Annual Report of Employee Stock Plans (11-k)

 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 11

-K

(Mark One)

☒

ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the fiscal year ended December 31, 2019

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from

to

Commission File Number:1-8610

A. Full

title of the plan and the address of the plan, if different

from that of the issuer named below:

AT&T RETIREMENT

SAVINGS

PLAN

B. Name of issuer of the securities held

pursuant to the plan and the address of its principal executive office:

AT&T INC.

208 S. Akard, Dallas, Texas

75202

 
AT&T Retirement

Savings Plan

Financial Statements, Supplemental Schedules and Exhibit

Table of

Contents

Page

Reports of Independent Registered Public Accounting

Firm

1

Financial Statements:

Statements of Net Assets Available

for Benefits as of December 31, 2019 and 2018

2

Statements of Changes in Net Assets Available

for Benefits for the Year

Ended December 31, 2019

3

Notes to Financial Statements

4

Supplemental Schedules:

Schedule H, Part IV,

Line 4(a) – Schedule of Delinquent Participant Contributions

for the Year

Ended December 31,

2019

20

Schedule H, Part IV,

Line 4(i) – Schedule of Assets (Held at End of Year)

as of December 31, 2019

21

 
1

Report of Independent Registered Public Accounting

Firm

Plan Administrator and Plan Participants

AT&T

Retirement Savings Plan

AT&T

Puerto Rico Retirement Savings Plan

Dallas, Texas

Opinion on the Financial Statements

We have audited

the accompanying statements of net assets available for benefits

of AT&T

Retirement Savings Plan and AT&T

Puerto Rico Retirement Savings Plan (Plans) as of December

31, 2019 and 2018, the related statements of changes in net

assets

available for benefits for the year ended December

31, 2019, and the related notes (collectively referred to as the

“financial

statements”). In our opinion, the financial statements referred

to above present fairly,

in all material respects, the net assets available

for benefits of AT&T

Retirement Savings Plan and AT&T

Puerto Rico Retirement Savings Plan as of December 31,

2019 and 2018,

and the changes in net assets available for benefits for

the year ended December 31, 2019,

in conformity with accounting principles

generally accepted in the United States of America.

Basis of Opinion

These financial statements are the responsibility of the

Plans’ management. Our responsibility is to express an opinion

on these

financial statements based on our audits.

We are a public

accounting firm registered with the Public Company Accounting

Oversight Board (United States) (“PCAOB”) and are

required to be independent with respect to the Plans in

accordance with the U.S. federal securities laws and the applicable rules

and

regulations of the Securities and Exchange Commission

and the PCAOB.

We conducted

our audits in accordance with the standards of the PCAOB. Those standards

require that we plan and perform the audits

to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due

to error or fraud.

The Plans are not required to have, nor were we engaged

to perform, an audit of their internal control over financial

reporting. As part

of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the

purpose of

expressing an opinion on the effectiveness of

the Plans internal control over financial reporting. Accordingly,

we express no such

opinion.

Our audits included performing procedures to assess the risks of

material misstatement of the financial statements, whether due

to

error or fraud, and performing procedures that respond

to those risks. Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used

and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements. We

believe

that our audits provide a reasonable basis for our

opinion.

Report on Supplemental Information

The supplemental information in the accompanying schedules

of delinquent participant contributions for the year

ended December 31,

2019, and assets (held at end of year) as of December

31, 2019, have been subjected to audit procedures performed

in conjunction

with the audit of the Plans’ financial statements. The supp

lemental schedules are the responsibility of the Plans’ management.

Our

audit procedures included determining whether the

supplemental schedules reconcile to the financial statements or the

underlying

accounting and other records, as applicable, and

performing procedures to test the completeness and accuracy

of the information

presented in the supplemental schedules. In forming

our opinion on the supplemental schedules, we evaluated

whether the

supplemental schedules, including their form and

content, are presented in conformity with the Department of Labor’s

Rules and

Regulations for Reporting and Disclosure under the

Employee Retirement Income Security

Act of 1974

. In our opinion, the

supplemental information is fairly stated, in all material

respects, in relation to the basic financial statements taken

as a whole.

/s/ BKD, LLP

We have served

as the Plans’ auditor since 2018

San Antonio, Texas

June 29, 2020

 
2

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Statements of Net Assets Available

For Benefits

(Dollars in Thousands)

December 31, 2019

December 31, 2018

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

Assets

Investment in AT&T

Savings Plan Master Trust, (Note 4)

$48,415,529

$ 127,881

$36,217,189

$ 101,101

Notes receivable from participants

854,483

9,472

816,145

8,157

Employer contribution receivable

3,937

1

4,144

—

Participant contribution receivable

7,024

2

7,249

—

Total Receivables

865,444

9,475

827,538

8,157

Net Assets Available

for Benefits

$49,280,973

$ 137,356

$37,044,727

$ 109,258

See Notes to Financial Statements.

 
3

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Statements of Changes in Net Assets Available

For Benefits

For the Year

Ended December 31, 2019

(Dollars in Thousands)

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

Net Assets Available

for Benefits, December 31, 2018

$37,044,727

$ 109,258

Changes in Net Assets:

Contributions:

Participant contributions

1,200,165

7,180

Employer contributions

589,761

4,386

Rollover contributions

288,862

—

Investment Income

Net income from investment in AT&T

Savings Plan Master Trust

8,367,999

24,782

Interest income on notes receivable from participants

40,188

443

Administrative Expenses

(23,664)

(265)

Distributions

(4,088,284)

(8,428)

Net increase before plan transfers

6,375,027

28,098

Net asset transfer from AlienVault

401(k) Plan (Note 1)

6,634

—

Net asset transfer from Otter Media Holdings, LLC 401(k)

Plan (Note 1)

174

—

Net asset transfer from Warner

Media, LLC Savings Plan (Note 1)

5,854,411

—

Net increase after plan transfers

12,236,246

28,098

Net Assets Available

for Benefits, December 31, 2019

$49,280,973

$

137,356

See Notes to Financial Statements.

 
4

AT&T Retirement

Savings Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements

(Dollars in Thousands)

NOTE 1. PLAN DESCRIPTIONS

The following descriptions provide only general information.

Detailed provisions covering participant eligibility,

participant

allotments from pay,

participant withdrawals, participant loans, employer contributions

and related vesting of contributions and plan

expenses are provided in the plan texts and prospectuses. The AT&T

Retirement Savings

Plan and AT&T

Puerto Rico Retirement

Savings Plan (collectively referred to as the Plans)

are defined contribution plans and are subject to the provisions

of the Employee

Retirement Income Security Act of 1974, as amended

(ERISA).

The AT&T

Retirement Savings Plan (ARSP) was originally established by

BellSouth Corporation (BellSouth) to provide a convenient

way for eligible non-management and bargained

for employees of participating BellSouth companies to save on a

regular and long-

term basis. In December 2006, BellSouth was acquired

by AT&T

Inc. (AT&T

or the Company). The ARSP became sponsored by

AT&T

Inc. effective December 31, 2008.

The AT&T

Puerto Rico Retirement Savings Plan (ARSP-PR) was originally

established by CCPR Inc. to provide a convenient way

for eligible employees of its Puerto Rico subsidiary,

CCPR Services Inc., and certain affiliates, to save on

a regular and long-term

basis. The ARSP-PR became sponsored by AT&T

effective December 31, 2008.

Effective at the close of business on April 30,

2019, the AlienVault

401(k) Plan was merged into the ARSP.

As a result, $6,634 net

assets including $114 in participant

loans were transferred to the ARSP on April 30, 2019.

Effective at the close of business on October

31, 2019, the Otter Media Holdings, LLC 401(k) Plan was merged

into the ARSP.

As a

result, $174 net assets were transferred to the ARSP on October

31, 2019.

Effective at the close of business on December

31, 2019, the Warner

Media, LLC Savings Plan was merged into

the ARSP.

The

merger included $5,854,411

of net assets including $61,326 in participant loans.

The Plans participate in the AT&T

Savings Plan Master Trust (AT&T

Master Trust) for certain participant

investment fund options as

described below. The

AT&T

Master Trust invests in the AT&T

Savings Group Investment Trust (Group

Trust) for the remaining

participant investment fund options. The Bank of New

York

Mellon Corporation (BNY Mellon) serves as trustee for

both the AT&T

Master Trust and Group Trust.

With respect to the ARSP-PR, BNY Mellon

serves as a U.S. custodian pursuant to a custodian

agreement and Oriental Financial Group serves as trustee

of the associated trust known as the AT&T

Puerto Rico Retirement Savings

Plan Trust. Fidelity Investments Institutional

Operations Company,

Inc. (Fidelity) serves as recordkeeper for the Plans.

During 2019 and 2018,

participants could invest their contributions in one or more

of eleven funds in 1% increments:

• AT&T

Total Return Bond

Fund*

• Small

and Mid-Sized U.S. Stock Index Fund**

• AT&T

U.S. Stock Fund*

• International

Stock Index Fund**

• AT&T

International Stock Fund*

• Large

Cap U.S. Stock Index Fund**

• AT&T

Stable Value

Fund*

• AT&T

Shares Fund**

• AT&T

Age-Based Asset Allocation Funds

(based on retirement date)**

• Fidelity

BrokerageLink

®

**

• Total

U.S. Stock Market Index Fund**

* Investment

fund option of the Group Trust.

** Investment fund option of the AT&T

Master Trust.

 
5

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

Participants contribute to the Plans through payroll allotments. The

Company contributes to the Plans by matching the participants’

contributions based on the provisions of the respective

plan. For the ARSP,

some matching contributions are made in the form

of cash

and are participant directed immediately upon allocation.

The majority of Company matching contributions for the ARSP

and all

Company matching contributions for the ARSP-PR are made

solely in the form of shares of AT&T’s

common stock. Matching

contributions made in stock into the ARSP are held in an

Employee Stock Ownership Plan (ESOP), which is part

of the AT&T

Shares

Fund, within the AT&T

Master Trust. Matching contributions made

in stock into the ARSP-PR are held in a separate stock bonus

portion of the ARSP-PR. Company contributions made

to the Plans can be immediately diversified into any of the fund

options above.

Dividends on AT&T

shares held in the ARSP can either be reinvested in the

AT&T

Shares Fund on a quarterly basis, or paid into a

short-term interest bearing fund for distribution (or

pass-through) before the end of the year.

Interest earned on dividends held in the

short-term interest bearing fund are used to purchase additional

units of the AT&T

Shares Fund in the participant’s

account. During

2019, participants in the ARSP elected to receive $36,147

in dividend distributions, which are included in distributions on the

statements of changes in net assets available for benefits. Dividends

on AT&T

shares held in the ARSP are reinvested in the AT&T

Shares Fund on a quarterly basis. Dividends on AT&T

shares held in the ARSP-PR are not eligible for pass-through

and are reinvested

in the AT&T

Shares Fund on a quarterly basis.

Each participant is entitled to exercise voting rights attributable

to the AT&T

shares allocated to their account and is notified by the

Company prior to the time that such rights may be exercised.

Subject to the fiduciary provisions of ERISA, the trustee will not

vote

any allocated shares for which instructions have

not been given by the participant. The trustee votes any

unallocated shares in the

same proportion as it votes those shares that were allocated

to the extent the proportionate vote is consistent with the trustee’s

fiduciary obligation under ERISA. Participants have

the same voting rights in the event of a tender or exchange offer.

Although it has not expressed any intent to do

so, AT&T

has the right under the Plans to discontinue its contributions at any

time and

to terminate the Plans subject to the provisions of ERISA.

In the event that the Plans are terminated, subject to the conditions set

forth

by ERISA, the account balances of all participants shall

be 100% vested.

Administrative and Operating Expenses; Investment Manager

Fees

Except to the extent paid by the Company,

all expenses incident to

the administration and operation of the Plans are charged

to participants, either directly to their accounts or through the investment

funds offered under the Group Trust

or AT&T

Master Trust, in accordance with administrative

procedures established by the Plan

administrator. Investment

manager fees are charged through the investment funds.

Expenses charged directly to participant accounts

(e.g., recordkeeping, communications fees) are reflected

as a periodic fee on the participant account statements. In

addition, expenses

and fees with respect to certain transactions and

services (e.g., plan loan initiation fees) are charged directly

to participants who incur

them rather than to the Plans as a whole.

NOTE 2. ACCOUNTING POLICIES

The accompanying financial statements were prepared

in conformity with U.S. generally accepted accounting principles

(GAAP),

which require management to make estimates that affect

the amounts reported in the financial statements and accompanying

notes.

Actual results could differ from those estimates. Distributions

are recorded when paid.

Investment Valuation

and Income Recognition

Investments are stated at fair value except those investments that

are fully benefit-

responsive investments which are stated at contract

value. Fair value is the price that would be received to sell an

asset or paid to

transfer a liability in an orderly transaction between market

participants at the measurement date. See Note 3

for discussion of fair

value measurements. Investments in securities traded on

a national securities exchange are valued at the last reported sales price on

the

last business day of the year.

If no sale was reported on that date, they are valued at the last reported

bid price. Shares of registered

investment companies (i.e. mutual funds) are valued

based on quoted market prices, which represent the net asset value

of shares held

at year-end.

Common/collective trust funds and 103-12 investment

entities (i.e. an investment entity that holds the assets of two or

more plans

which are not members of a related group or employee

benefit plan) are valued at quoted redemption values that represent

the net asset

values (NAV)

of units held at year-end. Publicly traded partnerships are valued

using trades on a national securities exchange based

on the last reported sales price on the last business day

of the year.

 
6

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

Investment contracts held by a defined contribution plan

are required to be reported at contract value. Contract

value is the relevant

measurement attribute for that portion of the net assets available

for benefits of a defined contribution plan attributable to fully

benefit-

responsive investment contracts because contract value

is the amount participants would receive if they were to initiate permitted

transactions under the terms of the Plans. The Group

Trust invests in fully benefit-responsive and

synthetic guaranteed investment

contracts (Synthetic GICs).

The underlying investments of the Synthetic GICs are

owned by the Group Trust and are

comprised of corporate bonds and notes,

registered investment companies and government securities.

The contract value of the fully benefit-responsive investment

contracts

represents contributions plus earnings, less participant

withdrawals and administrative expenses.

Purchases and sales of securities are reflected as of

the trade date. Dividend income is recognized on the ex-dividend

date. Interest

earned on investments is recognized on the accrual basis.

Net income (loss) includes the Plan’s

gains and losses on investments

bought and sold as well as held during the year.

Transfers in and out of level 1 (quoted

market prices), level 2 (other significant observable inputs)

and level 3 (significant

unobservable inputs) are recognized on the period ending

date.

Notes Receivable from Participants

Notes receivable from participants represent participant loans

that are recorded at their unpaid

principal balance plus any accrued, but unpaid interest. Interest income

on notes receivable from participants is recorded when it is

earned. Related fees are recorded as administrative expenses and

are expensed when they are incurred. No allowance for credit

losses

has been recorded as of December 31, 2019 or 2018. If

a participant ceases to make loan repayments and the Plan administrator deems

the participant loan to be a distribution, the participant

loan balance is reduced and a distribution is recorded.

Recent Accounting Standards

In February 2017, the Financial Accounting Standards

Board (FASB) issued Accounting

Standards Update No. 2017-06 “Employee

Benefit Plan Master Trust Reporting”

(ASU 2017-06). ASU 2017-06 requires plans to report interests in a master

trust and changes in

the value of that interest as separate line items on

the plan’s financial statements. The

plans must also disclose the master trust’s

investments by general type as well as other assets and liabilities and

disclose the dollar amount of the plan’s

interest in each category

disclosed. The new standard is effective for

fiscal years beginning after December 15, 2018 with retrospective

application. The Plan

has adopted this standard retrospectively.

In July 2018, the FASB

issued Accounting Standards Update No. 2018

-09 “Codification Improvements” (ASU-2018-09). ASU 2018-

09 requires a plan to evaluate its investments to determ

ine whether a readily determinable fair value exists or if

investments qualify for

the net asset value per share practical expedient and can

be excluded from the fair value hierarchy disclosure. The

new standard is

effective for fiscal years beginning after December

15, 2018.

The Plan has adopted this standard,

retrospectively.

In August 2018, the FASB

issued Accounting Standards Update No. 2018-13 “Fair

Value

Measurement (Topic

820) Disclosure

Framework-

Changes to the Disclosure Requirements for Fair Value

Measurement” (ASU 2018-13). ASU 2018-13 eliminates and

modifies certain disclosure requirements for fair

value measurements of non-public entities. The eliminated

disclosure requirements

include (i) the amount of and reasons for transfers between

Level 1 and Level 2 of the fair value hierarchy,

(ii) the policy for timing of

transfers between fair value hierarchy levels, (iii) the

valuation processes for Level 3 fair value measurements

and (iv) the changes in

unrealized gains and losses for the period included in

earnings for recurring Level 3 fair value measurements held at

the end of the

reporting period. The modified disclosure requirements

include (i) In lieu of a rollforward for Level 3 fair value measurements

disclosing the transfers into and out of Level 3 of the fair

value hierarchy and purchases and issuances of Level 3 assets and

liabilities

and (ii) for entities that use the practical expedient measure

of fair value the requirement disclosing the timing of liquidation

of an

investee’s assets and the

date when restrictions from redemption might lapse only

if the investee has communicated the timing to the

entity or announced the timing publicly.

The new standard is effective for fiscal years beginning

after December 15, 2019 with certain

retrospective applications. Early adoption is permitted.

Management is currently evaluating this updated guidance.

 
7

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

NOTE 3. FAIR VALUE

MEASUREMENTS

ASC 820,

Fair Value

Measurement

, establishes a framework for measuring fair value. That framework

provides a fair value hierarchy

that prioritizes the inputs to valuation techniques used

to measure fair value. The hierarchy gives the highest priority

to unadjusted

quoted prices in active markets for identical assets or liabilities (Level

1 measurements) and the lowest priority to unobservable inputs

(Level 3 measurements). The three levels of the fair

value hierarchy are described below:

Level 1

Inputs to the valuation methodology are unadjusted quoted

prices for identical assets or liabilities in active markets that

the

Plan has the ability to access.

Level 2

Inputs to the valuation methodology include:

• Quoted prices for similar

assets and liabilities in active markets;

• Quoted prices for identical

or similar assets or liabilities in inactive markets;

• Inputs other than

quoted market prices that are observable for the asset or liability;

• Inputs that are derived

principally from or corroborated by observable market data by correlation

or other means.

If the asset or liability has a specified (contractual) term, the

Level 2 input must be observable for substantially the full

term

of the asset or liability.

Level 3

Inputs to the valuation methodology are unobservable and

significant to the fair value measurement.

The asset’s or liability’s

fair value measurement level within the fair value hierarchy

is based on the lowest level of any input that is

significant to the fair value measurement. Valuation

techniques used need to maximize the use of observable inputs

and minimize the

use of unobservable inputs.

The valuation methodologies described in Note 2 may produce

a fair value calculation that may not be indicative of net realizable

value

or reflective of future fair values. Furthermore, while Plan management

believes its valuation methods are appropriate and

consistent with other market participants, the use of

different methodologies or assumptions to determine

the fair value of certain

financial instruments could result in a different

fair value measurement at the reporting date. There have been

no changes in the

methodologies used at December 31, 2019 and 2018.

See Note 4 for fair value hierarchy for the Group Trust’s

and AT&T

Master Trust’s

investments.

NOTE 4. INVESTMENTS

The Plans held investments in the AT&T

Master Trust (for certain investment fund

options as disclosed in Note 1), and the AT&T

Master Trust held an investment in

the Group Trust as of December 31, 2019

and 2018.

AT&T Savings Plan

Master Trust Investments

AT&T

established the AT

&T Master Trust to manage assets of pooled

investment options among various AT&T

sponsored employee

benefit plans.

Each participating plan’s

interest in the investment fund options (i.e., separate

accounts) of the AT&T

Master Trust is based on

account balances of the participants and their elected investment

fund options. The AT&T

Master Trust assets are allocated among

the

participating plans by assigning to each plan those transactions

(primarily contributions, benefit payments, and expenses) that

can be

specifically identified, and by allocating investment income

and administrative expenses related to the AT&T

Master Trust on a daily

basis based on each participant’s

account balance within each investment fund option.

 
8

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The participating plans and ownership percentages of

the AT&T

Master Trust are listed below:

December 31,

2019

2018

AT&T

Retirement Savings Plan

99.74%

99.72%

AT&T

Puerto Rico Retirement Savings Plan

0.26%

0.28%

Total

100.00%

100.00%

The Plans’ percentage interest in each of the investment

fund options within the AT&T

Master Trust is disclosed below:

December 31, 2019

December 31, 2018

AT&T

Retirement

Savings

Plan

*

AT&T

Puerto Rico

Retirement

Savings

Plan

AT&T

Retirement

Savings

Plan

AT&T

Puerto Rico

Retirement

Savings

Plan

Total U.S. Stock

Market Index Fund

99.820%

0.180%

99.840%

0.160%

Large Cap U.S. Stock Index Fund

99.670%

0.330%

99.700%

0.300%

Small and Mid-Sized U.S. Stock Index Fund

99.640%

0.360%

99.680%

0.320%

International Stock Index Fund

99.360%

0.640%

99.450%

0.550%

AT&T

Shares Fund

99.720%

0.280%

99.750%

0.250%

AT&T

Age-Based Asset Allocation Funds:

AT&T

Age-Based Allocation 2000 Fund

99.810%

0.190%

99.830%

0.170%

AT&T

Age-Based Allocation 2005 Fund

99.900%

0.100%

99.920%

0.080%

AT&T

Age-Based Allocation 2010 Fund

99.840%

0.160%

99.840%

0.160%

AT&T

Age-Based Allocation 2015 Fund

99.910%

0.090%

99.920%

0.080%

AT&T

Age-Based Allocation 2020 Fund

99.800%

0.200%

99.800%

0.200%

AT&T

Age-Based Allocation 2025 Fund

99.870%

0.130%

99.850%

0.150%

AT&T

Age-Based Allocation 2030 Fund

99.630%

0.370%

99.640%

0.360%

AT&T

Age-Based Allocation 2035 Fund

99.580%

0.420%

99.570%

0.430%

AT&T

Age-Based Allocation 2040 Fund

99.400%

0.600%

99.360%

0.640%

AT&T

Age-Based Allocation 2045 Fund

99.320%

0.680%

99.300%

0.700%

AT&T

Age-Based Allocation 2050 Fund

99.560%

0.440%

99.570%

0.430%

AT&T

Age-Based Allocation 2055 Fund

99.830%

0.170%

99.850%

0.150%

AT&T

Age-Based Allocation 2060 Fund

99.700%

0.300%

99.730%

0.270%

Fidelity BrokerageLink

®

99.990%

0.010%

99.990%

0.010%

*December 31, 2019 investment fund options allocations above

for the ARSP do not include the net assets transferred from the

Warner Media,

LLC Savings Plan. This plan transfer is reflected as a receivable

in the AT&T

Master Trust financial position and

not

allocated to the fund options as of December 31,

2019.

 
9

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The financial position of the AT&T

Master Trust was as follows:

December 31, 2019

AT&T

Master Trust

AT&T

Retirement

Savings Plan Interest

AT&T

Puerto Rico Retirement

Savings Plan Interest

AT&T

common stock

$

6,396,097

$

6,378,188

$

17,909

Mutual funds

77,376

77,093

283

Common/collective trust funds

21,384,074

21,308,331

75,743

Fidelity BrokerageLink

2,381,817

2,381,579

238

Investment in Group Trust

13,522,761

13,488,621

34,140

AT&T

Master Trust investments

$

43,762,125

$

43,633,812

$

128,313

Receivable from the Time Warner

Defined Contribution Plans Master

Trust

4,779,355

4,779,355

-

Net other assets and liabilities

1,930

2,362

(432)

Net assets available for benefits

$

48,543,410

$

48,415,529

$

127,881

December 31, 2018

AT&T

Master Trust

AT&T

Retirement

Savings Plan Interest

AT&T

Puerto Rico Retirement

Savings Plan Interest

AT&T

common stock

$

4,885,378

$

4,873,164

$

12,214

Mutual funds

81,446

81,152

294

Common/collective trust funds

17,850,871

17,792,771

58,100

Fidelity BrokerageLink

2,007,335

2,007,134

201

Investment in Group Trust

11,511,251

11,480,679

30,572

AT&T

Master Trust investments

$

36,336,281

$

36,234,900

$

101,381

Net other assets and liabilities

(17,991)

(17,711)

(280)

Net assets available for benefits

$

36,318,290

$

36,217,189

$

101,101

Net Appreciation in Fair Value

of AT&T Master

Trust Investments

and

Total

Investment Income for the Year

Ended December 31, 2019

2019

Net appreciation in fair value of AT&T

Master Trust Investments

$ 6,790,842

Investment income:

Dividends

343,331

Interest

923

Gain from investment in Group Trust

1,257,685

Net investment income of Master Trust Investments

$ 8,392,781

 
10

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The following tables set forth by level, within the fair

value hierarchy, the

AT&T

Master Trust’s assets at fair

value, excluding its

investment in the Group Trust:

AT&T Master Trust

Assets at Fair Value as of

December 31, 2019*

Level 1

Level 2

Level 3

Total

AT&T

common stock

$ 6,396,097

$ —

$ —

$ 6,396,097

Mutual funds

77,376

—

—

77,376

Self-directed brokerage accounts

2,373,290

8,527

—

2,381,817

Total

assets in fair value hierarchy

$8,846,763

$ 8,527

$

—

$ 8,855,290

Common/collective trusts measured at net asset value

Asset allocation funds

1

7,289,231

Total U.S. stock

market index fund

2

1,848,014

Large cap U.S. stock index fund

3

6,473,912

Small and mid-sized U.S. stock index fund

4

3,234,832

International stock index fund

5

2,538,085

Total

assets at fair value

$30,239,364

1

This category includes 13 common/collective trust funds

also known as Aged-Based Asset Allocation Funds which

are well

diversified portfolios that adjust the mix of the various underlying

investments over time. The change in allocation of

investments is designed to move from a more aggressive

investment strategy to a more conservative strategy through

the

projected retirement date and for a number of years thereafter.

The year associated with the fund identification denotes the

projected year of retirement of the participant selecting

the fund. There are currently no redemption restrictions on these

investments.

2

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Dow Jones Total U.S.

Stock Market Index. There are currently no

redemption restrictions on this investment.

3

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Standard and Poor’s Composite Stock Price Index

of 500 stocks (the

S&P 500

®

). There are currently no redemption restrictions on this investment.

4

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Dow Jones U.S. Completion Total

Stock Market Index. There are

currently no redemption restrictions on this investment.

5

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the All Country World

Index ex U.S. Index. Except for a short-term

trading fee applicable to certain participant transactions, there

are currently no redemption restrictions on this investment.

*December 31, 2019 fair value hierarchy table above does not

include the assets transferred from the Warner

Media, LLC Savings

Plan. This plan transfer is reflected as a receivable

in the AT&T

Master Trust financial position and

not allocated to the three levels as

of December 31, 2019.

 
11

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

AT&T Master Trust

Assets at Fair Value as of

December 31, 2018

Level 1

Level 2

Level 3

Total

AT&T

common stock

$4,885,378

$ —

$ —

$ 4,885,378

Mutual funds

81,446

—

—

81,446

Self-directed brokerage accounts

1,998,969

8,366

—

2,007,335

Total assets in fair value

hierarchy

$6,965,793

$ 8,366

$ —

$ 6,974,159

Common/collective trusts measured at net asset value

Asset allocation funds

1

6,278,200

Total U.S. stock

market index fund

2

1,478,274

Large cap U.S. stock index fund

3

5,271,702

Small and mid-sized U.S. stock index fund

4

2,744,791

International stock index fund

5

2,077,904

Total assets at fair value

$ 24,825,030

1

This category includes 13 common/collective trust funds

also known as Aged-Based Asset Allocation Funds which

are well

diversified portfolios that adjust the mix of the various underlying

investments over time. The change in allocation of

investments is designed to move from a more aggressive

investment strategy to a more conservative strategy through

the

projected retirement date and for a number of years thereafter.

The year associated with the fund identification denotes the

projected year of retirement of the participant selecting

the fund. There are currently no redemption restrictions on these

investments.

2

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Dow Jones Total U.S.

Stock Market Index. There are currently no

redemption restrictions on this investment.

3

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Standard and Poor’s Composite Stock Price Index

of 500 stocks (the

S&P 500

®

). There are currently no redemption restrictions on this investment.

4

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the Dow Jones U.S. Completion Total

Stock Market Index. There are

currently no redemption restrictions on this investment.

5

This category includes a common/collective trust fund

with an objective of providing investment results that approximate the

overall performance of the common stocks included

in the All Country World

Index ex U.S. Index. Except for a short-term

trading fee applicable to certain participant transactions, there

are currently no redemption restrictions on this investment.

 
12

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

AT&T Savings Group

Investment Trust

Investments

AT&T

established the Group Trust to manage

assets of pooled investment options among various AT&T

sponsored employee benefit

trusts. Each participating trust’s

interest in the investment fund options (i.e., separate accounts)

of the Group Trust is based on account

balances of the participants and their elected investment

fund options. The Group Trust assets are allocated

among the participating

plans by assigning to each trust those transactions (primarily

contributions, distributions, and expenses) that can

be specifically

identified and by allocating investment income and

administrative expenses to the individual plans on a daily basis based on

each

participant’s account balance

within each investment fund option.

The AT&T

Master Trust’s

interest in each of the investment fund options within the Group Trust

is disclosed below as of

December 31, 2019.

AT&T Total

Return Bond

Fund*

AT&T U.S.

Stock Fund*

AT&T International Stock Fund

AT&T Stable Value

Fund

Group Trust

AT&T Master

Trust

AT&T Master

Trust

AT&T Master

Trust

BellSouth

Savings and

Security Plan

AT&T Master

Trust

BellSouth

Savings and

Security Plan

Total

Interest bearing cash

$

1,060

$

-

$

2

$

-

$

-

$

-

$

1,062

Foreign cash

7,378

-

77

1

-

-

7,456

Mortgage-backed securities

379,956

-

-

-

-

-

379,956

Corporate debt

847,135

-

-

-

-

-

847,135

Government securities

195,789

-

-

-

-

-

195,789

Common/collective trust funds

1,090,769

2,485,301

447,390

6,544

-

-

4,030,004

Equities - common stock

-

398,270

199,296

2,915

-

-

600,481

Equities - preferred stock

2,427

-

3,742

55

-

-

6,224

Futures

(1,714)

-

-

-

-

-

(1,714)

Registered investment companies

269,023

64,059

4,581

67

74,332

6,163

418,225

Group Trust investments at fair value

2,791,823

2,947,630

655,088

9,582

74,332

6,163

6,484,618

receivable from the Time Warner Defined

Contribution Plans Master Trust

220,271

-

315,016

-

478,443

-

1,013,730

Unsettled trades/other

(203,119)

(196)

1,326

19

(1,717)

323

(203,364)

Fully benefit-responsive investments contracts

valued at contract value

-

-

-

-

6,243,864

517,689

6,761,553

Group Trust net assets

$

2,808,975

$

2,947,434

$

971,430

$

9,601

$

6,794,922

$

524,175

$

14,056,537

*

BellSouth Savings and Security Plan does not hold

any investments in AT&T

Total Return Bond

Fund or AT&T

U.S. Stock Fund.

 
13

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The AT&T

Master Trust’s

interest in each of the investment fund options within the Group Trust

is disclosed below as of

December 31, 2018.

AT&T Total

Return Bond

Fund*

AT&T U.S.

Stock Fund*

AT&T International Stock

Fund

AT&T Stable Value

Fund

Group Trust

AT&T

Master Trust

AT&T

Master Trust

AT&T

Master Trust

BellSouth

Savings and

Security Plan

AT&T

Master Trust

BellSouth

Savings and

Security Plan

Total

Interest bearing cash

$

8,064

$

500

$

3

$

-

$

-

$

-

$

8,567

Foreign cash

3,892

-

16

-

-

-

3,908

Mortgage-backed securities

267,127

-

-

-

-

-

267,127

Corporate debt

712,633

-

-

-

-

-

712,633

Government securities

315,654

-

-

-

-

-

315,654

Common/collective trust funds

756,427

2,161,448

155,359

2,163

-

-

3,075,397

103-12 investment entities

-

-

233,699

3,253

-

-

236,952

Equities - common stock

-

324,930

191,236

2,662

-

-

518,828

Equities - preferred stock

-

-

4,466

62

-

-

4,528

Futures

(245)

-

-

-

-

-

(245)

Registered investment companies

291,899

6,090

3,487

49

171,316

14,400

487,241

Group Trust investments at fair value

2,355,451

2,492,968

588,266

8,189

171,316

14,400

5,630,590

Unsettled trades/other

(395,768)

(263)

790

11

(1,140)

369

(396,001)

Fully benefit-responsive investments

contracts valued at contract value

-

-

-

-

6,299,631

529,520

6,829,151

Group Trust net assets

$

1,959,683

$

2,492,705

$

589,056

$

8,200

$

6,469,807

$

544,289

$

12,063,740

*

BellSouth Savings and Security Plan does not hold

any investments in AT&T

Total Return Bond

Fund or AT&T

U.S. Stock Fund.

Net Appreciation in Fair Value

of Group Trust

Investments and

Total

Investment Income for the Year

Ended December 31, 2019

Group

Trust

Net appreciation in fair value of Group Trust

Investments

$

913,769

Investment Income:

Interest

226,978

Dividends

22,461

Less: investment management expenses

(9,179)

Net investment income of Group Trust

Investments

$

1,154,029

 
14

AT&T Retirement

Savings

Plan

AT&T

Puerto Rico Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The following tables sets forth by level, within the fair value hierarchy,

the Group Trust’s

assets at fair value as of December 31, 2019

and 2018:

Group Trust Assets at Fair Value

December 31, 2019*

Level 1

Level 2

Level 3

Total

Corporate debt

$ —

$ 841,471

$ 5,664

$ 847,135

Mortgage-backed securities

—

376,318

3,638

379,956

Interest bearing cash

—

1,062

—

1,062

Foreign cash

7,456

—

—

7,456

Equities - common stock

598,435

—

2,046

600,481

Equities - preferred stock

3,797

2,427

—

6,224

Futures

(1,713)

(1)

—

(1,714)

Registered investment companies

418,225

—

—

418,225

Government securities

—

195,789

—

195,789

Total

assets in fair value hierarchy

$1,026,200

$ 1,417,066

$

11,348

$ 2,454,614

Investments measured at net asset value

U.S. common/collective trusts

1

3,525,120

International common/collective trusts

2

187,908

103-12 investments

3

266,026

Non-publicly traded registered investments companies

4

50,950

Total

assets at fair value

$ 6,484,618

1

The objective of the common/collective trust funds held

in the AT&T

U.S. Stock Fund is to deliver diversified exposure to the

large-capitalization U.S. equity market

as represented by the Russell 3000 Index. The objective of the

common/collective trust

funds held in the AT&T

Total Return Bond

Fund is to deliver diversified exposure to the fixed income market

as represented by

the Bloomberg Barclays Aggregate Index. There

are currently no redemption restrictions on these investments.

2

The objective of the common/collective trust funds held

in the AT&T

International Stock Fund is to provide diversified

exposure to international markets as represented by

the All Country World

Index ex U.S., MSCI Emerging Markets Net

Dividend Index, MSCI Australia Index and MSCI Canada

Index. There are currently no redemption restrictions on these

investments.

3

The objective of these equity commingled funds is to provide

diversified exposure to international markets as represented

by the

All Country World

Index ex U.S. that invest in both developed and emerging

countries. These funds have redemption

restrictions limited to daily and monthly settlement.

4

These are non-publicly traded registered investment companies,

consisting of a short-term floating rate portfolio

plus publicly-

traded high-yield and asset-backed fixed income securities.

The fair value of the investments in this group have been

estimated

using the net asset values reported by the fund manager.

These funds are utilized on a discretionary basis as part

of a broad fixed

income mandate. These are open-ended funds, with no

final termination dates. There are currently no redemption

restrictions on

this investment.

*December 31, 2019 fair value hierarchy table above does not

include the assets transferred from the Warner

Media, LLC Savings

Plan. This plan transfer is reflected as a receivable

in the AT&T

Master Trust financial position and

not allocated to the three levels as

of December 31, 2019.

 
15

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

Group Trust Assets at Fair Value

December 31, 2018

Level 1

Level 2

Level 3

Total

Corporate debt

$ —

$ 712,633

$ —

$ 712,633

Mortgage-backed securities

—

267,127

—

267,127

Interest bearing cash

—

8,567

—

8,567

Foreign cash

3,908

—

—

3,908

Equities - common stock

518,828

—

—

518,828

Equities - preferred stock

4,528

—

—

4,528

Futures

(245)

—

—

(245)

Registered investment companies

487,241

—

—

487,241

Government securities

—

315,654

—

315,654

Total assets in fair value

hierarchy

$ 1,014,260

$ 1,303,981

$ —

$ 2,318,241

Investments measured at net asset value

U.S. common/collective trusts

1

2,868,746

International common/collective trusts

2

157,522

103-12 investments

3

236,952

Non-publicly traded registered investments companies

4

49,129

Total assets at fair value

$ 5,630,590

1

The objective of the common/collective trust funds held

in the AT&T

U.S. Stock Fund is to deliver diversified exposure to the

large-capitalization U.S. equity market

as represented by the Russell 3000 Index. The objective of the

common/collective trust

funds held in the AT&T

Total Return Bond

Fund is to deliver diversified exposure to the fixed income market

as represented by

the Bloomberg Barclays Aggregate Index. There

are currently no redemption restrictions on these investments.

2

The objective of the common/collective trust funds held

in the AT&T

International Stock Fund is to provide diversified

exposure to international markets as represented by

the All Country World

Index ex U.S., MSCI Emerging Markets Net

Dividend Index, MSCI Australia Index and MSCI Canada

Index. There are currently no redemption restrictions on these

investments.

3

The objective of these equity commingled funds is to provide

diversified exposure to international markets as represented

by the

All Country World

Index ex U.S. that invest in both developed and emerging

countries. These funds have redemption

restrictions limited to daily and monthly settlement.

4

These are non-publicly traded registered investment companies,

consisting of a short-term floating rate portfolio

plus publicly-

traded high-yield and asset-backed fixed income securities.

The fair value of the investments in this group have been

estimated

using the net asset values reported by the fund manager.

These funds are utilized on a discretionary basis as part

of a broad fixed

income mandate. These are open-ended funds, with no

final termination dates. There are currently no redemption

restrictions on

this investment.

 
16

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

Derivative Financial Instruments

In the normal course of operations, Group Trust

assets and liabilities held in the AT&T

Stable Value

Fund (Stable Value

Fund) may

include derivative financial instruments (futures

and foreign currency forward contracts). These instruments involve,

in varying

degrees, elements of credit and market volatility risks in

excess of more traditional investment holdings such as equity and

debt

instruments. The intent is to use derivative financial instruments as

an economic hedge to manage market volatility and

foreign

currency exchange rate risk associated with the Stable Value

Fund’s investment assets. The gains

(losses) are located on the Statement

of Changes in Net Assets Available

for Benefits as Net Loss from Investment in AT&T

Savings Plan Master Trust to the extent of

the

Plans’ ownership in the AT&T

Master Trust. The Group Trust’s

fiduciaries do not anticipate any material adverse effect

on the Group

Trust’s

financial position resulting from its involvement in these instruments.

At December 31, 2019 and 2018, the fair value of derivative financial

instruments held by the AT&T

Master Trust was not material.

Futures Contracts

The primary risk managed

by the Group Trust using futures

contracts is the price risk associated with investments. On

behalf of the

AT&T

Master Trust, investment managers

for the Group Trust enter into various futures

contracts to economically hedge investments

in domestic securities. These contracts, which are

considered derivatives under ASC Topic

815,

Derivatives and Hedging

are

agreements between two parties to buy or sell a security

or financial interest at a set price on a future date and are standardized

and

exchange-traded. Upon entering into such a contract on behalf

of the Group Trust, the investment manager

is required to pledge to the

broker an amount of cash or securities equal to the

minimum “initial margin” requirements of the exchange

on which the contract is

traded. Pursuant to the contract, the investment manager

agrees to receive from or pay to the broker an amount of cash equal to

the

daily fluctuation in the value of the contract. Such

receipts or payments are known as variation margin and are

recorded on a daily

basis by the trustee as a realized gain or loss equal to

the difference in the value of the contract between daily

closing prices. Upon

entering into such contracts, the Group Trust

bears the risk of interest or exchange rates or securities prices moving

unexpectedly, in

which case, the Group Trust may

not achieve the anticipated benefits of the futures contracts and

may realize a loss. With futures,

there is minimal counterparty credit risk to the Group Trust

since futures are exchange traded and the exchange’s

clearinghouse, as

counterparty to all exchange traded futures, guarantees the

futures against default. The investments in the Group Trust

are subject to

equity price risk and interest rate risk, in the normal course

of pursuing its investment objectives. The U.S. interest rate

futures held in

the portfolio as of December 31, 2019 and 2018

were used primarily to hedge and manage the duration risk of

the portfolio.

Foreign Currency Contracts

The primary risks managed by the Group Trust

using foreign currency forward contracts is the foreign currency

exchange rate risk

associated with the Group Trust’s

investments denominated in foreign currencies. On

behalf of the AT&T

Master Trust, investment

managers for the Group Trust enter into

forward foreign currency contracts, which are agreements to exchange

foreign currencies at a

specified future date at a specified rate, the terms of which

are not standardized on an exchange. These contracts are intended

to

minimize the effect of currency fluctuations

on the performance of investments denominated in foreign

currencies. Although in some

cases, forward foreign currency contracts are used to express

a view on the direction of a particular currency,

risk arises both from the

possible inability of the counterparties to meet the

terms of the contracts (credit risk) and from movement in foreign

currency

exchange rates (market risk). Foreign currency forward

contracts are entered into with major banks to minimize

credit risk, and

accordingly, no credit

reserve has been established against these amounts.

The contracts are recorded at fair value on the date

the contract is entered into, which is typically zero. The fair

value of the foreign

currency contracts are disclosed in unsettled trades and

other of the Group Trust and are included

in the Statement of Net Assets

Available for

Benefits to the extent of the Plans’ ownership in the AT&T

Master Trust.

Fully Benefit-Responsive Investment Contracts

The Stable Value

Fund consists of fully benefit-responsive investment contracts

with various financial institutions and insurance

companies which can be accounted for by the Plans at contract value.

Generally contract value represents contributions made under

the contract, plus earnings, less participant withdrawals and

administrative expenses.

 
17

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The investments held by the Stable Value

Fund as of December 31, 2019 include Synthetic GICs which are

fully benefit-responsive

investment contracts. Synthetic GICs are constructed

by combining a stable value insurance wrapper contract and a

fixed income

portfolio. The assets supporting the Synthetic GICs are

owned by the Group Trust and generally consist

of high quality fixed income

securities.

Traditional Guaranteed Investment

Contracts (“Traditional GICs” also known

as “General Account GICs”) are issued by insurance

companies

and typically pay a guaranteed fixed or floating rate of interest over

the life of the contract with a repayment of principal at

maturity. A Synthetic

GIC is similar to a Traditional GIC but has unbundled

the insurance and investment components of the

Traditional GIC.

Wrapper contracts are typically issued

by a bank or insurance company,

and seek to provide preservation of principal by permitting

daily liquidity at contract value

for participant directed transactions, in accordance with

the provisions of the Plans. Wrapper

contracts

amortize the realized and unrealized gains and losses on

the underlying fixed income investments through adjustments to the

future

interest crediting rate of the contract. Wrapper

contracts typically contain contractual provisions that prevent

the interest crediting rate

from falling below zero.

In certain circumstances, the amount withdrawn from

the wrapper contract could be payable at fair value rather

than at contract value.

These events include termination of the Plans, a material

adverse change to the provisions of the Plans, if AT&T

elects to withdraw

from a wrapper contract in order to switch to a different

investment provider or, in the event of a spin-off

or sale of a division, if the

terms of the successor plan do not meet the contract

issuers’ underwriting criteria for issuance of a clone wrapper

contract. Events that

would permit a wrapper contract issuer to terminate a wrapper

contract upon short notice include the Plans’ loss of qualified status,

un-cured material breaches of responsibilities or material and

adverse changes to the provisions of the Plans. The Company

does not

believe any of the events are probable of occurring

in the foreseeable future.

Interest Bearing Cash

At December 31, 2019 and 2018, ARSP held approximately

$20,300 and $18,400, respectively,

and ARSP-PR held approximately

$124 and $101, respectively,

of unallocated interest bearing cash related to contributions, uncashed

checks and fees pending allocation

to participant accounts or clearance through the plan

funds.

Investment Risk

Investments held by the Group Trust

and the AT&T

Master Trust are exposed to various risks, such as

interest rate, market and credit

risks. Due to the level of risk associated with certain investments,

it is at least reasonably possible that changes in the

values of

investments could occur in the near term and that such changes could

materially affect participants’ account balances and

the amounts

reported in the statements of net assets available for benefits.

Participants’ accounts that are invested in funds holding

AT&T

stock are

exposed to market risk in the event of a significant decline

in the value of AT&T

stock.

Additionally, the

Group Trust invests in securities with contractual

cash flows, such as asset backed securities, collateralized mortgage

obligations and commercial mortgage-backed securities. The value,

liquidity and related income of these securities are sensitive to

changes in economic conditions, including real estate value,

delinquencies or defaults, or both, and may be adversely

affected by shifts

in the market’s perception

of the issuers and changes in interest rates.

 
18

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

NOTE 5. PARTIES

-IN-INTEREST TRANSACTIONS

The Plan may,

at the discretion of the Plan’s participants

or via the Company match, invest through the Master Trust

in the Company’s

common stock through the AT&T

Shares Fund. The Master Trust held 163,66

6,768 and 171,176,516 shares of the Company’s

common stock as of December 31, 2019 and 2018,

respectively. Dividends

earned by the Master Trust on the Company’s

common

stock were $343,331 for the year ended December 31,

2019.

The assets of the Plans are invested in AT&T

stock either through the Group Trust or

AT&T

Master Trust. Because the Company

is

the plan sponsor of the Plans, transactions involving the

Company’s stock qualify as party-in-interest

transactions. In addition, certain

investments held by the Plans, Group Trust,

and AT&T

Master Trust are managed by BNY Mellon

and Fidelity as trustee or custodian

and record keeper, respectively,

as defined by various agreements. Therefore, these transactions and

fees paid to these entities qualify

as parties-in-interest transactions. All of these transactions

are exempt from the prohibited transactions rules.

NOTE 6. TAX STATUS

The ARSP has received a determination letter from the IRS dated

August 12, 2015, stating that the ARSP is qualified under

Section 401(a) of the IRC and, therefore, the related trust

is exempt from taxation. Subsequent to this determination

by the IRS the

Plan was amended. Once qualified, the ARSP is required

to operate in conformity with the IRC to maintain its qualification.

The Plan

administrator believes the ARSP is being operated

in compliance with the applicable requirements of the IRC and,

therefore, believes

that the Plan, as amended, is qualified and the related

trust is tax exempt.

The ARSP-PR has received a determination letter from

the Commonwealth of Puerto Rico’s

Department of Treasury (Tre

asury) dated

May 29, 2018 stating that the ARSP-PR is qualified

under Section 1081.01 of the Internal Revenue Code for a New

Puerto Rico (the

Puerto Rico Code), and therefore, the related trust is exempt from

taxation. Once qualified, the ARSP-PR is required to operate

in

conformity with the Puerto Rico Code to maintain its qualification.

The Plan administrator believes the ARSP-PR is being operated

in

compliance with the applicable requirements of the

Puerto Rico Code and, therefore, believes that the ARSP-PR, as amended,

is

qualified and the related trust is tax exempt.

Accounting principles generally accepted in the United

States require Plan management to evaluate uncertain tax positions

taken by

the Plans. The financial statement effects of

a tax position are recognized when the position is more likely than

not, based on the

technical merits, to be sustained upon examination by

the IRS or Treasury.

The Plans’ administrator has analyzed the tax positions

taken by the Plans, and has concluded that as of December

31, 2019,

there were no uncertain positions taken or expected to be taken.

The Plans have recognized no interest or penalties related

to uncertain tax positions. The Plans are subject to routine

audits by taxing

jurisdictions; however, there are currently

no audits for any tax periods in progress.

NOTE 7. RECONCILIATION

OF FINANCIAL STATEMENTS

TO FORM 5500

The following is a reconciliation of Net Assets Available

for Benefits per the financial statements to the Form

5500 as of

December 31, 2019:

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

Net Assets Available

for Benefits per the financial statements

$49,280,973

$ 137,356

Distributions payable to participants

(11,958)

(31)

Net Assets Available

for Benefits per the Form 5500

$49,269,015

$ 137,325

 
19

AT&T Retirement

Savings

Plan

AT&T Puerto Rico

Retirement Savings

Plan

Notes to Financial Statements (Continued)

(Dollars in Thousands)

The following is a reconciliation of Net Assets Available

for Benefits per the financial statements to the Form

5500 as of

December 31, 2018:

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

Net Assets Available

for Benefits per the financial statements

$37,044,727

$ 109,258

Distributions payable to participants

(9,072)

(30)

Net Assets Available

for Benefits per the Form 5500

$37,035,655

$ 109,228

Distributions payable to participants are recorded

on the Form 5500 for benefit claims that have been processed

and approved for

payment prior to December 31, but not yet paid as of

that date. The following is a reconciliation of distributions to participants

per the

ARSP financial statements to the Form 5500 for the year

ended December 31, 2019:

AT&T

Retirement

Savings Plan

AT&T

Puerto Rico

Retirement

Savings Plan

Distributions to participants per the financial statements

$ 4,088,284

$ 8,428

Distributions payable to participants at December 31, 2018

(9,072)

(30)

Distributions payable to participants at December 31, 2019

11,958

31

Distributions to participants per the Form 5500

$ 4,091,170

$ 8,429

NOTE 8. SUBSEQUENT EVENTS

Effective at the close of business on April 30,

2020, the Xandr Inc. 401(k) Plan was merged into

the ARSP.

As a result, approximately

$78,000 net assets were transferred to the ARSP on April

30, 2020.

In March 2020, the COVID-19 outbreak was declared a

pandemic by the World

Health Organization. The COVID-19 pandemic

has

led to extreme volatility in financial markets and

has affected, and may continue to affect,

the market price of AT&T

’s common stock

and other Plan assets. While the potential economic

impact brought by, and the

duration of, COVID-19 may be difficult to assess or

predict, a widespread pandemic could result in significant

disruption of global financial markets. The extent to which

COVID-19

impacts the financial markets will depend on future

developments that are highly uncertain and cannot be predicted.

The Coronavirus Aid Relief, and Economic Security Act (CARES Act)

was passed by the U.S. Senate on March 26,

2020. Section

2202 of the CARES Act permits eligible Plan participants to

request penalty-free distributions of up to $100,000

for qualifying

coronavirus-related reasons. These reasons include adverse

financial consequences due to being quarantined, furloughed, laid

off,

having work hours reduced or being unable to work

due to a lack of childcare due to COVID-19. Plan Man

agement is in the process

of reviewing the CARES Act and any resulting changes

to the Plan.

 
20

SCHEDULE H, LINE 4(a)—SCHEDULE OF DELIQUENT

PARTICIPANT

CONTRIBUTIONS

December 31, 2019

(Dollars in Thousands)

AT&T RETIREMENT

SAVINGS

PLAN

EIN 43-1301883, PLAN NO. 009

Participant Contributions

Transferred Late to the Plan

Total That Constitute Nonexempt Prohibited

Transactions

$9

Check Here if Late Participant

Loan Repayments are included:

Contributions

Not Corrected

Contributions

Corrected

Outside

VCFP

Contributions

Pending

Correction

in VCFP

Total Fully

Corrected Under

VCFP and PTE

2002-51

$ —

$ 8

$ 1

N/A

 
21

SCHEDULE H, LINE 4(i)—SCHEDULE OF ASSETS (HELD AT

END OF YEAR)

December 31, 2019

(Dollars in Thousands)

AT&T RETIREMENT

SAVINGS

PLAN

EIN 43-1301883, PLAN NO. 009

Identity of Issue

Description of Investment

Current

Value

Loan Fund

*

Notes Receivable from Participants

3.25% - 10.50%

$ 854,

483

TOTAL

$ 854,

483

*

Party-in-Interest.

AT&T PUERTO

RICO RETIREMENT SAVINGS

PLAN

EIN 43-1301883, PLAN NO. 011

Identity of Issue

Description of Investment

Current

Value

Loan Fund

*

Notes Receivable from Participants

3.50% - 9.25%

$ 9,472

TOTAL

$ 9,472

*

Party-in-Interest.

 
SIGNATURE

Pursuant to the requirements of the Securities Exchange

Act of 1934, the trustee (or other persons who administer the employee

benefit plan) has duly caused this annual report to

be signed by the undersigned thereunto duly authorized.

AT&T

Retirement Savings Plan

By: AT&T

Services, Inc.,

Plan Administrator for the Foregoing Plan

By

/s/ Debra L. Dial

Debra L. Dial

Senior Vice President and

Controller

Date: June 29, 2020

 
EXHIBIT INDEX

Exhibit identified below,

Exhibits 23 is filed herein as exhibit hereto.

Exhibit

Number

23

Consent of Independent Registered Public Accounting

Firm