The AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees (the “Plan” or “LTSPME-PR”) is a defined contribution plan established by AT&T Corp. (“AT&T”) to provide a convenient way for management employees (i.e., employees whose pay is defined at a monthly or annual rate and whose positions are not subject to automatic wage progression) of AT&T of Puerto Rico, Inc. to save on a regular and long-term basis. The LTSPME-PR participates in the AT&T Savings Master Trust (“Master Trust”) for the investment of the pooled assets of various funds. Each participant plan has an undivided interest in the Master Trust. The trustee of the Master Trust is State Street Bank and Trust Company (“Trustee”).

An eligible employee enters the Plan by authorizing a payroll allotment to invest his/her contributions in one or more of twenty-six different funds as set forth in the current Plan documents. A participant who did not have, as of July 30, 2004, or who does not continue to maintain a balance in the Fidelity Low-Priced Stock Fund, cannot invest in the Fidelity Low-Priced Stock Fund through the Plan. On December 6, 2004, Fidelity Investments (“Fidelity”) implemented an enterprise-wide policy to monitor and address excessive short-term trading in Fidelity funds sold through retail or 401(k) plans for which they keep the records. This policy maintains standards for warning participants and suspending trading privileges, if necessary, in accordance with the prospectus rules. Fidelity has offered to implement this policy for other mutual fund providers and T. Rowe Price and Legg Mason agreed to have their funds monitored by Fidelity. Effective August 29, 2005, the short-term holding period for the Morgan Stanley Institutional Fund – International Equity Portfolio, Class A Shares was reduced from 60 days to 30 days.

In March 2005, in response to a change in the law, the automatic distribution threshold was reduced to $1,000 from $5,000.

On November 18, 2005, AT&T Corp. was acquired by AT&T Inc. (formerly known as SBC Communications Inc.). As a result of the acquisition, the AT&T Corp. common stock held in the AT&T Stock Fund was converted to AT&T Inc. common stock based on a conversion ratio. In addition, a special cash dividend of $1.30 was received for each share of AT&T Corp. common stock and was invested in the AT&T Stable Value Fund. As part of the conversion process, the AT&T Stock Fund was closed for participant transactions from 4:00 p.m. Eastern Time on November 18, 2005, through 9:30 a.m. Eastern Time on November 23, 2005.

Employee allotments of 2% to 16% of salary may be authorized. An employee may designate allotments as pre-tax allotments, after-tax allotments or as a combination of pre-tax and after-tax allotments. All participant contributions and earnings thereon are immediately vested and are not subject to forfeiture. Pre-tax contributions may be made up to the Puerto Rico Department of Treasury limit of $8,000 or 10% of the participants annual compensation, whichever is less, in 2005. When an employee contributes to the Plan, the employing company (AT&T or any AT&T subsidiary participating in the Plan) will contribute an amount equal to 66-2/3% of the first 6% of the employee’s salary contributed. Employing company contributions are made in accordance with the participant’s elected investment direction. Employing company contributions and earnings thereon are vested after three years of vesting service.

Loans are available to all participants in an amount not less than $1,000, up to a maximum of 50% of the participant’s vested account balance or $50,000 minus the participant’s highest outstanding loan balance in the last twelve months. Upon default participants are considered to have received a distribution and are subject to income taxes on the distributed amount. Loan transactions are treated as a transfer to (from) the investment funds from (to) the Participant Loan Account. The term of the loan shall not exceed fifty-six months. The loans are collateralized by the balance in the participant’s account and bear interest at the prime rate on the last business day of the month preceding the month in which the loan was initiated, or at a rate as otherwise approved by the Savings Plan Committee. For participants who are on active military service, the loan interest rate may be reduced to 6% during the period of military service, unless the participant elects that the loan interest not be so reduced. Interest rates are fixed for the term of the loan. Interest rates on participant loans outstanding as of December 31, 2005, range from 4.0% to 8.0%. Principal and interest are paid through payroll deductions or participant-initiated payments.

When a participant terminates employment, the entire vested amount in the participant’s account will be distributed in a single payment, if the amount to be distributed is $1,000 or less. However, if the amount to be distributed exceeds $1,000, and the participant does not request the distribution, the participant’s account shall remain in the Plan and may be withdrawn or distributed at the participant’s request, or as minimum required distributions beginning when the participant attains age 70-1/2, or upon the participant’s death, whichever is earlier. When a participant dies, the participant’s beneficiary or beneficiaries may elect their share of the participant’s account balance as a single payment or as a transfer to a LTSPME-PR account in the beneficiary’s name. Hardship and non-hardship withdrawals are available upon request.

There were no participant forfeitures in 2005. The total forfeited non-vested accounts as of December 31, 2005 and 2004, are $43,062 and $40,890, respectively. Forfeitures will be used to reduce future employer contributions and administrative expenses. During 2005, no employing company contributions were reduced by forfeitures.

For a complete description of the Plan, participants should refer to the Plan Prospectus and Plan Summary Plan Description (“SPD”), including the Summaries of Material Modifications to the SPD. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Basis of Accounting — The financial statements of the Plan are prepared under the accrual method of accounting.

Payment of Benefits — Benefits are recorded when paid.

Valuation of Investments — Income and assets of the Master Trust are allocated to the Plan based on participant balances. The net asset value of the Master Trust is calculated by the Trustee. The Trustee determines the value of the underlying assets in the investment manager portfolios taking into account the market values supplied by a generally accepted pricing or quotation services or quotations furnished by one or more reputable sources, such as securities brokers, dealers or investment bankers, mutual fund administrators, values of comparable property, appraisals or other relevant information. Investments in AT&T common shares and other securities listed on national stock exchanges are carried at fair value determined on the basis of the last published sales price per share on the last business day of the year. Securities traded in over-the-counter markets are carried at fair value based on the last bid prices or closing prices on December 31, as listed in published sources if available or, if not available, from other sources considered reliable. Contracts with insurance companies and financial institutions, which are fully benefit responsive, are carried at contract value (representing contributions made under the contracts plus accumulated interest at the contract rates). All other investments are carried at the fair value at the close of the business day on December 31. Participant loans receivable are valued at cost which approximates fair value. Participant loans are assets of the Plan and are not part of the Master Trust.

Purchases and Sales of Investments — Purchases and sales of securities are recorded on the trade date.

Investment Income — Dividend income is recorded on the ex-dividend date. Interest income is accrued as earned.

Net Appreciation (Depreciation) in the Fair Value of Investments — The Plan presents in the statement of changes in net assets available for plan benefits the net appreciation (depreciation) in the fair value of investments, which consists of the realized gains (losses) and the change for the year in unrealized appreciation (depreciation) on those investments.

Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates relate to the valuation of the investments.

Risks and Uncertainties — Investments held by the Master Trust and Plan 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 statement of net assets available for plan benefits.

The Puerto Rico Department of Treasury has determined and informed AT&T by a letter dated May 31, 1995, that the Plan and related trust are qualified in accordance with applicable sections of the Puerto Rico Income Tax Act of 1954 (the “Act”). The Act has been amended and restated as the Puerto Rico Internal Revenue Code of 1994 (the “1994 Code”). The Plan has been amended and restated since receiving the determination letter. The Plan Administrator, however, believes that the Plan is qualified and is currently being operated in compliance with the applicable requirements of the 1994 Code. Since the Plan and its associated trust are tax-exempt under the 1994 Code, no provision for income taxes has been included in the Plan’s financial statements.

Plan participants’ accounts that are invested in the Company stock fund option are exposed to market risk in the event of a significant decline in the value of AT&T Inc. stock.

Although it has not expressed any intent to do so, AT&T has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, the Plan provides that the net assets are to be distributed to participating employees in amounts equal to their respective interest in such assets.

In general, fees paid for Plan administration, including recordkeeping (except for such services as are attributable to the participant loan program), are paid from the Master Trust, unless those expenses are paid by the Company or participant(s). Fees for Trustee services are paid out of Master Trust assets. Expenses attributable to the management and investment of each of the investment funds are charged against those respective funds.

The Master Trust investments presented as of December 31, 2005 and 2004, are those held by State Street Bank and Trust Company, as trustee, of the AT&T Savings Master Trust.

The following presents investment funds offered to participants that represent 5% or more of the Master Trust investments as of December 31, 2005 and 2004:

The Master Trust invests in common shares of AT&T Inc. stock, which qualifies as a related party transaction. At December 31, 2005, the total of these investments amounted to $211,631,877 or approximately 3% of the Master Trust. At December 31, 2004, the total amounted to $219,113,408 or approximately 3% of the Master Trust. Additionally, during 2005, the Master Trust reimbursed the Plan sponsor for certain expenses incurred on behalf of the Master Trust.

Certain Master Trust investments are managed by State Street Bank and Trust Company (“State Street”) and Fidelity Management Trust Company (“Fidelity”). State Street and Fidelity are the trustee and recordkeeper, respectively, as defined by the Master Trust agreement and, therefore, these transactions and fees paid to these entities qualify as parties-in-interest transactions.  

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator for the Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized.

Date: June 27, 2006