<PAGE>


                      



                                   Exhibit 99b
                               Form 10-K for 1996
                                 File No. 1-8609



                              SECURITIES AND EXCHANGE COMMISSION
                                     Washington, DC 20549


                                           FORM 11-K


                                         ANNUAL REPORT


                               Pursuant to Section 15(d) of the
                                Securities Exchange Act of 1934


                          For the Fiscal Year Ended December 31, 1996


                                 Commission File Number 1-8609


                                          ----------


                                     PACIFIC TELESIS GROUP
              SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN FOR NONSALARIED EMPLOYEES


                                          ----------


                                     PACIFIC TELESIS GROUP



                      130 Kearny Street, San Francisco, California 94108




<PAGE>


                                       TABLE OF CONTENTS

                                          Description

  Item                                                                     Page

  1.  Financial Statements and Exhibits.......................................1


<PAGE>



                                              2

Item 1.    Financial Statements and Exhibits

           (a)  Financial Statements of the Plan included herein:

                Report of Independent Ernst & Young LLP Auditors

                   Financial Statements:

                    Statements of Net Assets  Available for Benefits,  with Fund
                    Information - December 31, 1996 and 1995

                    Statements of Changes in Net Assets  Available for Benefits,
                    with Fund Information For the Years Ended December 31, 1996,
                    1995 and 1994

                    Notes to Financial Statements

                   Schedules:

                    Schedule of Assets Held for Investment Purposes

                    Schedule of Reportable Transactions


           (b)  Exhibits:

                None


<PAGE>


                                REPORT OF INDEPENDENT ERNST & YOUNG LLP AUDITORS

Savings Plans Committee
Pacific Telesis Group Supplemental Retirement
and Savings Plan for Nonsalaried Employees:

We have audited the accompanying  statement of net assets available for benefits
of the Pacific  Telesis  Group  Supplemental  Retirement  and  Savings  Plan for
Nonsalaried  Employees  as of December 31,  1996,  and the related  statement of
changes in net assets  available  for  benefits  for the year then ended.  These
financial  statements  are the  responsibility  of the  Plan's  management.  Our
responsibility  is to express an opinion on the 1996 financial  statements based
on our audit.  The statement of net assets available for benefits as of December
31,  1995 and the  related  statements  of changes in net assets  available  for
benefits  for each of the two years in the period  ended  December 31, 1995 were
audited  by  other  auditors  whose  report  dated  May 17,  1996  expressed  an
unqualified opinion on those statements.

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

In our opinion,  the 1996 financial statements referred to above present fairly,
in all material  respects,  the net assets available for benefits of the Pacific
Telesis Group Supplemental Retirement and Savings Plan for Nonsalaried Employees
at December 31, 1996,  and the changes in net assets  available for benefits for
the year  ended  December  31,  1996,  in  conformity  with  generally  accepted
accounting principles.

Our audit was  performed  for the  purpose  of  forming  an  opinion on the 1996
financial statements taken as a whole. The supplemental schedules of assets held
for investment  purposes as of December 31, 1996 and of reportable  transactions
for the year ended  December  31, 1996 are  presented  for purposes of complying
with  the  Department  of  Labor's  Rules  and  Regulations  for  Reporting  and
Disclosure under the Employee Retirement Income Security Act of 1974 and are not
a required part of the basic financial  statements.  The Fund Information in the
statement of net assets  available  for benefits and the statement of changes in
net assets  available  for  benefits is  presented  for  purposes of  additional
analysis  rather  than to present  the net assets  available  for  benefits  and
changes in net assets  available  for  benefits of each fund.  The  supplemental
schedules and Fund  Information  have been subjected to the auditing  procedures
applied in the audit of the basic 1996 financial statements and, in our opinion,
are  fairly  stated in all  material  respects  in  relation  to the basic  1996
financial statements taken as a whole.

San Jose, California
June 25, 1997


<PAGE>








                                                              12
<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                             STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                                      December 31, 1996
                                                    (Dollars in thousands)
<CAPTION>


                                             Company      AirTouch     Interest      Equity
                                            Stock Fund   Stock Fund  Income Fund      Fund
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Assets:
Investments at fair value:
  Common stock:
   Pacific Telesis Group common shares     $  508,375   $        -     $      -     $      -
   AirTouch Communications, Inc.
     common shares                                  -      207,415            -            -
  Common/commingled trust funds:
   State Street S&P 500 Fund                        -            -            -      140,199
   State Street Long Bond fund                      -            -            -            -
   State Street Money Market Fund                   -            -            -            -
   State Street Balanced Fund                       -            -            -            -
   Short-term Investment Fund                   3,950          335       11,931        1,145
Investments at contract value:
  Contracts with  insurance  companies and          -            -      113,420            -
  banks
                                           ----------------------------------------------------
  Total investments                           512,325      207,750      125,351      141,344
Employee contributions receivable                 242            -            -           99
Dividends and interest receivable               4,368            2          693            2
Receivable for investments sold                     -            -        6,339            -
                                           ----------------------------------------------------
  Total assets                                516,935      207,752      132,383      141,445
                                           ----------------------------------------------------

Liabilities:
Payable for investments purchased                   -            -          694            -
Fees payable                                       64           35           41           24
                                           ----------------------------------------------------
  Total liabilities                                64           35          735           24
                                           ====================================================
Net assets available for benefits          $  516,871   $  207,717     $131,648     $141,421
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                             STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                                      December 31, 1996
                                                    (Dollars in thousands)
<CAPTION>
                                                Money
                                   Bond         Market      Balanced
                                   Fund          Fund         Fund        Other        Total
                               ------------------------------------------------------------------
<S>                            <C>           <C>          <C>          <C>          <C>
Assets:
Investments at fair value:
  Common stock:
   Pacific Telesis Group
     common shares             $        -    $         -    $      -     $      -   $   508,375
   AirTouch Communications,
     Inc. common shares                 -              -           -            -       207,415
  Common/commingled trust
  funds:
   State Street S&P 500 Fund            -              -           -            -       140,199
   State Street Long Bond fund     20,688              -           -            -        20,688
   State Street Money Market            -         50,735           -            -        50,735
   Fund
   State Street Balanced Fund           -              -     112,663            -       112,663
   Short-term Investment Fund         236          1,856         933          543        20,929
Investments at contract value:
  Contracts with insurance
   companies and banks                  -              -           -            -       113,420
                               ------------------------------------------------------------------
  Total investments                20,924         52,591     113,596          543     1,174,424
Employee contributions                 20             77          81            -           519
receivable
Dividends and interest                  -            219           1            4         5,289
receivable
Receivable for investments              -              -           -            -         6,339
sold
                               ------------------------------------------------------------------
  Total assets                     20,944         52,887     113,678          547     1,186,571
                               ------------------------------------------------------------------

Liabilities:
Payable for investments                 -            214           -            -           908
purchased
Fees payable                            3              9          19            -           195
                               ------------------------------------------------------------------
  Total liabilities                     3            223          19            -         1,103
                               ==================================================================
Net assets available for       $   20,941    $    52,664    $113,659     $    547   $ 1,185,468
benefits
                               ==================================================================
<FN>

See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                             STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                                      December 31, 1995
                                                    (Dollars in thousands)
<CAPTION>


                                             Company      AirTouch     Interest      Equity
                                            Stock Fund   Stock Fund  Income Fund      Fund
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Assets:
Investments at fair value,  except for 
contracts  with  insurance  companies and
banks, which are at contract value:
   Pacific Telesis Group common shares     $  460,264   $        -     $      -     $      -
   AirTouch common shares                           -      268,833            -            -
   State Street S&P 500 Fund                        -            -            -      104,551
   State Street Long Bond fund                      -            -            -            -
   State Street Money Market Fund                   -            -            -            -
   State Street Balanced Fund                       -            -            -            -
   Contracts with insurance  companies and          -            -      134,907            -
   banks
   Short-term investments                       9,916        3,936        8,412        2,302
                                           ----------------------------------------------------
     Total investments                        470,180      272,769      143,319      106,853
Employee contributions receivable                 211            -            -          124
Dividends and interest receivable               7,507            5          789            2
Receivable for investments sold                     -            -            -            -
                                           ----------------------------------------------------
     Total assets                             477,898      272,774      144,108      106,979
                                           ----------------------------------------------------

Liabilities:
Fund transfers - net                            3,556          477          255       (2,348)
Payable for investments purchased                   -          518            -            -
Fees payable                                      149          153           94           27
                                           ----------------------------------------------------
     Total liabilities                          3,705        1,148          349       (2,321)
                                           ====================================================
Net assets available for benefits          $  474,193   $  271,626     $143,759     $109,300
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                             STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                                      December 31, 1995
                                                    (Dollars in thousands)
<CAPTION>


                                                           Money
                                               Bond        Market      Balanced
                                               Fund         Fund         Fund        Total
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Assets:
Investments at fair value,  except for
contracts  with  insurance  companies and
banks, which are at contract value:
   Pacific Telesis Group common shares     $        -   $        -     $      -     $460,264
   AirTouch common shares                           -            -            -      268,833
   State Street S&P 500 Fund                        -            -            -      104,551
   State Street Long Bond fund                 20,587            -            -       20,587
   State Street Money Market Fund                   -       43,739            -       43,739
   State Street Balanced Fund                       -            -       97,438       97,438
   Contracts with insurance  companies and          -            -            -      134,907
   banks
   Short-term investments                         570        1,779        2,158       29,073
                                           ----------------------------------------------------
     Total investments                         21,157       45,518       99,596    1,159,392
Employee contributions receivable                  21           91           87          534
Dividends and interest receivable                   -            1            2        8,306
Receivable for investments sold                     -          214            -          214
                                           ----------------------------------------------------
     Total assets                              21,178       45,824       99,685      1,168,446
                                           ----------------------------------------------------

Liabilities:
Fund transfers - net                               (1)        (551)      (1,388)           -
Payable for investments purchased                   -          214            -          732
Fees payable                                        7           14           33          477
                                           ----------------------------------------------------
     Total liabilities                              6         (323)      (1,355)       1,209
                                           ====================================================
Net assets available for benefits          $   21,172   $   46,147     $101,040     $1,167,237
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1996
                                                    (Dollars in thousands)
<CAPTION>


                                             Company      AirTouch     Interest      Equity
                                            Stock Fund   Stock Fund  Income Fund      Fund
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Net assets available for benefits,         $  474,193   $  271,626     $143,759     $109,300
  January 1, 1996

Employee contributions                         36,704            -            -       15,949
Employee rollover contributions                   612            -            -          836

Investment income:
  Dividends on Pacific Telesis Group
   common shares                               20,510            -            -            -
  Interest                                        176           46        8,649           18
  Net appreciation (depreciation) of           42,064      (25,879)           -       25,819
  investments

Interfund transfers, net                           (5)      (7,015)      (2,822)       7,410
                                           ----------------------------------------------------
Total additions (deductions), net             100,061      (32,848)       5,827       50,032

Less: Distributions to participants            56,598       30,672       17,601       17,658
      Fees                                        785          389          337          253
                                           ----------------------------------------------------
Net increase (decrease)                        42,678      (63,909)     (12,110)      32,121
                                           ====================================================
Net assets available for benefits,
  December 31, 1996                        $  516,871   $  207,717     $131,648     $141,421
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1996
                                                    (Dollars in thousands)
<CAPTION>


                                               Money
                                   Bond        Market      Balanced
                                   Fund         Fund         Fund        Other         Total
                               ------------------------------------------------------------------
<S>                            <C>          <C>          <C>          <C>          <C>
Net assets available for
  benefits, January 1, 1996    $   21,172   $    46,147    $101,040     $      -   $ 1,167,237

Employee contributions              3,237        11,726      13,095            -        80,711
Employee rollover                     140           886         983          556         4,013
contributions

Investment income:
  Dividends on Pacific
   Telesis Group common shares          -             -           -            -        20,510
  Interest                              4         2,798          15           18        11,724
  Net appreciation
   (depreciation) of                  791             -      12,741            -        55,536
   investments

Interfund transfers, net           (1,180)        1,111       2,528          (27)            -
                               ------------------------------------------------------------------
Total additions (deductions),       2,992        16,521      29,362          547       172,494
net

Less: Distributions to              3,181         9,906      16,537            -       152,152
participants
      Fees                             43            98         206            -         2,111
                               ------------------------------------------------------------------
Net increase (decrease)              (231)        6,517      12,619          547        18,231
                               ==================================================================
Net assets available for
  benefits, December 31, 1996  $   20,941   $    52,664    $113,659     $    547   $ 1,185,468
                               ==================================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1995
                                                    (Dollars in thousands)
<CAPTION>


                                             Company      AirTouch     Interest      Equity
                                            Stock Fund   Stock Fund  Income Fund      Fund
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Net assets available for benefits,         $  405,620   $  320,503     $153,981     $ 59,163
  January 1, 1995

Employee contributions                         42,834            2            -       10,864

Investment income:
  Dividends on Pacific Telesis Group
   common shares                               30,187            -            -            -
  Interest                                        199           39        9,773           14

Net appreciation (depreciation) of
  investments                                  68,635      (10,420)           -       23,650
  (Note 6)

Transfers of participants' balances, net      (24,025)      (4,969)      (2,686)      19,766
Transfers to/from other plans, net             (1,645)        (360)        (212)       2,966
                                           ----------------------------------------------------
Total additions (deductions), net             116,185      (15,708)       6,875       57,260

Less: Distributions to participants (Note      46,934       32,682       16,926        7,036
2)
      Fees                                        678          487          171           87
                                           ----------------------------------------------------
Net increase (decrease)                        68,573      (48,877)     (10,222)      50,137
                                           ====================================================
Net assets available for benefits,
  December 31, 1995                        $  474,193   $  271,626     $143,759     $109,300
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1995
                                                    (Dollars in thousands)
<CAPTION>


                                               Bond        Money       Balanced
                                               Fund     Market Fund      Fund        Total
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Net assets available for benefits,         $   15,018   $   33,930     $ 71,641     $1,059,856
  January 1, 1995

Employee contributions                          3,188       13,259       11,151       81,298

Investment income:
  Dividends on Pacific Telesis Group
   common shares                                    -            -            -       30,187
  Interest                                          3        2,529           12       12,569

Net appreciation (depreciation) of
  investments                                   2,929            -       18,421      103,215
  (Note 6)

Transfers of participants' balances, net        1,496        3,362        7,056            -
Transfers to/from other plans, net                286          988        2,248        4,271
                                           ----------------------------------------------------
Total additions (deductions), net               7,902       20,138       38,888      231,540

Less: Distributions to participants (Note       1,722        7,869        9,397      122,566
2)
      Fees                                         26           52           92        1,593
                                           ----------------------------------------------------
Net increase (decrease)                         6,154       12,217       29,399      107,381
                                           ====================================================
Net assets available for benefits,
  December 31, 1995                        $   21,172   $   46,147     $101,040     $1,167,237
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1994
                                                    (Dollars in thousands)
<CAPTION>


                                             Company      AirTouch     Interest      Equity
                                            Stock Fund   Stock Fund  Income Fund      Fund
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Net assets available for benefits,         $  644,174   $        -     $161,925     $ 45,531
  January 1, 1994

Employee contributions                         45,058            6            -        9,069

Investment income:
  Dividends on Pacific Telesis Group
   common shares                               28,477            -            -            -
  Interest                                        209           31       10,124            4

Net appreciation (depreciation) of
  investments                                (157,015)     187,202            -        1,056
  (Note 6)

Transfers of participants' balances, net       38,329      (47,353)      (5,314)       5,738
Transfers to/from other plans, net           (154,020)     166,249        1,191        1,519
                                           ----------------------------------------------------
Total additions (deductions), net            (198,962)     306,135        6,001       17,386

Less: Distributions to participants (Note      38,809      (14,977)      13,603        3,630
2)
      Fees                                        783          609          342          124
                                           ----------------------------------------------------
Net increase (decrease)                      (238,554)     320,503       (7,944)      13,632
                                           ====================================================
Net assets available for benefits,
  December 31, 1994                        $  405,620   $  320,503     $153,981     $ 59,163
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>


<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                            SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                       STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                             For the year ended December 31, 1994
                                                    (Dollars in thousands)
<CAPTION>


                                                           Money
                                               Bond        Market      Balanced
                                               Fund         Fund         Fund        Total
                                           ----------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Net assets available for benefits,         $   14,725   $   19,298     $ 56,159     $941,812
  January 1, 1994

Employee contributions                          3,396       13,811       10,312       81,652

Investment income:
  Dividends on Pacific Telesis Group
   common shares                                    -            -            -       28,477
  Interest                                          2        1,030            6       11,406

Net appreciation (depreciation) of
  investments                                    (389)           -          931       31,785
  (Note 6)

Transfers of participants' balances, net       (1,898)       3,061        7,437            -
Transfers to/from other plans, net                334        1,129        1,885       18,287
                                           ----------------------------------------------------
Total additions (deductions), net               1,445       19,031       20,571      171,607

Less: Distributions to participants (Note       1,111        4,332        4,939       51,447
2)
      Fees                                         41           67          150        2,116
                                           ----------------------------------------------------
Net increase (decrease)                           293       14,632       15,482      118,044
                                           ====================================================
Net assets available for benefits,
  December 31, 1994                        $   15,018   $   33,930     $ 71,641     $1,059,856
                                           ====================================================
<FN>


See accompanying notes.
</FN>
</TABLE>


<PAGE>







                                             24
                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1996 and 1995

1.   Plan Description

     The  following  description  of  the  Pacific  Telesis  Group  Supplemental
     Retirement and Savings Plan for Nonsalaried Employees (the "Plan") provides
     only general  information.  Participants  should refer to the Plan document
     for a more comprehensive description of the Plan's provisions.

     A.  General

     The Plan is a defined contribution plan covering all non-salaried employees
     of  Pacific  Telesis  Group  (the   "Corporation")  and  its  participating
     subsidiaries  (the  "Employing  Company")  who have  completed  one year of
     service.  It is subject to the provisions of the Employee Retirement Income
     Security Act of 1974 (ERISA).

     B.  Employee Contributions and Employing Company Matching Allocations

     Employee   Contributions  -  Eligible   employees  may  authorize  a  basic
     contribution  of up to 6% of pay in 1%  increments.  If  the  employee  has
     authorized the maximum basic contribution,  a supplemental contribution may
     also be authorized which, when added to the basic contribution,  results in
     a total  contribution of not more than 16% of the employee's pay. Basic and
     supplemental contributions may be made on an after-tax or before-tax basis,
     as elected by the  employee.  Once each month,  the employee may change the
     rate of  employee  contributions.  The change will be  effective  as of the
     first  payroll  period  ending  in the next  month  provided  the  employee
     requests  the  change at least  five  business  days  before the end of the
     month.

     Employee  contributions  on a  before-tax  basis are  limited  to an annual
     maximum,  adjusted  for  inflation  ($9,500  for 1996,  $9,240 for 1995 and
     $9,240 for 1994).  Wages  eligible for  deductions  is limited to an annual
     maximum, adjusted for inflation ($150,000,  $245,000 and $242,280 for 1996,
     1995 and 1994, respectively).

     Employing  Company  Matching  allocations  - Each  participant  receives  a
     "matching"   allocation   equal  to   66-2/3%  of  the   employee's   basic
     contributions.   A  matching   allocation  is  not  made  with  respect  to
     supplemental  contributions.   The  Plan  and  the  Pacific  Telesis  Group
     Supplemental Retirement and Savings Plan for Salaried Employees incorporate
     a leveraged  employee stock ownership plan called the Pacific Telesis Group
     Supplemental  Retirement  and Savings  Plan for  Salaried  and  Nonsalaried
     Employees   (LESOP)   (the   "LESOP")  to  provide  for  company   matching
     allocations.



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     B.  Employee  Contributions  and  Employing  Company  Matching  Allocations
     (Continued)

     Employing Company matching  contributions made for the periods before March
     1, 1990 were credited to the matching accounts under the Plan.  Thereafter,
     the Employing Company matching contributions are made through the LESOP.

     Transfers  to/from Other Plans - Nonsalaried  employees  with less than one
     year  of  service  may  elect  to roll  over a  distribution  from  another
     qualified  plan to the Plan.  Participants  who  retire and elect a cashout
     from the Pacific  Telesis Group  Pension Plan or the Pacific  Telesis Group
     Pension Plan for Salaried Employees (renamed the Pacific Telesis Group Cash
     Balance  Pension Plan for Salaried  Employees) may roll over the cashout to
     the Plan. The amount rolled over will be credited to the employee's account
     as of the last day of the month in which the rollover was received.

     C.  Investment Directions

     Employees  may direct that their  payroll  deductions be invested in any of
     the following  funds,  in 1% (10% in plan years 1995 and 1994)  increments,
     with elections totaling 100%:

     (a) the Company Stock Fund;
     (b) the Equity Fund;
     (c) the Bond Fund;
     (d) the Money Market Fund;
     (e) the Balanced Fund.

     Net assets  available  for benefits also  includes  assets  invested in the
     Interest Income Fund which was closed to new  contributions  and investment
     transfers in as of December 31, 1992, and the AirTouch Stock Fund described
     below.  The Other account is comprised of amounts  pending  distribution to
     participants and rollover  contributions  pending allocation to the fund as
     directed by the participant.

     Once in any three-month period,  participants can transfer all or a portion
     of their investment in an investment fund to another  permitted  investment
     fund or combination of investment funds. Transfer requests are effective as
     of the last day of a month if the  employee  makes the  request  before the
     close of  business  in the New York Stock  Exchange on the last day of such
     month.  Transfers may be made by telephoning the Participant Service Center
     (PSC).   Participants   may  make  transfers  among  certain  funds  in  1%
     increments. However, participants cannot transfer assets to the LESOP.


<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     C.  Investment Directions (Continued)

     Effective April 1, 1994, AirTouch  Communications,  Inc. ("ATI") (formerly,
     PacTel   Corporation)  and  its  subsidiaries   separated  their  corporate
     affiliation with the Corporation and its other  subsidiaries.  Effective as
     of March 21, 1994,  the record date,  each  shareowner  of Pacific  Telesis
     Group shares became a shareowner of ATI with eligibility to receive one ATI
     share for each share of Pacific Telesis Group.

     The Corporation amended the Plan to add a new investment fund, the AirTouch
     Stock  Fund.   This  fund  consisted   initially  of  the  AirTouch  shares
     attributable  to the shares of Pacific  Telesis  Group held in the  Company
     Stock  Fund and ATI common  shares  transferred  from the  LESOP.  The Plan
     allows  fund  transfers  out of  the  AirTouch  Stock  Fund  to  any  other
     investment  fund option,  except the Interest Income Fund, as of the end of
     any month.  The  once-every-three-months  transfer  limit  described  above
     applies to the other  investment  funds. The AirTouch Stock Fund was closed
     to new contributions and investment transfers in as of April 1, 1994.


     D.  Vesting and Forfeitures

     Employee  deduction  accounts are always  fully vested and  nonforfeitable.
     Employing  Company  matching  accounts (the Plan's matching account and the
     LESOP's Savings Match Stock account) deductions are also fully vested after
     a  participant  either  completes  three years of service or reaches age 65
     while employed.  Employing  Company matching accounts are also fully vested
     upon  termination  of  employment  due to  retirement,  disability,  death,
     termination under certain severance pay plans or termination due to layoff.

     The  nonvested   Employing  Company  matching   accounts   attributable  to
     deductions are forfeited  upon  termination  of  employment.  Generally,  a
     rehired employee may restore any forfeiture  caused by a distribution  upon
     termination  of employment  by making a lump sum payment  within five years
     equal  to  the  portion  of  the  distribution   attributable  to  employee
     deductions and related Employing Company matching allocations.  Forfeitures
     are  automatically  restored if the employee did not receive a distribution
     upon  termination  of  employment  and is  reemployed  within  five  years.
     Forfeitures  from the  LESOP's  Savings  Match Stock  Accounts  are applied
     toward subsequent matching allocations.


<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     E.  Withdrawals and Distributions

     In-Service  Withdrawals - Once in any six-month period, a participant while
     still  employed  may elect to withdraw all or part of his or her account as
     follows:

    o   The  value  of  after-tax  supplemental   deductions,   after-tax  basic
        deductions  made  more  than  two  calendar  years  before  the  year of
        withdrawal,  after-tax and before-tax  vested Employing Company matching
        allocations  made  more  than  two  calendar  years  before  the year of
        withdrawal, and rollover contributions may be withdrawn without penalty.
        After-tax  basic  deductions  made in the current and two preceding plan
        years may be withdrawn only in a total withdrawal of available after-tax
        accounts and before-tax  Employing  Company matching  allocations.  If a
        total withdrawal is made, Employing Company matching allocations will be
        suspended  for  six  months  following  the  withdrawal  date.  However,
        participants  may continue  their own  deductions  during the suspension
        period. A partial withdrawal must be a minimum of $300. Employees do not
        need  to  specify  the  actual  dollar  amount  of  a  total   after-tax
        withdrawal.

    o   In  addition  to the amount  described  above,  the value of  before-tax
        deductions  and  the  value  of  vested   Employing   Company   matching
        allocations  made more than two  calendar  years  before the year of the
        withdrawal may be withdrawn,  in total or in a partial  withdrawal of at
        least $300,  by  employees  who have  attained  age  59-1/2.  Before-tax
        deductions  may not be withdrawn by employees  who have not yet attained
        age  59-1/2  except in the event of a hardship  created by the  purchase
        cost of a primary  residence,  the next  twelve  months of  expenses  of
        post-secondary  education,   eviction  or  foreclosure  on  a  principal
        residence,  unreimbursed medical expenses, and certain federal and state
        income  taxes  attributable  to  post-1992  hardship  withdrawals.   The
        employee must  demonstrate that no other resources are available to meet
        the need, and the reason given and amount  requested must be approved by
        the Savings  Plans  Committee.  A hardship  withdrawal  must be at least
        $300.  Post-1988  earnings on  employee  before-tax  deductions  are not
        available for hardship withdrawal.



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     E.  Withdrawals and Distributions (Continued)

     Distribution  upon  Termination  of  Employment  - A  participant  who  has
     terminated  employment is entitled to a  distribution  of his or her vested
     accounts as follows:

     o   If the employee terminated employment for reasons other than retirement
         (termination   of   employment   after  meeting  the  age  and  service
         requirements  for a service  pension  under the Pacific  Telesis  Group
         Pension  Plan) or  disability,  the  employee  may  elect to  receive a
         distribution  in a single sum payment at any time  between  termination
         and attainment of age 65. However, if the employee's vested account has
         a value of $3,500 or less, the account is distributed  automatically on
         March 31 of the plan  year  following  the year in which  the  employee
         terminated  employment,  provided  the value  continues to be $3,500 or
         less at that date.

     o   If the employee terminates  employment due to retirement or disability,
         the  employee  may elect to  receive  a  distribution  in a single  sum
         payment or in annual  installments over a period of years not to exceed
         the  employee's  life  expectancy,   commencing  at  any  time  between
         termination  of employment  and April 1 following the attainment of age
         70-1/2.   Participants  on  leaves  of  absence  after   expiration  of
         short-term  disability  benefits are treated as though their employment
         has terminated, and they are eligible for a distribution.

     o   An employee who  terminates for any reason may elect to transfer all or
         part of his or her  account,  except for the  amount of the  employee's
         after-tax contributions, installment payments that are part of a series
         that extends over 10 or more years,  and  distributions  required after
         age 70-1/2, from the Plan to another qualified plan or to an Individual
         Retirement Account (IRA), in a trustee to trustee transfer,  in lieu of
         receiving a direct distribution.


<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     E.  Withdrawals and Distributions (Continued)

     Distribution  Upon Death - The designated  beneficiary or  beneficiaries of
     participants  who die before the effective  date of the  distribution  will
     receive the entire amount of the deceased participant's vested accounts, as
     soon as practicable after the participant's death, in a single sum payment,
     or in certain circumstances, in two annual installments.

     Age 70-1/2  Distributions During Employment - Employees who remain employed
     after  attaining  age  70-1/2 in 1996 or a prior  year  will  automatically
     receive distributions in annual installments beginning not later than April
     1 of the following year.

     Form of Payment - Distributions as well as withdrawals are valued as of the
     end of the month in which they are effective. Withdrawals and distributions
     are made in cash, except a participant or beneficiary may choose to receive
     cash or shares  from  amounts  invested  in the  Company  Stock Fund or the
     LESOP.  A  participant  or  beneficiary  may also choose to receive cash or
     shares from amounts invested in the AirTouch Stock Fund.

     F.  Tax Consequences of Participation

     Employees  may  designate  their  basic  and  supplemental   deductions  as
     before-tax or after-tax,  or as a combination of both. The before-tax basic
     and supplemental  deductions are intended as  contributions  under a salary
     deferral arrangement qualified under Section 401(k) of the Internal Revenue
     Code. Under such an arrangement,  the employee's  before-tax deductions are
     considered a reduction in taxable  compensation and are treated as employer
     contributions to the Plan (rather than employee contributions).  Before-tax
     deductions  reduce the employee's W-2  compensation  for federal income tax
     purposes  and for the  income tax  purposes  of  California  and most other
     states.  However,  withdrawals of before-tax  contributions  are subject to
     severe  restrictions while the employee is in-service (see "Withdrawals and
     Distributions").

     Employees  will not have taxable  income as a result of  Employing  Company
     contributions  (including the  employee's  before-tax  deductions  that are
     treated as  employer  contributions  or  allocations)  or  earnings on Plan
     assets  before  the  amounts  are   distributed   from  the  Plan.  When  a
     distribution  is  received  from the Plan other  than in a direct  rollover
     transfer,  it may be partially or fully subject to federal and state income
     taxes  depending  on the extent it  represents  a return of the  employee's
     after-tax  contributions  and on whether the participant  elects to receive
     shares of appreciated stock.



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   Plan Description (Continued)

     F.  Tax Consequences of Participation (Continued)

     In  addition to any  regular  income tax that may be due, a 10%  additional
     federal tax (and a similar  2-1/2%  additional  California  tax)  generally
     applies to the taxable  distributions  received  prior to age 59-1/2 to the
     extent they are not rolled over to another  qualified plan or an IRA. Five-
     or ten-year  averaging may be available in some  circumstances to determine
     the income tax on the taxable portion of a lump sum  distribution  but only
     if no part of the distribution is rolled over.

2.   Summary of Accounting Policies

     Use of Estimates

     The  preparation  of financial  statements  in  accordance  with  generally
     accepted accounting principles requires the use of management's  estimates.
     Actual results could differ from those estimates.

     Investments

     Investments  are carried at their  estimated fair values or contract values
     determined as follows:

     o    Pacific  Telesis Group common shares in the Company Stock Fund and ATI
          common  shares  in the  AirTouch  Stock  Fund are  valued  at the last
          published sales prices at the end of each plan year as reported on the
          composite tape of the New York Stock Exchange.

     o    The Plan's  investments in the Bond Fund, Money Market Fund,  Balanced
          Fund, and Equity Fund are stated at the fair values of the total units
          of participation  held by the Plan in each of these  common/commingled
          trust funds. The fair values of the units of participation held by the
          Plan are  established  by the Plan's  trustee,  and reflect the market
          values of each fund's underlying assets, as reported by the investment
          manager,  State Street Global  Advisors,  a subsidiary of State Street
          Bank  and  Trust.  The  Bond  Fund  invests   primarily  in  long-term
          obligations, including U.S.Government and government agency debts, and
          corporate bonds; the Money Market Fund invests primarily in short-term
          debts of U.S. Government agencies and corporations;  the Balanced Fund
          invests in a predetermined mix of large U.S. and international company
          stocks, high quality bonds, and money market  instruments;  the Equity
          Fund invests primarily in a broad mix of U.S. company common stocks.


<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   Summary of Accounting Policies (Continued)

         Investments (Continued)

    o   The Plan's  investments  in the  Interest  Income Fund are valued at the
        amount  of   contributed   principal  plus   reinvested   interest  less
        distributions.    The   Interest    Income   Fund   invests   in   fully
        benefit-responsive  investment contracts with insurance companies, banks
        or other  financial  institutions,  savings  accounts,  certificates  of
        deposit,  obligations  of the United  States  government or other credit
        worthy  organizations,  commercial  paper,  corporate bond or other debt
        obligations,  as well as other fixed income investments  (subject to any
        guidelines  adopted by the Corporation) which guarantee by agreement the
        repayment  of  principal  plus  interest.  The Plan adopted the American
        Institute of Certified Public Accountants  (AICPA) Statement of Position
        (SOP) 94-4, Reporting of Investment Contracts Held by Health and Welfare
        Benefit Plans and Defined-Contribution  Pension Plans for the year ended
        December   31,   1995.   Under  SOP  94-4,   the  Plan   reports   fully
        benefit-responsive  investment contracts at contract value, which may or
        may not be equal to fair  value and all other  investment  contracts  at
        fair  value.  The Plan  investments  in the  Interest  Income  Fund were
        carried  at  contract  value at  December  31,  1996 and 1995.  The Plan
        investments  in the  Interest  Income Fund were carried at fair value at
        December 31, 1994.  There was no impact to the change in accounting  for
        the Interest Income Fund because at December 31, 1995 and 1994, contract
        value and fair value of such contracts were equivalent.  At December 31,
        1996,  contract  value  approximated  fair  value.  Fair  value has been
        estimated  based on a  discounted  cash  flow  analysis  using a current
        market rate at year end.

        At December 31, 1996,  the crediting  interest rates of the Plan's fully
        benefit-responsive  investment  contracts ranged from 4.98% to 7.55% per
        annum. The average yield for these contracts was 6.3% for 1996.

     o  In accordance with the accounting policy of stating  investments at fair
        value,  net  unrealized  appreciation  (depreciation),  in  addition  to
        realized gains and losses, is included in the net change in appreciation
        (depreciation)  of investments  presented in the accompanying  financial
        statements, where appropriate for the asset being valued.

    o   Dividend income is recorded on the ex-dividend date.  Interest earned on
        investments is recorded on the accrual basis.

     o  Purchases and sales of securities are reflected as of the trade date.

     o  Amounts  allocated  to  accounts  of  participants  who have  elected to
        withdraw  from the Plan  but who  were not paid as of the  year-end  are
        excluded from the Statement of Net Assets Available For Benefits.



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   Summary of Accounting Policies (Continued)

     Benefits Payable

     The  Department  of  Labor  requires  amounts   allocated  to  accounts  of
     participants who have elected to withdraw from the Plan to be reported as a
     liability  on the Form 5500.  The  following  table  reconciles  net assets
     available for benefits between these financial statements and the Form 5500
     as of December 31 (dollars in thousands):

                                                           1996         1995
                                                      --------------------------

     Net assets available for plan benefits per        $ 1,185,468  $ 1,167,237
       financial statements
     Benefits due for participant withdrawal/distribution (19,660)      (34,719)
                                                       =========================
     Net assets available for plan benefits per        $ 1,165,808  $ 1,132,518
     Form 5500                                         =========================

     Similarly,  the  distributions  to  participants  amount  reflected  in the
     statement of changes in net assets  available for benefits is reconciled to
     the Form 5500 as follows (dollars in thousands):

                                                          1996         1995
                                                      --------------------------

     Distributions to participants per 
     financial statements                              $  152,152   $   122,566
     Benefits due:
      Beginning of year                                   (34,719)      (36,555)
      End of year                                          19,660        34,719
                                                      --------------------------
                                                      ==========================
     Distributions to participants per Form 5500        $  137,093   $   120,730
                                                      ==========================



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

3.   Participant Accounts

     Employee  deductions  are  credited  to the  employees'  before  tax  basic
     account,  before tax  supplemental  account,  after-tax  basic  account and
     after-tax supplemental account, as appropriate.

     An  employee's  interest  in  the  accounts  is  represented  by  units  of
     participation  ("Units")  in each  investment  fund in which  the  employee
     participates.  Monthly,  a participant's  account is credited with Units in
     each fund to which the participant's payroll deductions have been directed.
     The number of Units credited is based upon each  respective  fund's current
     Unit value which is determined  as of the end of each month.  A fund's Unit
     value is based upon the value of the underlying assets and will reflect any
     unrealized   appreciation  or  depreciation  of  the  fund's  assets.   The
     determination of the end of month Unit values also results in an allocation
     to the  participant's  account  of a  proportionate  share  of the  monthly
     earnings  (or losses) of each fund based upon the extent of the  employee's
     participation  (number of Units held)  relative to the number of Units held
     by all participants in the respective fund.

     During 1996, the Plan discontinued  reporting the number and value of units
to participants.

     The number and value of Units at December 31,1995 were as follows:

                                                        Number of      Value Per
                                                           Units           Unit
                                                    -------------  -------------
                                                     (In Thousands)
                                                              

     Company Stock Fund                                 100,687     $     4.5707
     AirTouch Stock Fund                                 79,236     $     3.3284
     Equity Fund                                         69,579     $     1.5232
     Interest Income Fund                                28,332     $     4.9375
     Bond Fund                                           16,404     $     1.2531
     Money Market Fund                                   38,667     $     1.1424
     Balanced Fund                                       68,634     $     1.4276



<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)
<TABLE>

4.   Participation by Investment Direction

    The number of employees contributing to the Plan as of December 31, 1996 and
    1995 by each investment direction were as
     follows:
<CAPTION>

                                                                          December 31
                                                                       1996         1995
                                                                   --------------------------
<S>                                                                    <C>         <C>    

     Entirely in the Company Stock Fund                                8,571        8,385
     Entirely in the Equity Fund                                         794          686
     Entirely in the Bond Fund                                            66           68
     Entirely in the Money Market Fund                                 2,764        2,615
     Entirely in the Balanced Fund                                       732          768
     Increments totaling 100% in the Company Stock Fund and
      the Equity Fund                                                  1,279        1,039
     Increments totaling 100% in the Company Stock Fund and
      the Money Market Fund                                            4,235        3,870
     Increments totaling 100% in the Company Stock Fund and
      the Bond Fund                                                      157          186
     Increments totaling 100% in the Company Stock Fund and
      the Balanced Fund                                                  969        1,010
     Increments totaling 100% in the Equity Fund and
      the Money Market Fund                                              121          109
     Increments totaling 100% in the Equity Fund and
      the Bond Fund                                                      187          205
     Increments totaling 100% in the Equity Fund and
      the Balanced Fund                                                1,784        1,567
     Increments totaling 100% in the Money Market Fund and
      the Bond Fund                                                       53           54
     Increments totaling 100% in the Money Market Fund and
      the Balanced Fund                                                  142          142
     Increments totaling 100% in the Bond Fund and
      the Balanced Fund                                                   81           97
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund and Money Market Fund                              241          204
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund and the Bond Fund                                  257          296
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund and the Balanced Fund                            2,044        1,809
</TABLE>


<PAGE>


                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)
<TABLE>

4.   Participation by Investment Direction (Continued)
<CAPTION>

                                                                          December 31
                                                                       1996         1995
                                                                   --------------------------
<S>                                                                    <C>           <C>    

     Increments totaling 100% in the Company Stock Fund,
      the Money Market Fund and the Bond Fund                            109          117
     Increments totaling 100% in the Company Stock Fund,
      the Money Market Fund and the Balanced Fund                        216          214
     Increments totaling 100% in the Company Stock Fund,
      the Bond Fund and the Balanced Fund                                166          175
     Increments totaling 100% in the Equity Fund,
      the Money Market Fund and the Bond Fund                             76           88
     Increments totaling 100% in the Equity Fund,
      the Money Market Fund and the Balanced Fund                        219          221
     Increments totaling 100% in the Equity Fund,
      the Bond Fund and the Balanced Fund                                536          579
     Increments totaling 100% in the Money Market Fund,
      the Bond Fund and the Balanced Fund                                 56           65
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund, the Money Market Fund and the Bond                125          129
      Fund
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund, the Money Market Fund and the Balanced Fund       368          320
     Increments totaling 100% in the Company Stock Fund,
      the Equity Fund, the Bond Fund and the Balanced Fund               761          738
     Increments totaling 100% in the Company Stock Fund,
      the Money Market Fund, the Bond Fund and the Balanced Fund          65           59
     Increments totaling 100% in the Equity Fund,
      the Money Market Fund, the Bond Fund and the Balanced Fund         303          332
     Increments totaling 100% in the Company Stock Fund, the
      Equity Fund,                                                     1,254        1,136
      the Money Market Fund, the Bond Fund and the Balanced Fund
                                                                   ==========================
     Total employees contributing                                     28,731       27,283
                                                                   ==========================
</TABLE>

5.   Tax Status

     The Internal Revenue Service has determined and informed the Corporation by
     a letter dated May 16, 1996,  that the Plan, and related Trust are designed
     in accordance  with applicable  sections of the Internal  Revenue Code (the
     "Code").  The Plan has  been  amended  since  receiving  the  determination
     letter.  However, the Plan administrator believes that the Plan is designed
     and currently being operated in compliance with the applicable requirements
     of the Code.


<PAGE>


                                                                           





                                                             26
<TABLE>
                                     PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                               NOTES TO FINANCIAL STATEMENTS
                                                        (CONTINUED)

6.   Net Appreciation (Depreciation) of Investments

     During  the  years  ended  December  31,  1996,  1995  and  1994,  the  net
     appreciation (depreciation) of investments, including both net realized and
     unrealized amounts, was as follows (dollars in thousands):

<CAPTION>

                                                     Company      AirTouch     Interest
                                                      Stock        Stock        Income
                                                       Fund         Fund         Fund
                                                   ----------------------------------------
     <S>                                           <C>          <C>          <C>
     1996

     Common stock                                  $   42,064   $  (25,879)  $         -
     Bank common and commingled trust funds                 -            -             -
     Insurance contracts                                    -            -             -
                                                   ========================================
     Net appreciation (depreciation)               $   42,064   $  (25,879)  $         -
                                                   ========================================

     1995

     Common stock                                  $   68,635   $  (10,420)  $         -
     Bank common and commingled trust funds                 -            -             -
     Insurance contracts                                    -            -             -
                                                   ========================================
     Net appreciation (depreciation)               $   68,635   $  (10,420)  $         -
                                                   ========================================

     1994

     Common stock                                  $ (157,015)  $  187,202   $         -
     Bank common and commingled trust funds                 -            -             -
     Insurance contracts                                    -            -             -
                                                   ========================================
     Net appreciation (depreciation)               $ (157,015)  $  187,202   $         -
                                                   ========================================

</TABLE>


<PAGE>


<TABLE>
                                     PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                               NOTES TO FINANCIAL STATEMENTS
                                                        (CONTINUED)

6.   Net Appreciation (Depreciation) of Investments

     During  the  years  ended  December  31,  1996,  1995  and  1994,  the  net
     appreciation (depreciation) of investments, including both net realized and
     unrealized amounts, was as follows (dollars in thousands):

<CAPTION>

                                                         Money
                              Equity        Bond        Market       Balanced
                               Fund         Fund         Fund          Fund        Total
                           ------------------------------------------------------------------
<S>                        <C>          <C>          <C>           <C>          <C>
1996

Common stock               $         -  $        -   $         -   $        -   $    16,185
Bank common and
  commingled trust funds        25,819         791             -       12,741        39,351
Insurance contracts                  -           -             -            -             -
                           ==================================================================
Net appreciation           $    25,819  $      791   $         -   $   12,741   $    55,536
(depreciation)
                           ==================================================================

1995

Common stock               $         -  $        -   $         -   $        -   $    58,215
Bank common and
  commingled trust funds        23,650       2,929             -       18,421        45,000
Insurance contracts                  -           -             -            -             -
                           ==================================================================
Net appreciation           $    23,650  $    2,929   $         -   $   18,421   $   103,215
(depreciation)
                           ==================================================================

1994

Common stock               $         -  $        -   $         -   $        -   $    30,187
Bank common and
  commingled trust funds         1,056        (389)            -          931         1,598
Insurance contracts                  -           -             -            -             -
                           ==================================================================
Net appreciation           $     1,056  $     (389)  $         -   $      931   $    31,785
(depreciation)
                           ==================================================================


</TABLE>


<PAGE>






                                       31
                PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                     SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

7.   Plan Termination

     The  Corporation,  by  action of the  Board of  Directors,  may at any time
     terminate the making of deductions from pay of all participating  employees
     and of contributions by the Employing  Company in connection with the Plan.
     If at any time the current or accumulated profits of the Corporation and of
     the  subsidiaries of the Corporation  which are joined (or could be joined)
     with it in a  consolidated  federal  income tax  return  shall be less than
     twice the combined contributions of all such companies under the LESOP, the
     Pacific Telesis Group Supplemental Retirement and Savings Plan for Salaried
     Employees and the Pacific Telesis Group Supplemental Retirement and Savings
     Plan for Nonsalaried Employees since the preceding January 1, the making of
     deductions  from salaries and wages of all  participating  employees in the
     Plan and of contributions by the Employing Company shall be terminated.  No
     termination  shall have the effect of  diverting  the  amounts  held by the
     Trustee for purposes other than as provided in the Plan.

8.   LESOP Provisions of the Plan

     See note to financial  statements of the Pacific Telesis Group Supplemental
     Retirement and Savings Plan for Salaried and Nonsalaried Employees (LESOP).

9.   Related Party Transactions

     Trustee fees, other than fees attributable to the LESOP Savings Match Stock
     accounts,  are charged to the  applicable  Plan fund or prorated  among all
     Plan funds, except the LESOP fund, as appropriate. Investment manager fees,
     fees charged by financial institutions in connection with the investment of
     any funds under the Plan, and certain administrative fees applicable to the
     Plan are charged to the applicable Plan fund(s).  Brokerage fees,  transfer
     taxes and other expenses incident to the purchase or sale of securities are
     considered  part of the cost of the  securities or a reduction in the sales
     price.  Trustee  fees and certain  administrative  fees with respect to the
     LESOP are paid by the Employing Company.

10.  Subsequent Event

     On April 1, 1997, the Corporation  became a wholly-owned  subsidiary of SBC
     Communications  Inc.  (SBC).  Each share of common stock of the Corporation
     was  exchanged  for 0.73145 of a share of SBC common  stock.  The shares of
     stock of the Corporation held under the Plan in the Company Stock Fund were
     also exchanged.



<PAGE>

<TABLE>

                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                 LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
                                                      December 31, 1996
                                         (Dollars and shares or units in thousands)
<CAPTION>

                                        (c) Description of
                                       Investment Including
                                          Maturity Date,
          (b) Identity of Issue,        Rate of Interest,                       (e) Current
(a)    Borrower, Lessor or Similar      Collateral, Par or        (d) Cost         Value
                  Party                   Maturity Value
-----  ----------------------------- -------------------------  --------------  -------------
<S>    <C>                          <C>                         <C>             <C>    

 *     Pacific Telesis Group         13,833 common shares       $   336,440     $   508,375
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                3,950           3,950
                                                                --------------
                                                                                =============
                                                                $   340,390     $   512,325
                                                                ==============  =============

 *     AirTouch Communications,      8,214 common shares        $   119,150     $   207,415
       Inc.
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                  335             335
                                                                ==============  =============
                                                                $   119,485     $   207,750
                                                                ==============  =============

 *     State Street                  S&P 500 Fund - 1,174
                                       common/commingled
                                       Trust shares             $    88,384     $   140,199
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                1,145           1,145
                                                                ==============  =============
                                                                $    89,529     $   141,344
                                                                ==============  =============

 *     State Street                  Bond Fund - 1,506
                                       common/commingled
                                       Trust shares             $    17,105     $    20,688
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                  236             236
                                                                ==============  =============
                                                                $    17,341     $    20,924
                                                                ==============  =============

 *     State Street                  Money Market Fund          $    50,735     $    50,735
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                1,856           1,856
                                                                ==============  =============
                                                                $    52,591     $    50,735
                                                                ==============  =============

</TABLE>


<PAGE>

<TABLE>

                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                    LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
                                                         (CONTINUED)
                                                      December 31, 1996
                                         (Dollars and shares or units in thousands)
<CAPTION>

                                        (c) Description of
                                       Investment Including
                                          Maturity Date,
          (b) Identity of Issue,        Rate of Interest,                       (e) Current
(a)    Borrower, Lessor or Similar      Collateral, Par or        (d) Cost         Value
                  Party                   Maturity Value
-----  ----------------------------- -------------------------  --------------  -------------
<S>    <C>                            <C>                       <C>             <C>    

 *     State Street                  Balanced Fund - 6,678
                                       Common/Commingled
                                       Trust shares             $    78,479     $   112,663
 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund                  933             933
                                                                --------------
                                                                                =============
                                                                $    79,412     $   113,596
                                                                ==============  =============

 *     Northern Trust Collective
         Short-Term Investment Fund  Money Market Fund          $       543     $       543
                                                                ==============  =============
                                                                $       543     $       543
                                                                ==============  =============


</TABLE>

<PAGE>
<TABLE>


                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                    LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
                                                         (CONTINUED)
                                                      December 31, 1996
                                          (Dollars and share or units in thousands)
<CAPTION>

                                       (c) Description of
                                      Investment Including
                                         Maturity Date,
       (b) Identity of Issue,           Rate of Interest,                       (e) Current
(a)      Borrower, Lessor or           Collateral, Par or          (d) Cost        Value
            Similar Party                Maturity Value
----  --------------------------  ------------------------------ -------------- -------------
<S>   <C>                         <C>                            <C>            <C> 

Contracts with insurance companies and banks:

      American Int. Life          $10,500 principal amount,
                                    6.67% due June 30, 1997      $     5,075    $     5,075

      Allstate                    $10,000 principal amount,
                                    6.80% due July 5, 2000             6,027          6,027

      Cigna                       $6,500 principal amount,
                                    6.00% due                          5,623          5,623
                                     December 31, 1999
      Citibank                    $14,400 principal amount,
                                    4.98% due December 31, 1989        8,801          8,801

      CNA                         $9,300 principal amount,
                                    6.75% due June 30, 1999            8,401          8,401

      CNA                         $12,005 principal amount,
                                    6.02% due June 30, 1999           11,246         11,246

      Jackson National            $7,750 principal amount,
                                    6.80% due June 30, 1999            7,108          7,108

      Life of Georgia             $10,500 principal amount,
                                    7.01% due December 31, 1997        5,711          5,711

      Met Life                    $13,000 principal amount,
                                    7.25% due December 31, 1997        8,672          8,672

      New York Life               $7,750 principal amount,
                                    6.72% due June 30, 2001            7,106          7,106

</TABLE>


<PAGE>

<TABLE>

                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                 LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
                                                         (CONTINUED)
                                                      December 31, 1996
                                          (Dollars and share or units in thousands)
<CAPTION>

                                        (c) Description of
                                       Investment Including
                                          Maturity Date,
         (b) Identity of Issue,          Rate of Interest,                      (e) Current
(a)       Borrower, Lessor or           Collateral, Par or          (d) Cost       Value
             Similar Party                Maturity Value
-----  ---------------------------  ----------------------------  ------------- -------------
<S>     <C>                         <C>                           <C>           <C>    

Contracts with insurance companies and banks (continued):

       Principal                    $9,572 principal amount,
                                      5.58% due December 31,      $     5,616   $    5,616
                                      1998
       Provident                    $11,000 principal amount,
                                      6.60% due January 2, 1998         5,500        5,500

       Prudential                   $16,500 principal amount,
                                      7.55% due June 30, 1999          14,303        14,303

       Lotsoff                      $17,608 principal amount,
                                      5.24% due June 30, 2000
                                      (Synthetic Contract)             13,968        13,968

       Security Life of Denver      Wrapper for Lotsoff
                                      Synthetic Contract                  264           264
                                                                  ------------- -------------
Total contracts with insurance companies and banks                $   113,420   $   113,420
                                                                  ---------------------------

 *     Northern Trust Collective
         Short-Term Investment      Money Market Fund             $    11,931   $    11,931
         Fund
                                                                  ------------- -------------
                                                                      125,351       125,351
                                                                  ------------- -------------
Grand total                                                       $   824,642   $ 1,174,424
                                                                  ============= =============
<FN>

*  Party-in-interest to the Plan.
</FN>
</TABLE>



<PAGE>


                                                                      





                                                                32
<TABLE>
                                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                                           SAVINGS PLAN FOR NONSALARIED EMPLOYEES
                                       LINE 27d   -   SCHEDULE   OF   REPORTABLE
                                            TRANSACTIONS   For  the  Year  Ended
                                                       December 31, 1996
                                                   (Dollars in thousands)
<CAPTION>

                                                                       (h)
                            --------  ---------  ---------  ---------  Current    ---------
                                                                       Value of
    (a)           (b)                                                  Asset on
Identity of   Description   Number    (c)        (d)        (g) Cost   Transaction(i) Net
   Party       of Asset     of        Purchase   Selling    of Asset     Date     Gain/(Loss)
  Involved                  TransactionsPrice      Price
------------- ------------
<S>           <S>           <C>       <C>        <C>        <C>        <C>        <C>
-------------
Pacific       Pacific
  Telesis       Telesis
  Group         Group           41    $ 62,653      N/A     $ 62,653   $ 62,653      N/A
                common
                shares
-------------
Pacific       Pacific
  Telesis       Telesis
  Group         Group           23       N/A     $ 56,606     41,701     56,606   $ 14,905
                common
                shares
-------------
Northern      Collective
  Trust         Short-Term
                Investment
                Fund -
                Money
                Market         295     167,101      N/A      167,101    167,101      N/A
                Instruments
-------------
Northern      Collective
  Trust         Short-Term
                Investment
                Fund -
                Money
                Market         331       N/A      146,172    146,172    146,172          -
                Instruments
</TABLE>


<PAGE>


                                           







                                             33




                                           SIGNATURE



   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
   Savings  Plans  Committee  has duly caused this annual report to be signed by
   the undersigned thereunto duly authorized.





        PACIFIC  TELESIS  GROUP  SUPPLEMENTAL  RETIREMENT  AND SAVINGS  PLAN FOR
        NONSALARIED EMPLOYEES
                                

                                       By Savings Plans Committee



                                       By:/s/ R. P. McGahan

                                          R. P. McGahan
                                          Member of the Committee






   Dated:  June 30, 1997


<PAGE>