<PAGE>


                                            



                                   Exhibit 99a
                               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 SALARIED 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 Ernst & Young LLP Independent 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 ERNST & YOUNG LLP INDEPENDENT AUDITORS

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

We have audited the accompanying  statement of net assets available for benefits
of the Pacific  Telesis  Group  Supplemental  Retirement  and  Savings  Plan for
Salaried 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 Salaried Employees as
of December 31, 1996,  and the changes in net assets  available for benefits for
the  year  then  ended,  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 our 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>


                                                                            





<TABLE>


                                            10
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED EMPLOYEES
           STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                    December 31, 1996
                                  (Dollars in thousands)
<CAPTION>

                                  Company    AirTouch                Interest
                                   Stock       Stock      Equity      Income       Bond
                                   Fund        Fund        Fund        Fund        Fund
                                -----------------------------------------------------------
                                <C>         <C>         <C>         <C>        <C>
<S>
Assets:
Investments at fair value:
  Common stock:
   Pacific Telesis Group
     common shares              $ 413,673   $        -  $       -  $        -  $        -
   AirTouch Communications,
   Inc.                                 -     203,338           -           -           -
     common shares
  Common/commingled trust
  funds:
   State Street S&P 500 Fund            -           -     544,706           -           -
   State Street Long Bond Fund          -           -           -           -      36,465
   State Street Money Market            -           -           -           -           -
   Fund
   State Street Balanced Fund           -           -           -           -           -
   Short-term Investment Fund       1,514         444         143      20,528          23
Investments at contract value:
  Contracts with insurance
   companies and banks                  -           -           -     192,313           -
                                -----------------------------------------------------------
  Total Investments               415,187     203,782     544,849     212,841      36,488

Employee contributions              1,304           -       1,892           -         177
receivable
Dividends and interest              3,556           2           3       1,123           -
receivable
Receivable for investments sold         -           -           -       1,742           -
                                -----------------------------------------------------------
  Total Assets                    420,047     203,784     546,744     215,706      36,665
                                -----------------------------------------------------------

Liabilities:
Payable for investments                 -           -           -           -           -
   purchased
Fees payable                           30          14          60          39           5
                                -----------------------------------------------------------
  Total Liabilities                    30          14          60          39           5
                                ===========================================================
Net assets available for        $ 420,017   $ 203,770   $ 546,684   $ 215,667   $  36,660
   benefits
                                ===========================================================


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


<PAGE>
<TABLE>


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

                                               Money
                                              Market     Balanced
                                               Fund        Fund        Other        Total
                                            --------------------------------------------------
                                            <C>         <C>         <C>          <C>
<S>
Assets:
Investments at fair value:
  Common stock:
   Pacific Telesis Group common shares      $        -  $        -  $        -  $   413,673
   AirTouch Communications, Inc.
     common shares                                  -           -           -       203,338
  Common/commingled trust funds:
   State Street S&P 500 Fund                        -           -           -       544,706
   State Street Long Bond Fund                      -           -           -        36,465
   State Street Money Market Fund              83,494           -           -        83,494
   State Street Balanced Fund                       -     297,767           -       297,767
   Short-term Investment Fund                   1,418          92       6,834        30,996
Investments at contract value:
  Contracts with insurance companies and            -           -           -       192,313
  banks
                                            --------------------------------------------------
  Total Investments                            84,912     297,859       6,834     1,802,752

Employee contributions receivable                 434       1,134           -         4,941
Dividends and interest receivable                 354           2          30         5,070
Receivable for investments sold                     -           -           -         1,742
                                            --------------------------------------------------
  Total Assets                                 85,700     298,995       6,864     1,814,505
                                            --------------------------------------------------

Liabilities:
Payable for investments purchased                 349           -           -           349
Fees payable                                       12          39           -           199
                                            --------------------------------------------------
  Total Liabilities                               361          39           -           548
                                            ==================================================
Net assets available for benefits           $  85,339   $ 298,956   $   6,864   $ 1,813,957
                                            ==================================================


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


<PAGE>


<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED EMPLOYEES
           STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
                                    December 31, 1995
                                  (Dollars in thousands)
<CAPTION>
                                  Company    AirTouch                Interest
                                   Stock       Stock      Equity      Income       Bond
                                   Fund        Fund        Fund        Fund        Fund
                                ------------------------------------------------------------
                                 <C>         <C>         <C>         <C>         <C>
<S>
Assets:
Investments at fair value,
  except for contracts with
  insurance companies and
  banks, which are at contract
  value:
   Pacific Telesis Group
     common shares              $ 385,356   $        -  $        -  $        -  $        -
   AirTouch shares                      -     263,152           -           -           -
   State Street S&P 500 Fund            -           -     443,957           -           -
   State Street Long Bond Fund          -           -           -           -      38,379
   State Street Money Market
      Fund                              -           -           -           -           -
   State Street Balanced Fund           -           -           -           -           -
   Contracts with insurance
     companies and banks                -           -           -     215,161           -
   Short-term investments           4,831       1,643       2,274      14,490         220
                                ------------------------------------------------------------
     Total Investments            390,187     264,795     446,231     229,651      38,599

Employee contributions              1,308           -       1,625           -         195
   receivable
Dividends and interest              6,285           4           1       1,262           -
   receivable
Receivable for investments sold        24           -           -           -           -
                                ------------------------------------------------------------
  Total Assets                    397,804     264,799     447,857     230,913      38,794
                                ------------------------------------------------------------

Liabilities:
Fund transfers - net                2,884         375      (2,479)        695        (135)
Payable for investments                 -           -          19           -           -
   purchased
Fees payable                           67          56          97          74          10
                                ------------------------------------------------------------
  Total Liabilities                 2,951         431      (2,363)        769        (125)
                                ============================================================
Net assets available for        $ 394,853   $ 264,368   $ 450,220   $ 230,144   $  38,919
   benefits
                                ============================================================

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


<PAGE>


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

                                               Money
                                              Market     Balanced
                                               Fund        Fund        Total
                                            ------------------------------------
                                            <C>         <C>         <C>
<S>
Assets:
Investments at fair value,  except for contracts  with  insurance  companies and
  banks, which are at contract value:
   Pacific Telesis Group common shares      $       -   $       -   $ 385,356
   AirTouch shares                                  -           -     263,152
   State Street S&P 500 Fund                        -           -     443,957
   State Street Long Bond Fund                      -           -      38,379
   State Street Money Market Fund              74,605           -      74,605
   State Street Balanced Fund                       -     265,009     265,009
   Contracts with insurance companies and           -           -     215,161
   banks
   Short-term investments                       1,272       1,404      26,134
                                            ------------------------------------
     Total Investments                         75,877     266,413   1,711,753

Employee contributions receivable                 486       1,091       4,705
Dividends and interest receivable                   1           1       7,554
Receivable for investments sold                   366           -         390
                                            ------------------------------------
  Total Assets                                 76,730     267,505   1,724,402
                                            ------------------------------------

Liabilities:
Fund transfers - net                             (310)     (1,030)          -
Payable for investments purchased                 366           5         390
Fees payable                                       19          64         387
                                            ------------------------------------
  Total Liabilities                                75        (961)        777
                                            ====================================
Net assets available for benefits           $  76,655   $ 268,466   $ 1,723,625
                                            ====================================

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


<PAGE>


<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED 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
                                   Stock       Stock      Equity      Income       Bond
                                   Fund        Fund        Fund        Fund        Fund
                                ------------------------------------------------------------
                                <C>         <C>         <C>         <C>         <C>
<S>
Net assets available for
   benefits, January 1, 1996    $ 394,853   $ 264,368   $ 450,220   $ 230,144   $  38,919
                                ------------------------------------------------------------
Employee contributions             19,124           -      23,950           -       2,564
Employee rollover contributions       603           -       2,629           -         138

Investment income:
   Dividends on Pacific
     Telesis Group common          17,108           -           -           -           -
     shares
   Interest                           131          32          16      14,146           1
   Net appreciation
    (depreciation) of              33,309     (26,580)    103,289           -       1,359
    investments

Interfund transfers, net           (7,966)    (11,083)     11,143      (8,415)     (1,325)
                                ------------------------------------------------------------
Total additions (deductions),      62,309     (37,631)    141,027       5,731       2,737
   net
Less: Distributions to             36,916      22,831      44,181      19,875       4,964
   participants
     Fees                             229         136         382         333          32
                                ------------------------------------------------------------
                                ------------------------------------------------------------
Net increase (decrease)            25,164     (60,598)     96,464     (14,477)     (2,259)
                                ============================================================
Net assets available for
   benefits, December 31, 1996  $ 420,017   $ 203,770   $ 546,684   $ 215,667   $  36,660
                                ============================================================

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


<PAGE>


<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED 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
                                  Market     Balanced
                                   Fund        Fund        Other        Total
                                --------------------------------------------------
                                <C>         <C>         <C>          <C>
<S>
Net assets available for
   benefits, January 1, 1996    $  76,655   $ 268,466   $       -   $ 1,723,625
                                --------------------------------------------------
Employee contributions              5,651      15,271   $     711        67,271
Employee rollover contributions     1,935       2,337       5,614        13,256

Investment income:
   Dividends on Pacific
     Telesis Group common               -           -           -        17,108
     shares
   Interest                         4,016          13          69        18,424
   Net appreciation
    (depreciation) of                   -      33,694           -       145,071
    investments

Interfund transfers, net           11,060       8,872      (2,286)            -
                                --------------------------------------------------
Total additions (deductions),      22,662      60,187       4,108       261,130
   net
Less: Distributions to             13,918      29,485      (2,756)      169,414
   participants
     Fees                              60         212           -         1,384
                                --------------------------------------------------
                                --------------------------------------------------
Net increase (decrease)             8,684      30,490       6,864        90,332
                                ==================================================
Net assets available for
   benefits, December 31, 1996  $  85,339   $ 298,956   $   6,864   $ 1,813,957
                                ==================================================

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


<PAGE>


<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED 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
                                   Stock       Stock      Equity      Income       Bond
                                   Fund        Fund        Fund        Fund        Fund
                                ------------------------------------------------------------
                                <C>         <C>         <C>         <C>         <C>
<S>
Net assets available for
   benefits, January 1, 1995    $ 343,642   $ 299,797   $ 308,572   $ 237,772   $  30,252
                                ------------------------------------------------------------
Employee contributions             20,421          36      21,912           -       2,541

Investment income:
   Dividends on Pacific
     Telesis Group common          25,600           -           -           -           -
     shares
   Interest                           148          39          22      15,522           3

Net appreciation
   (depreciation) of               57,927      (9,823)    116,907           -       5,768
   investments (Note 6)
Transfers of participants'
   balances, net                  (27,436)     (6,343)     22,150      (6,430)      1,924
Transfers to/from other plans,     (1,272)       (130)      3,316        (494)        419
   net
                                ------------------------------------------------------------
Total additions (deductions),      75,388     (16,221)    164,307       8,598      10,655
   net
Less: Distributions to
      participants (Note 2)        23,837      18,937      22,482      16,094       1,964
     Fees                             340         271         177         132          24
                                ------------------------------------------------------------
                                ------------------------------------------------------------
Net increase (decrease)            51,211     (35,429)    141,648      (7,628)      8,667
                                ============================================================
Net assets available for
   benefits, December 31, 1995  $ 394,853   $ 264,368   $ 450,220   $ 230,144   $  38,919
                                ============================================================

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


<PAGE>


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

                                   Money
                                  Market     Balanced
                                   Fund        Fund         Total
                                --------------------------------------
                                <C>         <C>          <C>
<S>
Net assets available for
   benefits, January 1, 1995    $  64,216   $ 204,089   $ 1,488,340
                                --------------------------------------
Employee contributions              6,474      15,688        67,072

Investment income:
   Dividends on Pacific
     Telesis Group common               -           -        25,600
     shares
   Interest                         4,583          14        20,331

Net appreciation
   (depreciation) of                    -      52,345       223,124
   investments (Note 6)
Transfers of participants'
   balances, net                    7,278       8,857             -
Transfers to/from other plans,        842       2,791         5,472
   net
                                --------------------------------------
Total additions (deductions),      19,177      79,695       341,599
   net
Less: Distributions to
      participants (Note 2)         6,695      15,200       105,209
     Fees                              43         118         1,105
                                --------------------------------------
                                --------------------------------------
Net increase (decrease)            12,439      64,377       235,285
                                ======================================
Net assets available for
   benefits, December 31, 1995  $  76,655   $ 268,466   $ 1,723,625
                                ======================================

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


<PAGE>


                                                                            







                                           12
<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED 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
                                   Stock       Stock      Equity      Income       Bond
                                   Fund        Fund        Fund        Fund        Fund
                                ------------------------------------------------------------
                                <C>         <C>         <C>         <C>         <C>
<S>
Net assets available for
   benefits, January 1, 1994    $ 593,005   $       -   $ 295,043   $ 247,676   $  34,034
                                ------------------------------------------------------------
Employee contributions             20,665         (24)     19,949           -       2,604

Investment income:
   Dividends on Pacific
     Telesis Group common          24,848           -           -           -           -
     shares
   Interest                           134          40          14      15,633           2

Net appreciation
   (depreciation) of             (145,171)    176,142       4,355           -        (918)
   investments (Note 6)
Transfers of participants'
   balances, net                   24,924     (39,251)      7,389     (10,111)     (1,927)
Transfers to/from other plans,   (140,621)    147,355       6,289       1,993         481
   net
                                ------------------------------------------------------------
Total additions (deductions),    (215,221)    284,262      37,996       7,515         242
   net
Less: Distributions to
      participants (Note 2)        33,766     (15,769)     24,118      17,145       3,978
     Fees                             376         234         349         274          46
                                ------------------------------------------------------------
                                ------------------------------------------------------------
Net increase (decrease)          (249,363)    299,797      13,529      (9,904)     (3,782)
                                ============================================================
Net assets available for
   benefits, December 31, 1994  $ 343,642   $ 299,797   $ 308,572   $ 237,772   $  30,252
                                ============================================================

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


<PAGE>


<TABLE>
                    PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                           SAVINGS PLAN FOR SALARIED 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
                                  Market     Balanced
                                   Fund        Fund         Total
                                --------------------------------------
                                <C>         <C>          <C>
<S>
Net assets available for
   benefits, January 1, 1994    $  54,074   $ 188,212   $ 1,412,044
                                --------------------------------------
Employee contributions              6,124      14,959        64,277

Investment income:
   Dividends on Pacific
     Telesis Group common               -           -        24,848
     shares
   Interest                         2,289          12        18,124

Net appreciation
   (depreciation) of                    -       2,371        36,779
   investments (Note 6)
Transfers of participants'
   balances, net                    6,748      12,228             -
Transfers to/from other plans,      2,530       4,576        22,603
   net
                                --------------------------------------
Total additions (deductions),      17,691      34,146       166,631
   net
Less: Distributions to
      participants (Note 2)         7,471      18,018        88,727
     Fees                              78         251         1,608
                                --------------------------------------
                                --------------------------------------
Net increase (decrease)            10,142      15,877        76,296
                                ======================================
Net assets available for
   benefits, December 31, 1994  $  64,216   $ 204,089   $ 1,488,340
                                ======================================

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


<PAGE>









                                              24
                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                             SAVINGS PLAN FOR SALARIED 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 Salaried  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 salaried employees of
     Pacific   Telesis   Group  (the   "Corporation")   and  its   participating
     subsidiaries  (the  "Employing  Company") who have  completed six months 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 salary in 1%  increments.  If the employee has
     authorized   the  maximum  basic   contribution   of  6%,  a   supplemental
     contribution  may  also  be  authorized  which,  when  added  to the  basic
     contribution of 6%, results in a total contribution of not more than 16% of
     salary. 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). Salary eligible for contributions is limited to an annual
     maximum, adjusted for inflation ($150,000 for 1996, 1995 and 1994).

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

     Transfers to/from Other Plans - Salaried  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 for Salaried  Employees  (renamed the
     Pacific Telesis Group Cash Balance Pension Plan for Salaried  Employees) or
     the Pacific  Telesis  Group  Pension  Plan 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 elect 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  on 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 SALARIED 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 will
     continue to apply 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)  attributable to employees' before-tax
     basic  deductions  are also  fully  vested  and  nonforfeitable.  Employing
     Company  matching  accounts  attributable  to  employees'  after-tax  basic
     deductions  are fully vested after a  participant  either  completes  three
     years of service or reaches age 65 while  employed.  Such accounts are also
     fully vested upon termination of employment due to retirement,  disability,
     death, termination under certain severance pay plans, or termination due to
     a layoff.

     The nonvested part of the Employing Company matching accounts  attributable
     to  after-tax  deductions  is 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
     after-tax  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 SALARIED 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 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 two preceding plan years may be
          withdrawn  only  in a  total  withdrawal  of all  available  after-tax
          accounts.  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 before-tax  Employing Company matching  allocations may
          be withdrawn, in total or in a partial withdrawal of at least $300, by
          employees who have attained age 59-1/2.  However, such withdrawals may
          not be made by employees who have not yet attained age 59-1/2,  except
          in the event of a hardship  which is 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 SALARIED 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  under the rule of 75 described  below 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 disability or retirement
          with not less than 10 years of service  and  combined  age and service
          that equal or exceed 75 (the "rule of 75"),  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  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.

     Distributions  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.


<PAGE>


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

1.   Plan Description (Continued)

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  has  elected to
     receive shares of appreciated stock.

     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 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.



<PAGE>


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

2.   Summary of Accounting Policies  (Continued)

     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.

          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 equal  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, the 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.



<PAGE>


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

2.   Summary of Accounting Policies (Continued)

     Investments (Continued)

     At December  31, 1996,  the  crediting  interest  rates of the Plan's fully
     benefit-responsive  investment  contracts  ranged  from  4.98% to 7.51% per
     annum. The average yield for the contracts was 6.3% for 1996.

     o   In accordance with the Plan's 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.

     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 $ 1,813,957   $1,723,625
       financial statements
       Benefits due for participant                   (97,955)     (23,782)
       withdrawal/distribution
                                                   =============================
       Net assets available for plan benefits 
       per Form 5500                              $ 1,716,002   $1,699,843 
                                                   =============================




<PAGE>


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

2.   Summary of Accounting Policies (continued)

     Benefits Payable (Continued)

     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 $   169,414   $  105,209
       statements
       Benefits due:
          Beginning of year                            (23,782)     (19,503)
          End of year                                   97,955       23,782
                                                   =============================
       Distributions to participants per Form 5500 $   243,587   $  109,488
                                                   =============================

3.   Participant Accounts

     Employee  deductions  are  credited  to  the  employee's  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.



<PAGE>


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

3.   Participant Accounts (Continued)

     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:
                                                          December 31, 1995
                                                  ------------------------------
                                                        Number of      Value per
                                                          Units          Unit
                                                           (in
                                                       thousands)
                                                  ------------------------------
       Company Stock Fund                                  86,138      $  4.5161
       AirTouch Stock Fund                                 79,359      $  3.2864
       Equity Fund                                         30,798       $14.4322
       Interest Income Fund                                47,850      $  4.7531
       Bond Fund                                           29,362      $  1.3099
       Money Market Fund                                   63,225      $  1.1801
       Balanced Fund                                      178,083      $  1.4883

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:
                                                                  December 31,
                                                               1996        1995
                                                        ------------------------
       Entirely in the Company Stock Fund                      2,007       1,959
       Entirely in the Equity Fund                             1,207       1,076
       Entirely in the Bond Fund                                  19          20
       Entirely in the Money Market Fund                         488         440
       Entirely in the Balanced Fund                             507         568
       Increments totaling 100% in the Company Stock Fund and    
          the Equity Fund                                        941         885
       Increments totaling 100% in the Company Stock Fund and 
          the Money Market Fund                                  630         556
       Increments totaling 100% in the Company Stock Fund and
          the Bond Fund                                           32          30
       Increments totaling 100% in the Company Stock Fund and the
          Balanced Fund                                          343         384
       Increments totaling 100% in the Equity Fund and the Money         
          Market Fund                                            191         209
       Increments totaling 100% in the Equity Fund and the Bond           
          Fund                                                    99         112
       Increments totaling 100% in the Equity Fund and the             
          Balanced Fund                                        1,628       1,542
       Increments totaling 100% in the Money Market and the           
          Bond Fund                                               31          32


<PAGE>


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

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

                                                                      December 31,
                                                                    1996        1995
                                                                -------------------------
<S>                                                                  <C>         <C>                 
       Increments totaling 100% in the Money Market and
          the Balanced Fund                                              77          95
       Increments totaling 100% in the Bond Fund and the                 38          68
          Balanced Fund
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund and the Money Market Fund               305         290
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund and the Bond Fund                        77          60
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund and the Balanced Fund                 1,087       1,038
       Increments totaling 100% in the Company Stock
          Fund, the Money Market Fund and the Bond Fund                  15          16
       Increments totaling 100% in the Company Stock
          Fund, the Money Market Fund and the Balanced                   93          94
          Fund
       Increments totaling 100% in the Company Stock
          Fund, the Bond Fund and the Balanced Fund                      47          50
       Increments totaling 100% in the Equity Fund, the
          Money Market Fund and the Bond Fund                            37          46
       Increments totaling 100% in the Equity Fund, the
          Money Market Fund and the Balanced Fund                       169         158
       Increments totaling 100% in the Equity Fund, the
          Bond Fund and the Balanced Fund                               372         390
       Increments totaling 100% in the Money Market Fund,
          the Bond Fund and the Balanced Fund                            31          43
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund, the Money Market Fund                   45          31
          and the Bond Fund
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund, the Money Market Fund                  187         185
          and the Balanced Fund
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund, the Bond Fund and the                  271         257
          Balanced Fund
       Increments totaling 100% in the Company Stock
          Fund, the Money Market Fund, the Bond Fund and                 23          21
          the Balanced Fund
       Increments totaling 100% in the Equity Fund, the
          Money Market Fund, the Bond Fund and the                      216         219
          Balanced Fund
       Increments totaling 100% in the Company Stock
          Fund, the Equity Fund, the Money Market Fund,
          the Bond Fund and the Balanced Fund                           434         347
                                                                =========================
       Total Employees Contributing                                  11,647      11,221
                                                                =========================
</TABLE>


<PAGE>


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

5.   Tax Status

     The Internal Revenue Service has determined and informed the Corporation by
     a letter dated July 18, 1995, 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  is  currently   being  operated  in  compliance  with  the  applicable
     requirements of the Code.


<PAGE>


                                                                            







                                       26
<TABLE>
                      PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                             SAVINGS PLAN FOR SALARIED 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
                                                       Stock      Stock        Equity
                                                       Fund        Fund         Fund
                                                    ---------------------------------------
                                                    <C>         <C>        <C>
      <S>
      1996
      Common Stock                                  $  33,309   $ (26,580) $   103,289
      Bank Common and Commingled Trust Funds                -           -            -
      Insurance Contracts                                   -           -            -
                                                    =======================================
      Net Appreciation (depreciation)               $  33,309   $ (26,580) $   103,289
                                                    =======================================

      1995
      Common Stock                                  $  57,927   $  (9,823) $         -
      Bank Common and Commingled Trust Funds                -           -      116,907
       Insurance Contracts                                  -           -            -
                                                    ---------------------------------------
      Net Appreciation (depreciation)               $  57,927   $  (9,823) $   116,907
                                                    =======================================

      1994
      Common Stock                                  $ (145,171) $ 176,142  $     4,355
      Bank Common and Commingled Trust Funds                -           -            -
      Insurance Contracts                                   -           -            -
                                                    =======================================
      Net Appreciation (depreciation)               $ (145,171) $ 176,142  $     4,355
                                                    =======================================
</TABLE>



<PAGE>



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

6.   Net Appreciation (Depreciation) of Investments (Continued)

     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>

                                       Interest               Money
                                        Income      Bond     Market    Balanced
                                         Fund       Fund      Fund       Fund      Total
                                      -----------------------------------------------------
                                      <C>        <C>        <C>       <C>        <C>
      <S>
      1996
      Common Stock                    $       -  $      -   $       - $       -  $   6,729
      Bank Common and Commingled
         Trust Funds                          -     1,359           -    33,694    138,342
      Insurance Contracts                     -         -           -         -          -
                                      =====================================================
      Net Appreciation                $       -  $  1,359   $       - $  33,694  $ 145,071
                                      =====================================================

      1995
      Common Stock                    $       -  $      -   $       - $       -  $  48,104
      Bank Common and Commingled
         Trust Funds                          -      5,768          -    52,345    175,020
      Insurance Contracts                     -          -          -         -          -
                                      -----------------------------------------------------
      Net Appreciation (depreciation) $       -  $   5,768  $       - $  52,345  $ 223,124
                                      =====================================================

      1994
      Common Stock                    $       -  $      -   $       - $       -  $  30,971
      Bank Common and Commingled
         Trust Funds                          -      (918)          -     2,371      5,808
      Insurance Contracts                     -         -           -         -          -
                                      =====================================================
      Net Appreciation (depreciation) $       -  $   (918)  $       - $   2,371  $  36,779
                                      =====================================================

</TABLE>


<PAGE>









                                              31
                       PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND
                              SAVINGS PLAN FOR SALARIED 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  salaries  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 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 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  incidental 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 SALARIED EMPLOYEES
                  LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
                                       December 31, 1996
                          (Dollars and shares or units in thousands)
<CAPTION>
                                    (c) Description of
        (b) Identity of issue      investment including
         borrower, lessor or          maturity date,                         (e) Current
(a)         similar party           collateral, par or        (d) Cost          Value
                                      maturity value
-------------------------------------------------------------------------------------------
<S>  <C>                         <C>                             <C>              <C>    

 *   Pacific Telesis Group       11,256 common shares           $263,892         $413,673
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                 1,514            1,514
                                                          =================================
                                                                $265,406         $415,187
                                                          =================================

 *   Air Touch Communications,   8,053 common shares            $114,264         $203,338
        Inc.
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                   444              444
                                                          ---------------------------------
                                                                $114,708         $203,782
                                                          =================================

 *   State Street                S&P 500 Fund - 4,562
                                 common/commingled trust
                                 shares                         $294,453         $544,706
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                   143              143
                                                          =================================
                                                                $294,596         $544,849
                                                          =================================

 *   State Street                Bond Fund - 2,654
                                 common/commingled trust
                                 shares                        $  28,467        $  36,465
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                    23               23
                                                          ---------------------------------
                                                               $  28,490        $  36,488
                                                          =================================

 *   State Street                Money Market Fund             $  83,494        $  83,494
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                 1,418            1,418
                                                          =================================
                                                               $  84,912        $  84,912
                                                          =================================
</TABLE>


<PAGE>


<TABLE>

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

                                    (c) Description of
        (b) Identity of issue      investment including
         borrower, lessor or          maturity date,                          (e) Current
(a)         similar party           collateral, par or        (d) Cost           Value
                                      maturity value
---------------------------------------------------------------------------------------------
<S>  <C>                         <C>                            <C>              <C>    

 *   State Street                Balanced Fund - 17,651
                                 common/commingled trust
                                 shares                         $193,915         $297,767
 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund                    92               92
                                                          ===================================
                                                                $194,007         $297,859
                                                          ===================================

 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund             $   6,834         $   6,834
                                                          ===================================
                                                               $   6,834         $   6,834
                                                          ===================================

     Contracts with insurance companies and banks:
          Aetna                  $16,750 principal
                                 amount, 5.74% due             $  13,491         $  13,491
                                 December 31, 1998

          AIL                    $10,000 principal
                                 amount, 6.22% due June            3,878             3,878
                                 30, 1997

          Allstate               $10,000 principal
                                 amount, 6.81% due July            6,203             6,203
                                 5, 2000

          Cigna                  $21,100 principal
                                 amount, 6.05% due                19,146            19,146
                                 December 31, 1999

          Citibank               $11,500 principal
                                 amount, 7.23% due                 9,204             9,204
                                 December 31, 1998

          Citibank               $14,400 principal
                                 amount,                           5,761             5,761
                                 4.98% due December 31,
                                 1997
</TABLE>


<PAGE>

<TABLE>

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

                                    (c) Description of
        (b) Identity of issue      investment including
         borrower, lessor or          maturity date,                          (e) Current
(a)         similar party           collateral, par or        (d) Cost           Value
                                      maturity value
---------------------------------------------------------------------------------------------
<S>     <C>                      <C>                           <C>               <C>    

          CNA                    $22,500 principal
                                 amount,                       $  21,029         $  21,029
                                 6.75% due June 30, 1999

          CNA                    $13,522 principal
                                 amount, 6.02% due June           12,647            12,647
                                 30, 1999

          Jackson National       $12,950 principal
                                 amount,                          12,122            12,122
                                 6.79% due June 30, 2000

          Life of Georgia        $10,000 principal
                                 amount, 6.89% due                 5,361             5,361
                                 December 31, 1997

          MBL Life               $1,300 principal
                                 amount, 6.89% due                 1,346             1,346
                                 December 31, 1997

          NY Life                $12,950 principal
                                 amount, 6.74% due June           12,122            12,122
                                 30, 2001

          Provident              $15,400 principal
                                 amount, 6.33% due                10,331            10,331
                                 December 31, 1997

          Provident              $8,000 principal
                                 amount, 6.60% due                 5,333             5,333
                                 January 2, 1998

          Prudential             $14,450 principal
                                 amount, 5.29% due                 8,959             8,959
                                 December 31, 1998

          Prudential             $15,000 principal
                                 amount, 6.94% due June           13,707            13,707
                                 30, 1999
</TABLE>


<PAGE>

<TABLE>

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

<CAPTION>
                                    (c) Description of
        (b) Identity of issue      investment including
         borrower, lessor or          maturity date,                          (e) Current
(a)         similar party           collateral, par or        (d) Cost           Value
                                      maturity value
---------------------------------------------------------------------------------------------
<S>     <C>                      <C>                         <C>                 <C>    

          Prudential             $11,000 principal
                                 amount, 7.51% due June        $  10,242         $  10,242
                                 30, 1999

          Lotsoff                $25,254 principal
                                 amount, 5.14% due June
                                 30, 2000                         21,006            21,006
                                 (synthetic contract)

          Security Life of       Wrapper for Lotsoff
            Denver               Synthetic Contract                  425               425
                                                          -----------------------------------
      Total contracts with
        insurance companies and                              $   192,313       $   192,313
        banks
                                                          -----------------------------------

 *   Northern Trust Collective
     Short Term Investment Fund  Money Market Fund          $     20,528      $     20,528
                                                          -----------------------------------
                                                             $   212,841       $   212,841
                                                          ===================================
     GRAND TOTAL                                              $1,201,794        $1,802,752
                                                          ===================================

 *  A party-in-interest to the Plan.

</TABLE>

<PAGE>





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

Category (iii)

                                                                                                Current
                              Description      Number of   Purchase     Selling     Cost of    Value of    Net/Gain
Identity of Party Involved     of Assets      Transactions   Price       Price       Asset     Asset on     (Loss)
                                                                                              Transaction
                                                                                                 Date
                           -------------------------------------------------------------------------------------------
<S>                               <C>             <C>      <C>         <C>         <C>         <C>         <C>
Northern Trust Collective
Short-Term Investment Fund Money Market Fund      303      $200,133       N/A      $200,133    $200,163       N/A

Northern Trust Collective
Short-Term Investment Fund Money Market Fund      323         N/A      $169,136     169,136       N/A        $ -0-


<FN>
</FN>
</TABLE>

There were no category (i), (ii) or (iv) reportable transactions during 1996.


<PAGE>






                                REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS


Savings Plans Committee
Pacific Telesis Group Supplemental  Retirement and Savings Plan for Salaried and
Nonsalaried Employees (LESOP):


We have audited the accompanying  statement of net assets available for benefits
of the Pacific  Telesis  Group  Supplemental  Retirement  and  Savings  Plan for
Salaried and  Nonsalaried  Employees  (LESOP) 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 these  financial
statements  based on our  audit.  The  financial  statements  for the year 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 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  Salaried  and
Nonsalaried  Employees  (LESOP) as of December 31, 1996,  and the changes in net
assets  available  for  benefits  for the year then ended,  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 the purpose 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 supplemental  schedules
have been subjected to the auditing procedures applied in our 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>


                  PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN
                               FOR SALARIED AND NONSALARIED EMPLOYEES (LESOP)
                              STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
                                         December 31, 1996 and 1995
                                           (Dollars in thousands)


                                                 1996               1995
                                            ---------------    ----------------
ASSETS

Investment - at fair value
  Pacific Telesis Group Common Shares, at
fair value,
Cost $567, 387 and $604,239, for 1996             $677,014            $663,567
and 1995, respectively
Employer Receivable                                 62,367              70,530
Dividend and Interest Receivable                     5,913              10,960
Short-Term Investments                              24,353              33,692
                                            ---------------    ----------------
  Total Assets                                     769,647             778,749


LIABILITIES

Interest Payable                                    13,582              21,052
Note Payable                                       206,975             301,191
                                            ---------------    ----------------
  Total Liabilities                                220,557             322,243
                                            ---------------    ----------------
Net Assets Available For Benefits                 $549,090            $456,506
                                            ===============    ================


NET ASSETS AVAILABLE FOR BENEFITS

Net Assets Allocated to Participants              $462,343            $382,284
Net Assets Available for Future Allocations         86,747              74,222
                                            ---------------    ----------------
Net Assets Available For Benefits                 $549,090            $456,506
                                            ===============    ================



See accompanying notes.



<PAGE>


                  PACIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN
                               FOR SALARIED AND NONSALARIED EMPLOYEES (LESOP)
                    STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
                               For the years ended December 31, 1996 and 1995
                                           (Dollars in thousands)


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

     Net Assets Available for Benefits,           $456,506            $289,656
January 1,
                                            ---------------    ----------------

     Additions to Net Assets Attributed to:

     Investment Income:

      Dividends on Pacific Telesis Group
          Common Shares                             28,437              43,720
      Interest Income                                  880                 941

      Net Appreciation of Investments in
          Pacific Telesis Group Common              61,720              99,170
          Shares

                                            ---------------    ----------------
     Employer Contributions                         62,367              70,530
                                            ---------------    ----------------
      Total Additions                              153,404             214,361
                                            ---------------    ----------------

     Deductions from Net Assets Attributed
     to:

     Distributions to Participants                  47,238              26,459
     Interest Expense                               13,582              21,052
                                            ---------------    ----------------
      Total Deductions                              60,820              47,511
                                            ---------------    ----------------
      Net Increase                                  92,584             166,850
                                            ---------------    ----------------
      Net Assets Available for Benefits,          $549,090            $456,506
          December 31
                                            ===============    ================



See accompanying notes.




<PAGE>


                    CIFIC TELESIS GROUP SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN
                            FOR SALARIED AND NONSALARIED EMPLOYEES (LESOP)
                                   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 Salaried and Nonsalaried  Employees (LESOP)
     provides only general  information.  Participants  should refer to the plan
     document for a more comprehensive description of the Plan's provisions.

     A.  General

     The  Pacific  Telesis  Group  (the  "Corporation")   originally  adopted  a
     leveraged  employee  stock  ownership  plan (the  "LESOP"  or the  "Plan"),
     effective  December 1, 1989, in conjunction  with 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  (the "Savings  Plans").  On December 28, 1989,  the
     LESOP  borrowed  $691,052,400  from  the  Corporation  pursuant  to a  loan
     agreement and promissory  note.  Bankers Trust  Company,  as Trustee of the
     Pacific Telesis Group Employee Stock Ownership Plan,  using the proceeds of
     the  loan,  purchased  13,900,000  of  the  Corporation's  treasury  shares
     ("Shares")  at a total  price of  $691,052,400,  or $49.25  per share  plus
     accrued  dividends.  The Shares  were  credited  to a  suspense  account as
     required by Treasury Regulations Section 54.4975-11(c).

     Effective April 1, 1994, PacTel Corporation  separated from Pacific Telesis
     Group  with  PacTel  Corporation  renamed  AirTouch  Communications,   Inc.
     ("ATI").  Consequently, the Plan was amended to reflect that for each share
     of  Pacific  Telesis  Group  common  stock held by the Plan as of March 21,
     1994,  the Plan received an equivalent  number of shares of common stock of
     ATI.  Participants  had the option of  transferring  the ATI stock in their
     accounts to the ATI Stock Fund in the Savings Plans;  or converting the ATI
     stock to Pacific Telesis Group stock.

     B.  Employee Contributions and Employing Company Matching Allocations

     Under the Savings Plans, a participant can make basic  contributions of one
     to six percent of the participant's earnings for a month, which are matched
     by the  Corporation  and its  participating  subsidiaries  (the  "Employing
     Company").  These  matching  contributions  are  used  to  repay  the  loan
     described  above in sufficient  amounts to release Shares from the suspense
     account so that the value of  matching  allocations  will be 66-2/3% of the
     participants' basic contributions to the Savings Plans for each month.

     If Shares released from the suspense account by loan payments made within a
     plan  year  are more  valuable  than  66-2/3%  of the  participants'  basic
     contributions, the excess value will be allocated as of the last day of the
     plan year among those participants who made  contributions  during the last
     month of the plan year in proportion to their pay or salary for such month.



<PAGE>


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

1.   Plan Description (Continued)

     C.  Participant Accounts

     Units  representing  shares of stock  ("Units")  released from the suspense
     account on behalf of a participant  are credited to a "Savings Match Stock"
     account  maintained  for a  participant  under the Plan.  Participants  are
     entitled to the same  voting,  tender and  shareholder  rights as any other
     shareholder  with  respect to any shares  credited to their  Savings  Match
     Stock account.  Shares are released from the suspense  account on a monthly
     basis prior to the actual  payment of  principal  and  interest on the Plan
     loan. The market value of shares released from the suspense account for the
     1996 plan year was $75,401,348. The final loan payment for any plan year is
     determined  as of the end of such year pursuant to the formula set forth in
     Treasury  Regulations  Section  54.4975-7  (b) (8),  based on the number of
     shares of stock released during each month of such year.

     Dividends on shares  purchased  with the Plan loan may be used to repay the
     loan,  which will cause the  release of shares from the  suspense  account.
     Whenever dividends on shares credited to participant's  Savings Match Stock
     account are used for this  purpose,  the Plan  provides  that shares with a
     fair  market  value  at least  equal  to the  amount  of the  dividend  are
     allocated to the  participant's  Savings  Match Stock  account.  These loan
     payments  and  released  shares are also taken into  account when the final
     calculation of principal and interest to be paid for the year is performed.

     The IRS issued a private  letter ruling to the  Corporation  providing that
     Shares  purchased  with  the  sale  proceeds  of  ATI  shares  received  in
     conjunction  with the spin-off may be treated as shares  purchased with the
     Plan loan.

     D.  Vesting and Forfeitures

     Savings Match Stock  accounts are fully vested and  nonforfeitable  after a
     participant either completes three years of service or reaches age 65 while
     employed.  However, the portion of a salaried  participant's  Savings Match
     Stock  account  attributable  to before-tax  employee  deductions is always
     fully  vested and  nonforfeitable,  regardless  of age or service.  Savings
     Match Stock  accounts are also fully vested upon  termination of employment
     due to  retirement,  disability,  termination  under certain  severance pay
     plans or termination  due to layoff.  Forfeitures  from Savings Match Stock
     accounts are allocated among participating employees.

     E.  Withdrawals and Distributions

     The valuation,  withdrawal and distribution  rules governing  Savings Match
     Stock  accounts  generally are the same as the rules  governing the Savings
     Plans.



<PAGE>


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

1.   Plan Description (Continued)

     F.  Tax Consequences of Participation

     Employees  will not have taxable  income as a result of  Employing  Company
     contributions or earnings on Plan assets before the amounts are distributed
     from the Plan.  When a  distribution  is received  from the Plan, it may be
     partially or fully  subject to federal and state income taxes  depending on
     whether the  participant  elects to receive  cash or shares of  appreciated
     stock.

     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 amount of 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  regular  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

     The Plan's investment in the  Corporation's  common shares is valued at the
     last published  sales price at the end of each plan year as reported on the
     composite tape of the New York Stock Exchange.

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

     Dividend  income is recorded on the  ex-dividend  date.  Interest earned on
     investments  is  recorded  on the  accrual  basis.  Purchases  and sales of
     securities are reflected as of the trade date.

     Benefits Payable

     In  accordance  with  generally  accepted  accounting  principles,  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 net assets
     available for benefits.



<PAGE>


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

2.   Summary of Accounting Policies (Continued)

     The  Department  of  Labor  requires  these  amounts  to be  reported  as a
     liability on 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 financial                                         $549,090          $456,506
     statements
     Benefits due for participant                      (6,914)           (7,682)
withdrawal/distribution
                                                ===============  ===============
     Net assets available for Plan benefits           $542,176          $448,824
per Form 5500
                                                ===============  ===============

     Similarly,  the following table is a  reconciliation  of  distributions  to
     participants  from the  statement  of changes of net assets  available  for
     benefits to the Form 5500 as of December 31 (dollars in thousands):

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

     Distribution to participants per                  $47,238           $26,459
financial statements
     Benefits due:
     Beginning of year                                 (7,682)           (6,100)
     End of year                                         6,914             7,682
                                                ===============  ===============
     Distributions to participants per Form            $46,470           $28,041
5500
                                                ===============  ===============




<PAGE>


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

3.   Investment

     The Plan  invests  its assets in the  Corporation's  common  shares.  As of
     December 31, 1996 and 1995,  total  investment,  including common shares in
     the Savings Stock Match account and shares held in the suspense account, is
     as follows (dollars in thousands):

                1996                     Units          Cost       Fair Value
                ----                     -----          ----       ----------

     Savings Stock Match Accounts        12,442,831      $380,167      $457,274
     Suspense Account                     5,979,320       187,220       219,740
                                     -------------------------------------------
     Total                               18,422,151      $567,387      $677,014
                                     ===========================================


                1995                     Units          Cost       Fair Value
                ----                     -----          ----       ----------

     Savings Stock Match Accounts        11,228,756      $339,247      $376,164
     Suspense Account                     8,579,204       264,992       287,403
                                     -------------------------------------------
     Total                               19,807,960      $604,239      $663,567
                                     ===========================================

4.   Tax Status

     The Internal Revenue Service has determined and informed the Corporation by
     a letter dated July 18, 1995,  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  is  currently   being  operated  in  compliance  with  the  applicable
     requirements of the Code.

5.   Plan Termination

     The  Corporation,  by  action of the  Board of  Directors,  may at any time
     terminate  the  making  of  contributions  by all  Employing  Companies  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 Plan and the Savings Plans since the preceding  January
     1,  the  making  of  contributions  by all  Employing  Companies  shall  be
     terminated.  No termination  shall have the effect of diverting the amounts
     held by the trustee to purposes other than as provided in the Plan.



<PAGE>


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

5.   Plan Termination (Continued)

     Following such a termination of contributions  by all Employing  Companies,
     common  shares  held in the  suspense  account  shall  be  redeemed  by the
     Corporation or sold to satisfy any  outstanding  indebtedness  of the Plan.
     Any balance  remaining in the  suspense  account  shall be allocated  among
     participating  employees in  proportion  to their pay or salary in the year
     the termination occurs. Upon the termination of contributions, the Plan may
     remain in  existence,  but the Savings  Match Stock  accounts  shall become
     nonforfeitable.

6.   Note Payable

     The  15-year  promissory  note is payable to the  Corporation  and  matures
     January  2,  2005.  The  interest  rate on the note is based on the  London
     Interbank Offered Rate (LIBOR) and is adjusted quarterly (6.53% at December
     31,  1996).  The Plan paid  $21,052,000  and  $10,263,000  in interest  and
     $94,216,000 and  $46,763,000 in principal on the  outstanding  loan balance
     during the year ended December 31, 1996 and 1995, respectively.

     In accordance  with the terms of the  promissory  note  payable,  principal
     payments of  $10,522,600,  $80,600,000  and  $115,852,400  are due in years
     2003, 2004, and 2005, respectively.

     Repayment  of principal  in  subsequent  years will follow the terms of the
     note or may be accelerated according to management's discretion.

7.   Related Party Transactions

     Administrative  expenses  of the Plan are  paid by the  Employing  Company,
     except that trustee fees and certain administrative  expenses in connection
     with the Plan may be charged to the income earned in the suspense  account.
     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.  Transfer taxes applicable to distributions
     of shares are paid by the Employing Company.

8.   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.



<PAGE>


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

<CAPTION>

                                    (c) Description of
       (b) Identity of issue        investment including
        borrower, lessor or        maturity date, rate of
 (a)       similar party            interest, collateral,      (d) Cost       (e) Current
                                    par or maturity value                        Value
--------------------------------------------------------------------------------------------
<S>   <C>                           <C>                           <C>              <C>   

  *   Pacific Telesis Group
           Common Shares            18,422 Common Shares           $567,387        $677,014
                                                            --------------------------------
                                                                   $567,387        $677,014
                                                            --------------------------------


  *   Northern Trust
           Collective Short
           Term Money Market Fund                                  $ 24,353        $ 24,353
           Investment Fund
                                                            --------------------------------
                                                                   $ 24,353        $ 24,353
                                                            --------------------------------

<FN>

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


 .


<PAGE>

---------------
43

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

Category (iii) reportable transactions

                                                                                                  (g) Current
                                                                                                   Value of
   (a) Identity of      (b) Description    (c) Number       (d)       (e) Selling   (f) Cost of    Asset on      (h) Net
    Party involved          of Asset           of         Purchase       Price         Asset      Transaction    Gain or
                                          Transactions     Price                                     Date         (Loss)
----------------------------------------------------------------------------------------------------------------------------

<S>                    <C>                 <C>            <C>           <C>          <C>           <C>            <C>

Pacific Telesis Group  Pacific Telesis
Common Shares          Group                   31           N/A         $48,273       $36,852       $48,273       11,421
                       Common Shares

Bankers Trust Pyramid
Directed Account       Short-term
Cash Fund              Investments              9          19,463         N/A          19,463       19,463         N/A

Bankers Trust Pyramid
Directed Account       Short-term
Cash Fund              Investments              7           N/A          53,155        53,155       53,155          --



<FN>
Note:     There were no category (i), (ii) or (iv) reportable transactions during 1996.
</FN>

</TABLE>


<PAGE>






                                             44



                                           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 SALARIED EMPLOYEES






                                        By Savings Plans Committee






                                        By: /s/R. P. McGahan
                                           -------------------------------
                                           R. P. McGahan
                                           Member of the Committee



   Dated: June 30, 1997