  presents the carrying  amounts and fair values of NYNEX's
financial  instruments  at December  31, 1995 and 1994.  Statement  of Financial
Accounting  Standards  No.  107,  "Disclosures  about  Fair  Value of  Financial
Instruments,"  defines fair value as the amount at which the instrument could be
exchanged in a current transaction between willing parties,  other than a forced
liquidation or sale.

                                                1995                1994

                                       Carrying     Fair    Carrying     Fair
(In millions)                           Amount     Value     Amount     Value
--------------------------------------------------------------------------------
Non-Derivatives:
Long-term investments:
  Practicable to estimate fair value   $  492.1  $1,055.8  $   492.2  $   990.8
  Not practicable                       1,296.6   1,296.6    1,206.0    1,206.0
Long-term debt                          7,336.3   7,712.9    7,714.6    7,083.5
Derivatives:*
  Assets                                   11.4      18.2       11.8       18.3
  Liabilities                             (36.9)    (50.0)      (7.5)    (100.5)
--------------------------------------------------------------------------------

* The carrying  amounts in the table are included in Deferred  charges and other
  assets,  Other  current  liabilities,  and  Other  long-term  liabilities  and
  deferred credits.


The fair value of the derivative  contracts  includes the remaining  unamortized
costs of foreign exchange hedges, which are ($34.9) and ($43.6) million for 1995
and 1994, respectively.  These values reflect the implicit incremental borrowing
costs  associated  with NYNEX's  overseas  investments in the United Kingdom and
Thailand.  The following  methods and assumptions were used to estimate the fair
value of each type of financial instrument for which estimation was practicable.


LONG-TERM INVESTMENTS
The estimated fair value of some investments accounted for under the cost method
is based on quoted  market  prices for those or similar  investments.  For other
investments for which there are no quoted market prices,  a reasonable  estimate
of fair market value could not be made without incurring  excessive costs. It is
not  practicable to estimate the fair value of NYNEX's  investment in the Viacom
Preferred or NYNEX's  investments in untraded  entities because of the nature of
the investments. Accordingly, the carrying value is presented as the fair value.
<PAGE>
--------------------------------------------------------------------------------
48 Notes to Consolidated Statements                     NYNEX 1995 Annual Report
--------------------------------------------------------------------------------


LONG-TERM DEBT
The estimated  fair value of long-term  debt is based on quoted market prices or
discounted  future cash flows using the weighted average coupon rate and current
interest rates.

DERIVATIVES
The  estimated  fair value of most  derivatives  is based on amounts NYNEX would
receive  or pay  to  terminate  such  agreements  taking  into  account  current
mid-market  rates.  The estimated  fair value of the basis swaps is based on the
amounts NYNEX would pay to replicate such agreements taking into account current
rates.

O. ADDITIONAL FINANCIAL INFORMATION
-----------------------------------

(In millions)                              1995            1994            1993
--------------------------------------------------------------------------------
Taxes other than income:
Property                               $  359.8          $351.9         $ 399.6
Gross receipts                            508.2           495.3           500.1
Payroll-related                            65.9            65.4            65.1
Other                                      81.7            80.6            74.1
--------------------------------------------------------------------------------
Total                                  $1,015.6          $993.2         $1,038.9
--------------------------------------------------------------------------------


December 31, (In millions)                                 1995            1994
--------------------------------------------------------------------------------
Accounts payable:
Trade                                                  $  981.4        $1,146.5
Taxes                                                     118.3            97.9
Compensated absences                                      310.2           305.9
Dividends                                                 255.8           249.9
Payroll                                                   129.5           131.3
Interest                                                  131.8           125.6
Other                                                     975.2           611.1
--------------------------------------------------------------------------------
Total                                                  $2,902.2        $2,668.2
--------------------------------------------------------------------------------
Other current liabilities:
Advance billings and
        customers' deposits                            $  281.5        $  291.3
Deferred income taxes                                       6.3             1.1
Other                                                     295.9           761.1
--------------------------------------------------------------------------------
Total                                                  $  583.7        $1,053.5
--------------------------------------------------------------------------------

Total research and development  costs charged to expense for 1995, 1994 and 1993
were $279.1, $159.7 and $162.8 million, respectively.

In 1995, 1994 and 1993, AT&T Corp. ("AT&T") provided  approximately 14%, 15% and
16%, respectively, of NYNEX's total operating revenues, primarily Network access
revenues and Other  revenues from billing and collection  services  performed by
the telephone subsidiaries for AT&T.

Telesector   Resources  owns  a  one-seventh  interest  in  Bell  Communications
Research,  Inc. ("Bellcore").  Bellcore furnishes technical and support services
to NYNEX relating to exchange  telecommunications  and exchange access services.
For 1995,  1994 and 1993,  NYNEX  recorded  charges of $93.8,  $112.2 and $128.5
million, respectively, in connection with these services.

P. SUPPLEMENTAL CASH FLOW INFORMATION
-------------------------------------
The following  information is provided in accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows":

December 31, (In millions)                              1995      1994      1993
--------------------------------------------------------------------------------
Income tax payments                                 $  478.3    $519.4    $591.8
--------------------------------------------------------------------------------
Interest payments                                   $  740.7    $630.0    $623.6
--------------------------------------------------------------------------------
Non-cash transactions:         
Additions to property,
  plant and equipment
  under capital lease
  obligations                                       $     .3    $ 10.6    $   --
--------------------------------------------------------------------------------
Contribution of certain
  cellular net assets in
  exchange for an
  equity investment in
  Bell Atlantic
  NYNEX Mobile cellular
  partnership (see Note F)                          $  611.6    $   --    $   --
--------------------------------------------------------------------------------
Common Stock issued for                
  dividend reinvestment                
  and stock purchase plan              
  and stock compensation               
  plans                                             $  110.2    $107.1    $ 29.6
--------------------------------------------------------------------------------
Short-term debt classified             
  as Long-term debt                    
  (see Note H)                                      $1,939.4    $   --    $588.6
--------------------------------------------------------------------------------
<PAGE>                                 
--------------------------------------------------------------------------------
NYNEX 1995 Annual Report                    Notes to Consolidated Statements  49
--------------------------------------------------------------------------------


Q. REVENUES SUBJECT TO POSSIBLE REFUND
--------------------------------------
Several state and federal regulatory matters,  including  affiliate  transaction
issues in New York Telephone's 1990 intrastate rate case ($188.0  million),  may
possibly  require  the  refund of a portion  of the  revenues  collected  in the
current and prior periods. As of December 31, 1995, the aggregate amount of such
revenues that was estimated to be subject to possible  refund was  approximately
$260.7 million,  plus related  interest.  The outcome of each pending matter, as
well as the time frame  within  which each will be  resolved,  is not  presently
determinable. 


R. BUSINESS RESTRUCTURING  
-------------------------  
In 1995 and 1994,  $514.1 and $693.5  million,  respectively,  of pretax pension
enhancement  charges were recorded.  These charges are a portion of an estimated
$2.0  billion of pretax  charges to be  recorded  for  pension  enhancements  as
employees leave NYNEX through  retirement  incentives.  The pension  enhancement
charges  were  included  in the  Consolidated  Statements  of Income as Selling,
general and administrative.

In the fourth  quarter of 1993,  $2.1 billion of pretax  business  restructuring
charges were recorded,  primarily related to efforts to redesign  operations and
work force  reductions.  These charges  include:  $1.1 billion for severance and
postretirement  medical costs; $626 million for re-engineering service delivery;
$283  million for sale or  discontinuance  of  information  product and services
businesses;   and  $106  million  for   restructuring   at  other   nontelephone
subsidiaries.  The  restructuring  charges  were  included  in the  Consolidated
Statements  of Income as  follows:  Maintenance  and  support  -- $192  million;
Marketing  and  customer   services  --  $53  million;   Selling,   general  and
administrative -- $1.8 billion; and Other income (expense) - net -- $31 million.


S. LITIGATION AND OTHER CONTINGENCIES   
-------------------------------------   
Various legal  actions and  regulatory  proceedings  are pending that may affect
NYNEX.  While  counsel  cannot give  assurance as to the outcome of any of these
matters,  in the opinion of  Management  based upon the advice of  counsel,  the
ultimate resolution of these matters in future periods is not expected to have a
material effect on NYNEX's  financial  position but could have a material effect
on annual operating results.
<PAGE>
--------------------------------------------------------------------------------
50  Supplementary Information                           NYNEX 1995 Annual Report
--------------------------------------------------------------------------------

SUPPLEMENTARY INFORMATION
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
        For the quarter ended
(In millions, except per share amounts)           March 31,     June 30,   September 30, December 31,
-----------------------------------------------------------------------------------------------------
1995
<S>                                               <C>          <C>           <C>          <C>     
Operating revenues                                $3,354.2     $3,495.6      $3,252.8     $3,304.3
Operating income                                    $573.0       $396.7        $627.9       $494.6
Earnings before extraordinary item                  $250.2       $240.8        $342.9       $235.6
Extraordinary item for the discontinuance      
  of regulatory accounting principles,         
  net of taxes                                    $     --     $(2,919.4)          --     $     --
Net income (loss)                                   $250.2     $(2,678.6)    $  342.9     $  235.6
Earnings per share before
  extraordinary item                              $    .59     $     .56     $    .80     $    .55
Extraordinary item per share                      $     --     $   (6.84)    $     --     $     --
Earnings (loss) per share                         $    .59     $   (6.28)    $    .80     $    .55
Dividends per share                               $    .59     $     .59     $    .59     $    .59
Market price:*
  High                                            $  41.50     $  43.125     $ 48.750     $ 54.000
  Low                                             $  35.87     $  39.375     $ 39.250     $ 46.000
-----------------------------------------------------------------------------------------------------
1994
Operating revenues                                $3,273.3     $ 3,311.6     $3,330.8    $3,390.9
Operating income                                  $  595.5     $   129.2     $  583.0    $  448.5
Net income                                        $  290.6     $     1.2     $  302.5    $  198.3
Earnings per share                                $    .70     $      --     $    .72    $    .47
Dividends per share                               $    .59     $     .59     $    .59    $    .59
Market price:*
  High                                            $ 41.375     $  39.750     $ 39.125    $ 39.750
  Low                                             $ 34.250     $  33.250     $ 35.625    $ 36.250
-----------------------------------------------------------------------------------------------------
</TABLE>
* Market price obtained from the New York Stock Exchange-Composite
  Transactions Index.

  Results  for the first,  second,  third and fourth  quarters  of 1995  include
  $83.8, $165.9, $38.0 and $226.4 million,  respectively,  of pretax charges for
  pension  enhancements,   which  were  reflected  in  operating  expenses.  The
  after-tax effect of these charges was $53.8, $106.2, $23.7 and $143.1 million,
  respectively.

  Results  for  the  second   quarter  of  1995   include  the  effects  of  the
  discontinuance   of   regulatory   accounting   principles,   recorded  as  an
  extraordinary  item (see Note B); a $264.1 million ($155.1 million  after-tax)
  "Gain on sale of stock by subsidiary" related to an initial public offering of
  equity in NYNEX  CableComms  (see Note J); and $210.5 million  ($155.0 million
  after-tax)  of  special  charges  to  meet  various  tax,  benefit  and  legal
  obligations  and  contingencies,  $199.0  million  of which  was  included  in
  operating  expenses and $11.5 million of which was in Other income (expense) -
  net.  Results for the third  quarter of 1995 include a $123.8  million  ($65.8
  million after-tax) net gain resulting primarily from the sale of certain NYNEX
  Mobile assets and actuarial  changes  associated with BANM, and $102.6 million
  ($66.0  million  after-tax)  of special  charges to meet various tax and legal
  obligations and contingencies. The third quarter pretax effect was distributed
  as follows:  a $62.0  million  gain in Other  income  (expense)  - net,  $39.0
  million in operating expenses,  and $1.8 million in interest expense.  Results
  for the fourth  quarter of 1995 include a net $33.8 million of pretax  credits
  in operating  expenses  ($22.0  million  after-tax)  primarily  due to revised
  estimates associated with benefit accruals,  and a $13.7 million ($8.9 million
  after-tax)  reduction in Interest  expense on the revenue set aside as ordered
  by the NYSPSC,  partially  offset by a $15.0 million ($9.7 million  after-tax)
  charge in operating  expenses for a gross  receipts tax settlement and a $17.4
  million  charge in Other  income  (expense)  - net for an  unrealized  mark to
  market valuation adjustment on a financial instrument.

  In the  third  quarter  of  1995,  NYNEX  deconsolidated  certain  assets  and
  liabilities of NYNEX Mobile,  in exchange for an equity  interest in BANM (see
  Note F). For the third and fourth quarters of 1995,  NYNEX's  interest in BANM
  is reported  under the equity  method.  Results for the first  quarter of 1995
  include NYNEX Mobile operating  revenues and operating  expenses of $189.3 and
  $174.5 million,  respectively.  Results for the second quarter of 1995 include
  NYNEX Mobile  operating  revenues and operating  expenses of $210.5 and $161.7
  million, respectively.

  In the third quarter of 1995,  there was a change in the presentation of gross
  receipts taxes that were collected from  customers.  In the first two quarters
  of 1995, these taxes were included in operating revenues and expenses.  In the
  last two quarters, as a result of a tax law change, these taxes were no longer
  required to be collected.

  Results for the second,  third and fourth  quarters  of 1994  include  $449.3,
  $31.2  and  $213.0  million,  respectively,  of  pretax  charges  for  pension
  enhancements, which were reflected in operating expenses. The after-tax effect
  of these charges was $291.5, $20.5 and $140.8 million, respectively.

  Results for the fourth quarter of 1994 include $51.9 million of pretax credits
  to pension and medical  expense  associated with plan amendments and favorable
  plan  experience,  and $30.1  million for research tax credits and federal and
  state tax credits,  partially  offset by a $10.8 mill pretax  charge for costs
  associated  with planned exits from media  communication  ventures.  The total
  pretax effect was distributed as follows: a $41.8 million benefit in operating
  expenses, a $30.1 million benefit in income taxes and a $0.7 million charge in
  Other income  (expense) - net. The after-tax  effect of these net benefits was
  an  increase  in net  income  of $55.9  million,  of which  $1.2  million  was
  applicable to the fourth quarter.  

  For  further  discussion  of these  items,  see  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
<PAGE>
[inside back cover]
<TABLE>
<CAPTION>

<S>                             <C>                              <C>
NYNEX                           NYNEX ASIA                       From outside the continen-             
CORPORATE                       COMMUNICATIONS                   tal United States, call collect   
OFFICERS                        Arthur J. Troy                   on (617) 575-2407.                
                                President                        Hearing-impaired                  
IVAN SEIDENBERG                                                  share owners with access to a     
Chairman and Chief              NYNEX ASSET                      Telecommunications Device         
Executive Officer               MANAGEMENT  COMPANY              for the Deaf (TDD) may            
                                William F. Heitmann              dial 1 (800) 368-0328 toll        
FREDERIC V. SALERNO             President                        free for account information.     
Vice Chairman                                                                                      
Finance & Business              NYNEX CABLECOMMS GROUP           GENERAL INFORMATION:              
Development                     John F. Killian                  If you have questions or          
                                President and Chief              comments regarding                
ALAN Z. SENTER                  Executive Officer                NYNEX, or would like to           
Executive Vice President                                         receive the NYNEX "1995           
and Chief Financial Officer     NYNEX CREDIT COMPANY             Profile and Statistics," addi-    
                                Richard E. Lucey                 tional copies of the Annual       
MORRISON DES. WEBB              President                        Report or the Annual              
Executive Vice President,                                        Report on audiocassette,          
General Counsel and             NYNEX ENTERTAINMENT &            direct your requests to:          
Secretary                       INFORMATION  SERVICES COMPANY                                      
                                Walter I. Rickard                NYNEX Corporation                 
ROBERT T. ANDERSON              President                        Share Owner                       
Vice President                                                   Communications                    
Business Development            NYNEX GLOBAL SYSTEMS             19th Floor                        
                                COMPANY                          1095 Ave. of the Americas         
President                       Daniel C. Petri                  New York, NY 10036                
NYNEX Network Systems           President                                                          
Company                                                          INVESTOR RELATIONS:               
                                NYNEX INFORMATION                Institutional investors,          
JEFFREY A. BOWDEN               RESOURCES COMPANY                financial analysts and port-      
Vice President                  Matthew J. Stover                folio managers should direct      
Strategy & Corporate            President and                    questions to:                     
Assurance                       Chief Executive Officer                                            
                                                                 Allen F. Pattee                   
PETER M. CICCONE                NYNEX SCIENCE &                  Corporate Director                
Vice President                  TECHNOLOGY,  INC.                Investor Relations                
Financial Operations            Casimir S.  Skrzypczak           NYNEX Corporation                 
and Comptroller                 President                        1095 Ave. of the Americas         
                                                                 New York, NY 10036                
JOHN M. CLARKE                  Vice  President                  (212) 730-6350                    
Vice President                  Network & Technology  Planning                                     
Law                                                              (continued on back cover)         
                                NYNEX TRADE FINANCE              
SAUL FISHER                     COMPANY                                
Vice President                  Richard  W.  Frankenheimer             
Law                             President                              
                                                                       
PATRICK F.X. MULHEARN                                                  
Vice  President                 SHARE OWNER                            
Public Relations                INFORMATION                            
                                                                       
DONALD J. SACCO                 CORPORATE HEADQUARTERS:                
Vice President                  NYNEX Corporation                      
Human  Resources                1095 Ave. of the Americas              
                                New York, NY 10036                     
THOMAS J. TAUKE                 (212) 395-2121                         
Vice President                                                         
Government  Affairs             1996 ANNUAL MEETING:                   
                                NYNEX will hold its annual             
COLSON P. TURNER                meeting at the John                    
Vice President and Treasurer    Hancock Hall in Boston,                
                                Mass., on May 1, 1996, at              
President                       10:30 a.m.                             
NYNEX Capital Funding                                                  
Company                         SHARE OWNER SERVICES:                  
                                Let NYNEX Share Owner                  
                                Services help with your                
OFFICERS OF                     account needs:                         
PRINCIPAL                                                              
OPERATING                       DIVIDEND REINVESTMENT                  
GROUPS                          AND STOCK PURCHASE PLAN                
                                (DRISPP): Provides you                 
                                with a convenient way to               
RICHARD W. BLACKBURN            increase your stock holdings     
President and                   at a minimal cost.               
Group Executive                                                  
NYNEX Worldwide                 DIRECT DEPOSIT OF                
Communications &                DIVIDENDS: Deposit your          
Media Group                     dividends via electronic         
                                funds transfer to a desig-       
RICHARD A. JALKUT               nated account at your bank       
President and                   or financial institution.        
Group Executive                                                  
NYNEX                           ODD-LOT SALES PROGRAM:           
Telecommunications              Provides share owners own-       
                                ing less than 100 shares with    
DONALD B. REED                  a convenient way to sell         
President and                   their NYNEX stock at a rea-      
Group Executive                 sonable cost.                    
External Affairs &                                               
Corporate  Communications       Inquiries on these stock-        
                                related matters, as well as      
ARNOLD J. ECKELMAN              dividend payments, stock         
Executive Vice President        transfers and requests for       
and Group Executive             Form 10-K reports for            
Quality Assurance               NYNEX and its telephone          
& Operations Support            subsidiaries, should be          
                                directed to NYNEX's trans-       
JOSEPH C. FARINA                fer agent and registrar, The     
Vice President and              First National Bank of           
Group Executive                 Boston ("Bank of Boston"):       
Process Re-engineering                                           
& Assurance                     NYNEX Corporation                
                                c/o Bank of Boston               
MEL MESKIN                      P.O. Box 9175                    
Vice President                  Boston, MA 02205-9175            
Finance and Treasurer           1 (800) 358-1133                 
NYNEX                           
Telecommunications   
</TABLE>
<PAGE>
[back cover]                
                            
GOVERNMENTAL RELATIONS:         STOCK EXCHANGE LISTINGS:  
NYNEX Government Affairs        Boston Stock Exchange     
Suite 400 West                  Chicago Stock Exchange    
1300 I Street, N.W.             New York Stock Exchange   
Washington, DC 20005            Pacific Stock Exchange    
(202) 336-7900                  Philadelphia Stock        
                                  Exchange                
INDEPENDENT ACCOUNTANTS:        Amsterdam Stock           
Coopers & Lybrand L.L.P.          Exchange                
1301 Ave. of the Americas       Basel Stock Exchange      
New York, NY 10019              Geneva Stock Exchange     
                                The International Stock   
                                  Exchange, London        
                                Zurich Stock Exchange     
                                                          
                                Ticker Symbol: NYN        

--------------------------------------------------------------------------------
NYNEX is fully committed to equal  employment  opportunity for all employees and
applicants for employment.

We  have  a  duty  to  ensure  that  there  is  no  unlawful  discrimination  in
recruitment,  hiring,  termination,  promotions,  salary  treatment or any other
condition of employment or career  development,  and that there is no harassment
of any employee on the basis of race,  color,  religion,  national origin,  sex,
age, marital status, sexual preference or orientation,  disability, or status as
a special disabled veteran or veteran of the Vietnam era.
--------------------------------------------------------------------------------

NYNEX BOARD
OF DIRECTORS

JOHN BRADEMAS
Dr. Brademas is president  emeritus of New York University.  He has been a NYNEX
director  since  1991  and  serves  on  the  Audit   Committee  and  the  Public
Responsibility Committee.

RANDOLPH W. BROMERY
Dr.  Bromery is  president of  Springfield  College and  commonwealth  professor
emeritus of the  University  of  Massachusetts  at  Amherst,  and  president  of
Geoscience Engineering Corporation.  He has been a NYNEX director since 1986 and
serves on the Audit  Committee,  Executive  Committee and Public  Responsibility
Committee.

RICHARD L. CARRION
Mr.  Carrion is  chairman,  president  and chief  executive  officer of BanPonce
Corporation.  He has been a NYNEX  director  since  1995 and is a member  of the
Audit Committee and Committee on Benefits.

LODEWIJK J.R. DE VINK
Mr. de Vink is president and chief operating officer of Warner-Lambert  Company.
A NYNEX director since 1995, he is a member of the Committee on Benefits.

STANLEY P. GOLDSTEIN
Mr. Goldstein is chairman and chief executive  officer of Melville  Corporation.
He was elected to the NYNEX board in 1990 and serves on the Audit  Committee and
the Finance Committee.

HELENE L. KAPLAN
Mrs. Kaplan is of counsel to Skadden,  Arps,  Slate,  Meagher & Flom, a New York
City law firm. She was elected to the NYNEX board in 1990 and is a member of the
Committee on Benefits and the Public Responsibility Committee.

ELIZABETH T. KENNAN
Mrs. Kennan is president  emeritus of Mount Holyoke College and has been a NYNEX
director since 1984.  She serves on the  Nominating and Board Affairs  Committee
and chairs the Audit Committee.

EDWARD E. PHILLIPS
Mr. Phillips is retired  chairman of New England Mutual Life Insurance  Company.
He has served on the NYNEX  board  since  1983 and is a member of the  Executive
Committee  and Finance  Committee  and chairs the  Nominating  and Board Affairs
Committee.

HUGH B. PRICE
Mr. Price is president and chief executive officer of the National Urban League.
Elected to the NYNEX board in 1995,  he is a member of the Audit  Committee  and
the Public Responsibility Committee.

FREDERIC V. SALERNO
Mr. Salerno is vice chairman - Finance and Business Development of NYNEX. He has
been a NYNEX director since 1991 and serves on the Finance Committee.

IVAN SEIDENBERG
Mr.  Seidenberg is chairman and chief executive  officer of NYNEX. He has been a
NYNEX director since 1991 and chairs the Executive Committee.

WALTER V. SHIPLEY
Mr.  Shipley  is  chairman  and chief  executive  officer  of  Chemical  Banking
Corporation.  A NYNEX  board  member  since  1983,  he serves  on the  Executive
Committee  and  Nominating  and Board  Affairs  Committee and chairs the Finance
Committee.

JOHN R. STAFFORD
Mr. Stafford is chairman, president and chief executive officer of American Home
Products  Corporation.  He has been a NYNEX  director since 1989, is a member of
the Finance Committee and chairs the Committee on Benefits.

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