NEW ENGLAND FUNDS TRUST I, N-30D, 1998-03-06

NEW ENGLAND FUNDS TRUST I
N-30D, 1998-03-06

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<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------

[logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)

New England
International Equity Fund
[Graphic omitted]

December 31, 1997
<PAGE>

FEBRUARY 1998
- --------------------------------------------------------------------------------

"Even in 1997 . . . investors saw some sharp, short-term drops, whether they
were invested in the United States or overseas, in bonds or stocks."

[Photo of Henry L.P. Schmelzer]

Dear Shareholder:

In 1997, many investors once again had reason to be pleased with the performance
of their mutual fund holdings. However, in times such as these, expectations
tend to grow along with prices. It pays to remind ourselves that no trend is
permanent, and we should keep our goals realistic and long-term needs in focus.

In the third straight year of outstanding returns, the Dow Jones Industrial
Average and the Standard & Poor's 500 Stock Index -- two widely followed
indicators of the performance of large-company stocks -- gained 24.9% and 33.3%
respectively. At the same time, smaller-company stocks, as measured by the
Russell 2000 Index, were up 22.4%. Meanwhile, bond investors also were rewarded
as declining interest rates and rising prices meant solid gains. The Lehman Long
Treasury Index, for example, posted a 15.1% return for the year. Results were
less favorable for international investors, especially those exposed to emerging
markets or the financial turmoil in Asia.

Gratifying though it has been, the markets' surge of the past few years obscures
the historic norm: Downturns and volatility also are regular features of
investing. Even in 1997, notwithstanding the impressive overall results,
investors saw some sharp, short-term drops, whether they were invested in the
United States or overseas, in bonds or stocks. Market fluctuations remind us of
some valuable lessons.

First, volatility is inevitable, and should not disrupt long-term programs
without sufficient evaluation. Those who sold in response to downturns --
October 1987 is an obvious example -- may have missed out on the subsequent
uptrend. Second, sound diversification can reduce risk. A useful exercise is to
review your asset allocation regularly with your financial representative.

Starting in 1998, you have one more reason to consult with your representative:
Newly expanded retirement options, including the new Roth IRA, could play an
important role in your retirement and tax planning for years to come. With this
in mind, New England Funds has introduced programs specially designed to help
you make the most of the newest retirement vehicles.

[Dalbar Logo]
1995 o 1996 o 1997

In addition to offering quality mutual fund choices and tax-advantaged plans, we
focus on providing the highest quality customer service. This is why I am
pleased to report that we have received DALBAR's Mutual Fund Service Award for
"providing the highest tier of service excellence in the mutual fund industry."
New England Funds is one of just three mutual fund companies to receive this
award for the third consecutive year from DALBAR, an independent evaluator of
mutual fund service. We are continuing to work to provide even more effective
services. Two examples are: the Personal Access Line(TM) -- our enhanced
automated telephone account service (800-346-5984) -- and the account
information section of the New England Funds web site (www.mutualfunds.com).
Each provides convenient, 24-hour access to current information about your New
England Funds accounts.

All of us at New England Funds thank you for your continued support and look
forward to serving you in the years ahead.

Sincerely,

/s/ Henry L.P. Schmelzer

Henry L.P. Schmelzer
President
<PAGE>
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NEW ENGLAND INTERNATIONAL EQUITY FUND
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INVESTMENT RESULTS THROUGH DECEMBER 31, 1997
- --------------------------------------------------------------------------------

Putting Performance in Perspective

The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.

[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since New England International Equity
Fund's inception on 5/21/92, compared to the EAFE Index over the same period.
The data points for this chart are as follows:]

GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------

MAY 1992 (INCEPTION) THROUGH DECEMBER 1997

Net With MSCI
Asset Maximum EAFE(R)
Value(1) Sales Charge(2) Index(4)
- --------------------------------------------------------------------------------

5/21/92 $10,000 $ 9,425 $10,000
1992 $ 9,511 $ 8,964 $ 9,317
1993 $12,296 $11,589 $12,386
1994 $13,287 $12,523 $13,384
1995 $14,055 $13,247 $14,930
1996 $14,514 $13,680 $15,880
1997 $13,417 $12,646 $16,207

This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, Class C and Class Y
share performance will be greater or less than that shown based on differences
in inception date, fees and sales charges. All Index and Fund performance
assumes reinvested distributions.
<PAGE>

- -------------------------------------------------------------------------------
NEW ENGLAND INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS -- 12/31/97
-------------------------------------------------------------------------------

CLASS A (Inception 5/21/92) 1 YEAR 5 YEARS SINCE INCEPTION

Net Asset Value(1) -7.56% 7.14% 5.37%

With Max. Sales Charge(2) -12.90 5.86 4.27

MSCI EAFE(4) 2.06 11.71 8.97

Lipper International Avg.(5) 5.49 12.10 9.45
- -------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 1 YEAR 3 YEARS SINCE INCEPTION

Net Asset Value(1) -7.97% -0.32% 1.51%

With CDSC(3) -12.25 -1.22 1.11

MSCI EAFE(4) 2.06 6.59 6.12

Lipper International Avg.(5) 5.49 8.58 8.39
(calculated from 9/30/93)
- -------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) 1 YEAR SINCE INCEPTION

Net Asset Value(1) -7.95% -0.25%

MSCI EAFE(4) 2.06 6.59

Lipper International Avg.(5) 5.49 8.58
- -------------------------------------------------------------------------------
CLASS Y (Inception 9/9/93) 1 YEAR 3 YEARS SINCE INCEPTION

Net Asset Value(1) -6.74% 1.09% 2.95%

MSCI EAFE(4) 2.06 6.59 6.11

Lipper International Avg.(5) 5.49 8.58 8.39
(calculated from 9/30/93)

These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
their original cost. Class Y shares are available only to certain institutional
investors. Share price and return may vary.

NOTES TO CHARTS

(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares. Class Y shares are available only to eligible
institutional investors and are not subject to a sales charge.
(4) Morgan Stanley Capital International (MSCI) Europe Australasia Far East
Index (EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing stock markets
in Europe, Australia, New Zealand and the Far East. The Index performance
has not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
(5) Lipper International Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.

QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- -------------------------------------------------------------------------------

Q. How did New England International Equity Fund perform in 1997?

[Photo of Paul H. Drexler]
Paul H. Drexler
Loomis, Sayles & Company, L.P.

The Fund delivered a total return of -7.56% (For Class A shares at net asset
value) for the 12 months ending december 31, 1997; this figure reflects a $2.25
per share decline in net asset value to $14.06 at the end of the period and the
reinvestment of $1.085 per share in capital gains distributions. This
performance lagged the 2.06% return of the Morgan Stanley Capital EAFE Index
(which includes stocks traded on 21 exchanges in Europe, Australia and the Far
East) and the average international fund, which returned 5.49%, as tracked by
Lipper Analytical Services, an independent mutual fund ranking company. Total
returns for Class B and C shares were -7.97% And -7.95%, respectively.

At the start of the year, heavy concentrations in Japan and the United Kingdom
hampered performance. I assumed management of your Fund on February 14, 1997,
and have since restructured the portfolio. I cut back significantly on Fund
holdings in Japan and the United Kingdom, and spread assets among more than 12
major markets to help increase performance potential while seeking to manage
risk.

The portfolio restructuring was completed by the end of April, 1997. The Fund
experienced a decline of 1.91% in the remaining eight months of the year -- a
period of considerable volatility in international markets. Two factors affected
the Fund: the weakness of foreign currencies and instability in emerging
markets. We have generally avoided currency hedging on the belief that
short-term currency swings are notoriously difficult to forecast and tend to
balance out over time. Our exposure to emerging markets, although never very
significant, nevertheless hurt performance in the second half of the year.

- -------------------------------------------------------------------------------
YOUR FUND'S COUNTRY MIX -- 12/31/97
- -------------------------------------------------------------------------------

% OF
TOP 10 COUNTRIES NET ASSETS
- -------------------------------------------------------------------------------
1. UNITED KINGDOM 11.17
- -------------------------------------------------------------------------------
2. FRANCE 9.26
- -------------------------------------------------------------------------------
3. ITALY 9.15
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4. CANADA 9.14
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5. JAPAN 9.12
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6. PORTUGAL 7.35
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7. GERMANY 6.83
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8. AUSTRALIA 6.53
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9. NEW ZEALAND 5.78
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10. NORWAY 3.17
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Portfolio holdings and asset allocations will vary.
<PAGE>

Q. What was the investment environment like, and how did it influence your
strategy?

The international investment climate in 1997 was defined by two distinct
investment themes: in Asia, an economic downturn; in Europe, an economic
recovery combined with corporate restructurings.

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YOUR FUND'S TOP 10 HOLDINGS -- 12/31/97
- -------------------------------------------------------------------------------
% OF
COMPANY NET ASSETS
- -------------------------------------------------------------------------------
1. TELECOM ITALIA 2.32
- -------------------------------------------------------------------------------
2. CIMPOR CIMENTOS DE PORTUGAL 2.22
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3. LLOYDS TSB GROUP PLC 2.20
- -------------------------------------------------------------------------------
4. PETROLEOS MEXICANOS (9.50% 9/15/27) 2.19
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5. CREDITO ITALIANO 2.14
- -------------------------------------------------------------------------------
6. AXA 1.92
- -------------------------------------------------------------------------------
7. SMITHKLINE BEECHAM PLC 1.91
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8. BANCO ESPIRITO SANTO 1.85
- -------------------------------------------------------------------------------
9. BANQUE NATIONAL DE PARIS 1.80
- -------------------------------------------------------------------------------
10. PORTUGAL TELECOM 1.73
- -------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.

Anticipating that sluggish earnings growth in Asia would persist, I avoided
most of the region's markets for much of the year -- a move that worked to
the Fund's advantage. I did, however, maintain a modest position in Japan.
Though Asia as a whole appears troubled, Japan offered some attractive
investment opportunities, particularly in export-related stocks, such as Sony
and Fuji Photo. Currently Japan comprises approximately 9% of the portfolio.

In stark contrast to Asia's economy, Europe's economy appears to be on the
upswing. Many European companies have been in the midst of very significant
corporate restructuring -- cutting costs, reengineering operations and
putting greater emphasis on generating returns for shareholders. The trend
towards leaner, meaner companies -- similar to the transformation that many
U.S. Companies have undergone over the last 10 years -- is creating
widespread investment opportunity. Among the Fund's European holdings are
Preussag, a German conglomerate that has refocused on core businesses; the
Bank Credito Italiano, which has trimmed costs; and Portugal Telecom, which
has dramatically raised productivity while benefiting from rapid growth in
one of Europe's less developed phone markets.

The majority of assets was invested in the major markets of Europe. The
United Kingdom, at 11% of the portfolio at year-end, represents the Fund's
largest country weighting, while investments in Italy and Portugal were among
the Fund's top performers.

Q. Did you make any other strategic changes to the portfolio?

To boost long-term performance potential and increase diversification, I
added some foreign bonds to the portfolio. Unlike most international stock
funds, the Fund has the ability to invest up to 20% of assets in fixed income
securities, such as convertible bonds, as well as corporate and sovereign
(foreign government) bonds. The Fund remains an equity fund, but I consider
this flexibility to be a major benefit for shareholders -- because foreign
bonds can sometimes provide a more appropriate way to take advantage of
international investment opportunities.

I maintained a fairly small position in fixed income instruments for much of
the year because yields were not especially attractive. However, I have used
the recent downdraft in foreign markets to increase the Fund's exposure to
international bonds. At year-end, fixed income securities accounted for about
8% of the Fund's assets.

Q. What is your outlook for 1998?

Although international equities in general have underperformed U.S. stocks
over the last three years, I see considerable investment opportunities in
foreign markets. In fact, looking around the world for areas where major
structural changes are underway that could boost corporate earnings and
benefit shareholders, I see considerable potential in European markets now
and in Asia a little bit farther down the road.

Despite inflexible labor markets and high taxes, the countries of Europe
offer some interesting investment opportunities. Many European companies are
in the midst of serious restructuring, cutting costs aggressively and
actively trying to increase profits.

Asia is also becoming increasingly attractive to value investors. Including
both currency declines and market drops, many of the Asian markets are down
close to 75% in U.S. dollar terms for the past 12 months; Asian stocks are
more affordable than they've been in years. Perhaps more important, many
Asian companies -- like European companies -- are beginning to change the way
they do business. Asian companies, long focused on gaining market share, are
being forced to emphasize earnings-per-share. Over the next several years,
this shift could provide significant opportunities for international equity
investors.
<PAGE>

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PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of December 31, 1997

COMMON STOCK--83.0% OF TOTAL INVESTMENTS

<TABLE>
<CAPTION>
SHARES (a) DESCRIPTION VALUE (b)
- -----------------------------------------------------------------------------------------
AUSTRALIA--6.5%
<C> <S> <C>
40,000 Brambles Industries, Ltd. ................................ $ 793,831
177,619 Foodland Associates ...................................... 1,330,235
312,000 Leighton Holdings ........................................ 1,089,934
325,000 QBE Insurance Group ...................................... 1,463,032
263,664 West Australia News Holdings ............................. 1,108,903
------------
5,785,935
------------
BRAZIL--1.0%
3,797,000 Companhia de Saneamento Basico do Estado de Sao Paulo .... 901,577
12,063 Companhia de Saneamento Basico do Estado de Sao Paulo
(Rights) ............................................... 0
67,846 Telemig Tele Minas ....................................... 8,572
------------
910,149
------------
CANADA--9.1%
35,000 Bombardier, Inc. ......................................... 720,059
18,500 Canadian National Railway Co. ............................ 867,359
60,500 Donohue, Inc. ............................................ 1,100,731
9,200 Northern Telecom, Ltd .................................... 817,606
80,000 Petro Canada ............................................. 1,463,910
12,000 Potash Corp. ............................................. 999,265
25,500 Royal Bank Canada ........................................ 1,351,685
22,500 Torstar Corp. ............................................ 779,364
------------
8,099,979
------------
FINLAND--3.0%
8,100 Metra AB ................................................. 191,691
60,000 Neste OY ................................................. 1,452,958
64,000 Rauma OY ................................................. 997,991
------------
2,642,640
------------
FRANCE--9.3%
22,000 AXA ...................................................... 1,702,318
30,000 Banque National de Paris ................................. 1,594,583
8,500 Cie de St. Gobain ........................................ 1,207,527
8,700 Elf Aquitaine ............................................ 1,011,880
7,500 L'Air Liquide ............................................ 1,173,881
16,000 Michelin Compagne General Class B ........................ 805,516
10,500 Valeo .................................................... 712,154
------------
8,207,859
------------
GERMANY--6.8%
12,000 Daimler Benz AG .......................................... 841,824
42,000 Duerr AG ................................................. 1,383,307
18,660 Henkel Kgaa .............................................. 1,177,303
3,215 Jungheinrich Preferred ................................... 482,532
650 Porsche AG, Preferred .................................... 1,083,966
1,800 Preussag AG .............................................. 549,320
950 Volkswagen AG ............................................ 534,423
------------
6,052,675
------------
ITALY--9.1%
193,600 Cartiere Burgo ........................................... 1,157,332
614,000 Credito Italiano ......................................... 1,893,369
180,000 Edison ................................................... 1,088,751
50,000 Institute Banco Sao Paolo ................................ 477,671
1,400,000 Snia ..................................................... 1,440,362
466,000 Telecom Italia ........................................... 2,054,720
------------
8,112,205
------------
JAPAN--9.1%
85,000 Bank of Tokyo Mitsubishi ................................. 1,171,785
125,000 Daiwa House .............................................. 660,565
38,000 Familymart Co. ........................................... 1,362,028
35,000 Fuji Photo Film Co ....................................... 1,340,277
100,000 Nomura Securities ........................................ 1,332,619
17,000 Sony Corp. ............................................... 1,510,301
93,000 Yamada Denki Co. ......................................... 705,139
------------
8,082,714
------------
NEW ZEALAND--5.8%
471,000 Air New Zealand .......................................... 943,527
1,865,000 Corporate Investments (e) ................................ 985,450
319,200 Nuplex Industries ........................................ 648,702
175,000 PDL Holdings ............................................. 812,910
558,000 St. Lukes Group .......................................... 518,404
250,000 Telecom Corp. ............................................ 1,212,107
------------
5,121,100
------------
NORWAY--3.2%
52,000 Norske Skogs Industries .................................. 1,506,675
76,000 Schibsted ASA ............................................ 1,301,687
------------
2,808,362
------------
PORTUGAL--7.4%
55,000 Banco Espirito Santo ..................................... 1,636,702
75,000 Cimpor Cimentos de Portugal .............................. 1,965,770
33,000 Portugal Telecom ......................................... 1,531,214
13,000 Telecel (e) .............................................. 1,385,113
------------
6,518,799
------------
SINGAPORE--0.8%
322,000 Parkway Holdings ......................................... 725,957
------------
THAILAND--0.7%
237,000 Electricity Generating Public Company, Ltd. (e) .......... 442,990
100,000 Thai Farmers Bank ........................................ 181,724
------------
624,714
------------
UNITED KINGDOM--11.2%
95,000 Anglian Water ............................................ 1,295,111
35,000 Commercial Union ......................................... 488,069
150,000 General Electric Company PLC ............................. 971,949
150,000 Lloyds TSB Group PLC ..................................... 1,951,438
100,000 Marks & Spencer .......................................... 988,933
90,000 Safeway PLC .............................................. 507,040
90,000 Scot & Newcastle ......................................... 1,102,035
46,000 Siebe .................................................... 902,882
164,400 SmithKline Beecham PLC ................................... 1,694,420
------------
9,901,877
------------
Total Common Stock (Identified Cost $74,097,787) ......... 73,594,965
------------

BONDS AND NOTES--7.8%

FACE
AMOUNT
- -----------------------------------------------------------------------------------------
ARGENTINA--2.1%
$ 915,000 Perez Companc S.A., 144A, 8.125%, 7/15/07(f) ............. 880,687
1,000,000 Republic of Argentina, 9.750%, 9/19/27 ................... 956,000
------------
1,836,687
------------
BRAZIL--1.3%
1,482,338 Federal Republic of Brazil, 8.000%, 4/15/14 .............. 1,163,635
------------
MEXICO--2.2%
1,980,000 Petroleos Mexicanos, 144A, 9.500%, 9/15/27(f) ............ 1,945,350
------------
SOUTH KOREA--0.2%
250,000 Samsung Electronics Company Limited, Zero Coupon, 12/31/07 174,169
------------
THAILAND--2.0%
2,000,000 Bangkok Bank Public, Ltd., 144A, 8.375%, 1/15/27(f) ...... 1,260,000
175,000 Pindo Deli Finance Mauritius, Ltd., 144A, 11.750%,
10/01/17(f) ........................................... 150,500
175,000 Pindo Deli Finance Mauritius, Ltd., 144A, 10.875%,
10/01/27(f) ........................................... 140,000
640,000 Total Access Communications, 2.000%, 5/31/06 ............. 275,200
1,825,700
------------
Total Bonds and Notes (Identified Cost $7,816,946) ....... 6,945,541
------------

SHORT TERM INVESTMENT--6.6%

FACE
AMOUNT DESCRIPTION VALUE (b)
- -----------------------------------------------------------------------------------------
$5,795,000 Repurchase Agreement with State Street Bank & Trust dated
12/31/97 at 5.000% to be repurchased at $5,796,610 on 1/
02/98 collateralized by $5,765,000 U.S. Treasury Note
5.875% due 1/31/99 with a value of $5,915,726 .......... $ 5,795,000
------------
Total Short Term Investment (Identified Cost $5,795,000) . 5,795,000
------------
Total Investments--97.4% (Identified Cost $87,709,733)(c). 86,335,506

Other assets less liabilities (d) ....................... 2,321,947
------------
Total Net Assets--100% ................................... $ 88,657,453
============

(a) Ordinary shares unless noted otherwise.
(b) See note 1a.
(c) Federal Tax Information:
At December 31, 1997 the net unrealized depreciation on
investments based on cost of $87,709,733 for federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost .................. $ 7,148,740
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value .................. (8,522,967)
------------
Net unrealized depreciation ........................................ $ (1,374,227)
============

(d) Including deposits in foreign denominated currencies with a value of
$2,447,344 and a cost of $2,447,356.
(e) Non-income producing security.
(f) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
</TABLE>

TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1997 (UNAUDITED)

Banking 13.9%
Telecommunications 9.5
Machinery 7.7
Construction 6.0
Insurance 5.0
Misc. Retail 4.9
Transportation Equipment 4.3
Printing-Publishing 4.1
Chemicals 3.6
Oil & Gas Extraction 3.3

See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1997

ASSETS
Investments at value .............................. $86,335,506
Cash .............................................. 34
Foreign cash at value (cost $2,447,356) ........... 2,447,344
Receivable for:
Fund shares sold ................................ 48,081
Dividends and interest .......................... 290,305
Foreign taxes ................................... 14,806
Prepaid registration expense ...................... 12,000
-----------
89,148,076
LIABILITIES
Payable for:
Fund shares redeemed ............................ $195,187
Withholding taxes .............................. 6,428
Accrued expenses:
Management fees ................................. 149,424
Deferred trustees' fees ......................... 9,839
Accounting and administrative ................... 2,280
Other ........................................... 127,465
--------
490,623
-----------
NET ASSETS ......................................... $88,657,453
===========
Net Assets consist of:
Capital paid in ................................. $90,355,545
Overdistributed net investment income ........... (199,574)
Distributions in excess of net realized gains ... (122,311)
Unrealized depreciation on investments and
foreign currency transactions ................. (1,376,207)
-----------
NET ASSETS .......................................... $88,657,453
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($57,845,439 divided by 4,113,155 shares
of beneficial interest) .......................... $14.06
======
Offering price per share (100/94.25 of $14.06) ...... $14.92*
======
Net asset value and offering price of Class B
shares ($25,216,255 divided by 1,839,839 shares
of beneficial interest) .......................... $13.71**
======
Net asset value and offering price of Class C
shares ($843,403 divided by 61,388 shares of
beneficial interest)............................... $13.74
======
Net asset value and offering price of Class Y
shares ($4,752,356 divided by 331,208 shares of
beneficial interest)............................... $14.35
======
Identified cost of investments ...................... $87,709,733
===========
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.

See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Year Ended December 31, 1997

INVESTMENT INCOME
Dividends ................................... $ 2,516,486(a)
Interest .................................... 679,790
------------
3,196,276
Expenses
Management fees ........................... $ 1,241,968
Service fees - Class A .................... 197,567
Service and distribution fees - Class B ... 347,996
Service and distribution fees - Class C ... 8,625
Trustees' fees and expenses ............... 21,110
Accounting and administrative ............. 32,925
Custodian ................................. 331,760
Transfer agent ............................ 601,539
Audit and tax services .................... 46,540
Legal ..................................... 23,531
Printing .................................. 112,611
Registration .............................. 38,604
Amortization of organization expenses ..... 25,452
Miscellaneous ............................. 19,517
------------
Total expenses .............................. 3,049,745
Less expenses waived by the investment
adviser and sub-adviser ................... (507,965) 2,541,780
------------ ------------
Net investment income ....................... 654,496
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ......................... 4,805,046
Foreign currency transactions - net ....... (606,434)
------------
Net realized gain on investments and
foreign currency transactions ........... 4,198,612
------------
Unrealized depreciation on:
Investments - net ......................... (15,150,410)
Foreign currency transactions - net ....... (15,813)
------------
Net unrealized depreciation on investments
and foreign currency transactions ......... (15,166,223)
------------
Net loss on investment transactions ......... (10,967,611)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS..... $(10,313,115)
============
(a) Net of foreign taxes of: $344,390.

See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997
------------ -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 537,565 $ 654,496
Net realized gain on investments and foreign currency
transactions .......................................... 15,469,328 4,198,612
Unrealized depreciation on investments and foreign
currency transactions (7,285,979) (15,166,223)
------------ -------------
Increase (decrease) in net assets from operations ....... 8,720,914 (10,313,115)
------------ -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (144,405) 0
Class B ............................................... 0 0
Class C ............................................... 0 0
Class Y ............................................... (267,794) 0
Net realized gain on investments
Class A ............................................... (2,392,039) (4,763,407)
Class B ............................................... (1,005,926) (2,124,916)
Class C ............................................... (21,073) (60,863)
Class Y ............................................... (1,938,066) (1,298,267)
In excess of net realized gain on investments
Class A ............................................... 0 (204,054)
Class B ............................................... 0 (90,926)
Class C ............................................... 0 (2,607)
Class Y ............................................... 0 (55,616)
------------ -------------
(5,769,303) (8,600,656)
------------ -------------
Decrease in net assets derived from capital share
transactions .......................................... (68,120,558) (101,186,621)
------------ -------------
Total decrease in net assets ............................ (65,168,947) (120,100,392)
NET ASSETS
Beginning of the year ................................... 273,926,792 208,757,845
------------ -------------
End of the year ......................................... $208,757,845 $ 88,657,453
============ =============
UNDISTRIBUTED/(OVERDISTRIBUTED) NET INVESTMENT INCOME
Beginning of the year ................................... $ 20,518 $ (162,086)
============ =============
End of the year ......................................... $ (162,086) $ (199,574)
============ =============
</TABLE>

See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ..... $11.80 $14.85 $15.50 $16.13 $16.31
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .................. 0.11 0.00 0.27 (0.02)(e) 0.09(e)
Net Realized and Unrealized Gain (Loss)
on Investments ....................... 3.37 1.19 0.63 0.51 (1.25)
------ ------ ------ ------ ------
Total From Invesetment Operations ...... 3.48 1.19 0.90 0.53 (1.16)
------ ------ ------ ------ ------
Less Distributions(b)
Dividends From Net Investment Income ... (0.11) 0.00 (0.27) (0.02) 0.00
Distributions From Net Realized Capital
Gains ................................ (0.32) (0.53) 0.00 (0.33) (1.05)
Distributions in excess of Net Realized
Gains ................................ 0.00 0.00 0.00 0.00 (0.04)
Distributions From Paid-in Capital ..... 0.00 (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions .................... (0.43) (0.54) (0.27) (0.35) (1.09)
------ ------ ------ ------ ------
Net Asset Value, End of Year ........... $14.85 $15.50 $16.13 $16.31 $14.06
====== ====== ====== ====== ======
Total Return (%)(a) .................... 29.4 8.1 5.8 3.3 (7.6)
Ratio of Operating Expenses to Average
Net Assets (%)(c) .................... 1.60 1.75 1.75 1.75 1.75
Ratio of Net Investment Income to
Average Net Assets (%) ............... 0.24 0.01 1.24 0.14 0.62
Portfolio Turnover Rate (%) ............ 101 123 119 59 154
Average Commission Rate (d) ............ -- -- -- $0.0180 $0.0024
Net Assets, End of Year (000) .......... $80,937 $142,917 $136,848 $109,773 $57,845

The subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997
Loomis Sayles & Company, L.P. became the subadviser to the Fund.
(a) A sales charge is not reflected in
total return calculations.
(b) See Note 1e.
(c) The ratio of operating expenses to
average net assets without giving
effect to the voluntary expense
limitations described in Note 4 to
the Financial Statements would have
been (%) .......................... 2.16 1.79 1.83 1.79 2.14
(d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission
rate per share for trades upon which commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
(e) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>

See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
SEPTEMBER 13(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------------
1993 1994 1995 1996 1997
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.19 $ 14.81 $ 15.35 $ 15.93 $ 16.00
------ ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ....... 0.12 0.00 0.19 (0.10)(g) (0.03)(g)
Net Realized and Unrealized
Gain (Loss) on Investments ....... (0.06) 1.08 0.58 0.50 (1.17)
------ ------- ------- ------- -------
Total From Investment Operations ... 0.06 1.08 0.77 0.40 (1.20)
------ ------- ------- ------- -------
Less Distributions (d)
Dividends From Net Investment Income (0.12) 0.00 (0.19) 0.00 0.00
Distributions From Net Realized
Capital Gains .................... (0.32) (0.53) 0.00 (0.33) (1.05)
Distributions in excess of
Net Realize Gains ................ 0.00 0.00 0.00 0.00 (0.04)
Distributions From Paid-in Capital . 0.00 (0.01) 0.00 0.00 0.00
------ ------- ------- ------- -------
Total Distributions ................ (0.44) (0.54) (0.19) (0.33) (1.09)
------ ------- ------- ------- -------
Net Asset Value, End of Period ..... $14.81 $ 15.35 $ 15.93 $ 16.00 $ 13.71
====== ======= ======= ======= =======
Total Return(%) (c) ................ 0.3 7.3 5.0 2.5 (8.0)
Ratio of Operating Expenses
to Average Net Assets (%)(e) ..... 2.50 (b) 2.50 2.50 2.50 2.50
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ........ (1.69)(b) (0.74) 0.49 (0.61) (0.13)
Portfolio Turnover Rate (%) ........ 101 123 119 59 154
Average Commission Rate (f) ........ -- -- -- $0.0180 $0.0024
Net Assets, End of Period (000) .... $9,176 $41,601 $52,895 $45,974 $25,216

The subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February
15, 1997 Loomis, Sayles & Company, L.P. became the subadviser to the Fund.
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not reflected in total return
calculations. Periods less than one year are not annualized.
(d) See Note 1e.

(e) The ratio of operating expenses to
average net assets without giving
effect to voluntary expense
limitations described in Note 4
to the Financial Statements would
have been (%) ................ 3.36 (b) 2.54 2.58 2.54 2.89
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average
commission rate per share for trades upon which commissions are charged. This rate generally does not
reflect mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(g) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>

<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year ...... $15.35 $15.96 $16.03
------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ............ 0.19 (0.10)(d) (0.03)(d)
Net Realized and Unrealized Gain (Loss)
on Investments ........................ 0.61 0.50 (1.17)
------ ------ ------
Total From Investment Operations ........ 0.80 0.40 (1.20)
------ ------ ------
Less Distributions (a)
Dividends From Net Investment Income .... (0.19) 0.00 0.00
Distributions From Net Realized Capital
Gains ................................. 0.00 (0.33) (1.05)
Distributions in excess of Net Realized
Gains ................................. 0.00 0.00 (0.04)
Distributions From Paid-in Capital ...... 0.00 0.00 0.00
------ ------ ------
Total Distributions ..................... (0.19) (0.33) (1.09)
------ ------ ------
Net Asset Value, End of Year ............ $15.96 $16.03 $13.74
====== ====== ======
Total Return (%) ........................ 5.2 2.5 (8.0)
Ratio of Operating Expenses to Average
Net Assets (%) (b) .................... 2.50 2.50 2.50
Ratio of Net Investment Income (loss) to
Average Net Assets (%) ................ 0.49 (0.61) (0.13)
Portfolio Turnover Rate (%) ............. 119 59 154
Average Commission Rate (c) ............. -- $0.0180 $0.0024
Net Assets, End of Year (000) ........... $1,066 $850 $843

The subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February
15, 1997 Loomis, Sayles & Company, L.P. became the subadviser to the Fund.
(a) See Note 1e.
(b) The ratio of operating expenses to
average net assets without giving
effect to the voluntary expense
limitations described in Note 4 to
the Financial Statements would have
been (%) ............................ 2.58 2.54 2.89
(c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for trades upon which commissions are charged. This rate
generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(d) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>

<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------------------------------
SEPTEMBER 9(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ......................... $15.19 $14.86 $15.64 $16.25 $16.48
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............ 0.13 0.00 0.42 0.11(g) 0.19(g)
Net Realized and Unrealized Gain
(Loss) on Investments .......... (0.01) 1.32 0.60 0.54 (1.23)
------ ------ ------ ------ ------
Total From Investment Operations . 0.12 1.32 1.02 0.65 (1.04)
------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment
Income ......................... (0.13) 0.00 (0.41) (0.09) 0.00
Distributions From Net Realized
Capital Gains .................. (0.32) (0.53) 0.00 (0.33) (1.05)
Distributions in excess of Net
Realized Gains ................. 0.00 0.00 0.00 0.00 (0.04)
Distributions From Paid-in Capital 0.00 (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions .............. (0.45) (0.54) (0.41) (0.42) (1.09)
------ ------ ------ ------ ------
Net Asset Value, End of Period ... $14.86 $15.64 $16.25 $16.48 $14.35
====== ====== ====== ====== ======
Total Return (%) (c) ............. 0.7 8.9 6.6 4.0 (6.7)
Ratio of Operating Expenses to
Average Net Assets (%) (e) ..... 1.00(b) 1.00 1.00 1.00 1.15
Ratio of Net Investment Income to
Average Net Assets (%) ......... 0.33(b) 0.76 1.99 0.89 1.22
Portfolio Turnover Rate (%) ...... 101 123 119 59 154
Average Commission Rate (f) ...... -- -- -- $0.0180 $0.0024
Net Assets, End of Period (000) .. $7,006 $56,561 $83,119 $52,161 $4,752

The subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis,
Sayles & Company, L.P. became the subadviser to the Fund.
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) See Note 1e.
(e) The ratio of operating
expenses to average net assets
without giving effect to the
voluntary expense limitations
described in Note 4 to the
Financial Statements would
have been (%) ................ 1.35(b) 1.04 1.21 1.19 1.41
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate
per share for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs,
or spreads on shares traded on a principal basis.
(g) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1997

1. The Fund is a series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").

The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class B shares on September 13, 1993, of Class C shares
on December 30, 1994 and of its Class Y shares on September 9, 1993. Class A
shares are sold with a maximum front end sales charge of 5.75%. Class B shares
do not pay a front end sales charge, but pay a higher ongoing distribution fee
than Class A shares for eight years (at which point they automatically convert
to Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within six years (or five years if purchased prior to
May 1, 1997). Class C shares do not pay front end or contingent deferred sales
charges and do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. Class Y shares do not pay a front
end sales charge, a contingent deferred sales charge or distribution fees. They
are intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.

A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service, selected by the Fund's
adviser as authorized by the Board of Trustees, which service determines
valuations for normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders. Short-term obligations with a remaining maturity of less than sixty
days are stated at amortized cost, which approximates value. All other
securities and assets are valued at their fair value as determined in good faith
by the Fund's adviser, New England Funds Management L.P., and the subadviser,
under the supervision of the Fund's trustees.

B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date or when the Fund learns of
the dividend, and interest income is recorded on the accrual basis. In
determining net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.

C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.

FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency contracts
to facilitate transactions in foreign securities and to manage the fund's
currency exposure. Contracts to buy generally are used to acquire exposure to
foreign currencies, while contracts to sell are used to hedge the Fund's
investments against currency fluctuation. Also, a contract to buy or sell can
offset a previous contract. These contracts involve market risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the Fund has committed to
buy or sell (if any) is shown in the schedule of investments under the caption
"Forward Foreign Currency Contracts." This amount represents the aggregate
exposure to each currency each fund has acquired or hedged through currency
contracts at period end. Losses may arise from changes in the value of the
foreign currency or if the counterparties do not perform under the contracts
terms. The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.

D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.

E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for the
foreign currency component on the sale of securities for book and tax purposes.

F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The subadviser is responsible for determining that the
value of the collateral is at all times at least equal to the repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon the
portfolio's ability to dispose of the underlying securities.

G. ORGANIZATION EXPENSE. Costs incurred in fiscal 1992 in connection with the
Fund's organization and registration, amounting to approximately $178,500 in the
aggregate, were paid by the Fund and were amortized by the Fund based on
projected annual average net assets over 60 months.

2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the year ended December 31, 1997 were $203,335,949 and $316,092,883
respectively.

3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million. During the year ended December 31, 1997 the
Fund operated under two sub-advisory contracts. Prior to February 15, 1997
Draycott Partners, Ltd. was the Fund's subadviser. Effective February 15, 1997
Loomis Sayles & Company, L.P. became the subadviser to the Fund. NEFM paid
Draycott Partners, Ltd. at the rate of 0.54% of the first $200 million of the
Funds average daily net assets, 0.49% of the next $300 million and 0.44% of such
assets in excess of $500 million. NEFM pays Loomis Sayles & Company, L.P. at the
rate of 0.40% of the first $200 million of the Fund's average daily net assets
and 0.35% of such assets in excess of $200 million. Certain officers and
directors of NEFM are also officers or trustees of the Fund. NEFM and Loomis
Sayles & Company, L.P. are wholly owned subsidiaries of New England Investment
Companies, L.P. ("NEIC") which is a subsidiary of Metropolitan Life Insurance
Company ("Met Life").

Fees earned by New England Funds Management, L.P., Draycott Partners, Ltd. and
Loomis Sayles & Company, L.P. under the management agreement in effect during
the year ended December 31, 1997 are as follows:

FEES EARNED PERIOD
- ----------- ------
$ 765,548 (a) New England Funds Management, L.P. 1/1/97-12/31/97
128,701 (a) Draycott Partners, Ltd. 1/1/97-2/14/97
347,719 (a) Loomis Sayles & Company, L.P. 2/15/97-12/31/97
- ----------
$1,241,968
==========

(a) Before reduction due to voluntary expense limitation. See Note 4.

B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Funds' expenses of
providing these services which include the following: (i) expenses for personnel
performing bookkeeping, accounting and financial reporting functions and
clerical functions relating to the Fund and (ii) expenses for services required
in connection with the preparation of registration statements and prospectuses,
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance. For the year
ended December 31, 1997, these expenses amounted to $32,925 and are shown
separately in the financial statements as accounting and administrative.

C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the year ended December 31, 1997 the Fund paid
New England Funds $441,063 as compensation for its services in that capacity.
For the year ended December 31, 1997, the Fund received $2,690 in transfer agent
credits. The transfer agent expense in the Statement of Operations is net of
these credits.

D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").

Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1997, the Fund paid New England Funds $197,567 in fees under
the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at December 31, 1997 is
$514,256.

Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the year ended December 31,
1997, the Fund paid New England Funds $86,999 and $2,156 in service fees under
the Class B and Class C plans, respectively.

Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and Class
C shares. For the year ended December 31, 1997, the Fund paid New England Funds
$260,997 and $6,469 in distribution fees under the Class B and Class C plans,
respectively.

Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the year ended
December 31, 1997 amounted to $191,560.

E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of New
England Funds, NEFM, NEIC or their affiliates, other than registered investment
companies. Each other trustee was compensated by the Fund as follows:

Annual Retainer $2,093
Meeting Fee $109/meeting
Committee Meeting Fee $65/meeting
Committee Chairman Retainer $88/year

A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund on the
normal payment date.

4. EXPENSE LIMITATIONS. Draycott and New England Funds had voluntarily agreed to
reduce their fees and, if necessary, to assume expenses of the Fund in order to
limit the Fund's expenses to an annual rate of 1.75% of the Fund's Class A
average net assets, 2.50% of Classes B and C average net assets, and 1.15% of
Class Y average net assets. Loomis Sayles has voluntarily agreed to waive its
entire subadvisory fee, payable to Loomis Sayles by NEFM, through February 14,
1998. This waiver by Loomis Sayles will not reduce the management fee payable by
the Fund to NEFM. In addition, NEFM and New England Funds have voluntarily
agreed to reduce their fees and to bear certain operating expenses to limit the
expenses as described above. As a result of the Fund's expenses exceeding the
voluntary expense limitation during the year ended December 31, 1997, NEFM
waived $108,804 of its $765,548 management fees, Draycott waived $51,442 of its
$128,701 subadvisory fees and Loomis Sayles waived $347,719 of its $347,719
subadvisory fees.

5. CONCENTRATION OF RISK. The Fund had the following geographic concentration in
excess of 10% of its total net assets at December 31, 1997: United Kingdom
11.2%. The Fund pursues its objectives by investing in foreign securities. There
are certain risks involved in investing in foreign securities which are in
addition to the usual risks inherent in domestic investments. These risks
include those resulting from future adverse political or economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.

6. CAPITAL SHARES. At December 31, 1997 there was an unlimited number of shares
of beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital stock. Transactions in capital shares were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------- ------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 1,825,637 $ 29,792,464 11,054,765 $ 171,781,072
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ...................... 8,742 140,746 0 0
Distributions from net realized
gain ........................ 140,697 2,292,111 314,622 4,722,476
---------- ------------ ---------- -------------
1,975,076 32,225,321 11,369,387 176,503,548
Shares repurchased .............. (3,726,604) (61,134,746) (13,988,640) (218,629,862)
---------- ------------ ---------- -------------
Net decrease .................... (1,751,528) $(28,909,425) (2,619,253) $ (42,126,314)
---------- ------------ ---------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------- ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 485,690 $ 7,864,591 224,357 $ 3,437,336
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .......................... 57,043 912,182 139,657 2,045,975
---------- ------------ ---------- -------------
542,733 8,776,773 364,014 5,483,311
Shares repurchased .............. (988,934) (16,015,194) (1,398,212) (21,245,551)
---------- ------------ ---------- -------------
Net decrease .................... (446,201) $ (7,238,421) (1,034,198) $ (15,762,240)
---------- ------------ ---------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------- ------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 26,580 $ 431,991 76,616 $ 1,180,567
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................ 1,291 20,709 4,089 60,026
---------- ------------ ---------- -------------
27,871 452,700 80,705 1,240,593
Shares repurchased .............. (41,582) (671,566) (72,366) (1,086,983)
---------- ------------ ---------- -------------
Net increase (decrease) ......... (13,711) $ (218,866) 8,339 $ 153,610
---------- ------------ ---------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------- ------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 1,802,534 $ 30,088,855 546,083 $ 8,727,937
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ...................... 16,496 268,390 0 0
Distributions from net realized
gain ........................ 117,430 1,938,067 88,605 1,353,883
---------- ------------ ---------- -------------
1,936,460 32,295,312 634,688 10,081,820
Shares repurchased .............. (3,885,695) (64,049,158) (3,468,182) (53,533,497)
---------- ------------ ---------- -------------
Net decrease .................... (1,949,235) $(31,753,846) (2,833,494) $ (43,451,677)
---------- ------------ ---------- -------------
Decrease derived from capital
shares transactions ........... (4,160,675) $(68,120,558) (6,478,606) $(101,186,621)
========== ============ ========== =============
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

To the Trustees of New England Funds Trust I and Shareholders of
NEW ENGLAND INTERNATIONAL EQUITY FUND.

In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England International Equity
Fund ("the Fund"), a series of New England Funds Trust I, at December 31, 1997,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
February 12, 1998
<PAGE>

NEW ENGLAND FUNDS

Supplement dated March 1, 1998 to the New England Stock Funds Prospectus for
Class A, B and C shares dated May 1, 1997 (as supplemented August 1, 1997,
November 17, 1997 and January 1, 1998); the New England Star Funds Prospectus
for Class A, B and C shares dated May 1, 1997 (as supplemented June 30, 1997,
July 28, 1997, November 17, 1997 and January 1, 1998); and the New England
Equity Income Fund Prospectus for Class A, B and C shares dated September 1,
1997 (as supplemented November 17, 1997 and January 1, 1998).

THIS SUPPLEMENT APPLIES TO ALL FUNDS OFFERING CLASS C SHARES:

The cover page of each Prospectus is revised to reflect:

o While no initial sales charge applies to Class B or Class C share purchases,
a contingent deferred sales charge (a "CDSC") is imposed upon certain
redemptions of Class B and Class C shares.

o New England Funds Trust I, New England Funds Trust II and New England Funds
Trust III are referred to in the Prospectus as the "Trusts."

THE SHAREHOLDER TRANSACTION EXPENSES CHART FOR CLASS C SHARES APPEARING IN THE
"SCHEDULE OF FEES" SECTION IS REVISED WITH RESPECT TO CLASS C SHARES TO READ
AS FOLLOWS:
CLASS C
--------------
Maximum Initial Sales Charge Imposed on a Purchase
(as a percentage of offering price)(2) ..................... None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)(2) ............................... 1.00%

(2) Does not apply to reinvested distributions.

In the tables that appear under "Example" in the "Schedule of Fees" section, the
expense amounts in the Prospectus for Class C shares for the 1 Year period
assume no redemption. If shares are redeemed at period end, expense amounts for
each Fund would be as follows: New England Capital Growth Fund, $33; New England
Balanced Fund, $31; New England International Equity Fund, $35; New England
Value Fund, $31; New England Growth Opportunities Fund, $31; New England Star
Advisers Fund, $35; New England Star Worldwide Fund, $44; New England Star Small
Cap Fund, $38; New England Equity Income Fund, $33.

THE SECTION ENTITLED "BUYING FUND SHARES--SALES CHARGES--CLASS C SHARES" IS
REVISED TO READ AS FOLLOWS:

Class C shares are offered at net asset value, without an initial sales charge,
are subject to a 0.25% annual service fee and a 0.75% annual distribution fee,
are subject to a CDSC of 1.00% on redemptions made within one year from the date
of purchase and do not convert into another class.

The Distributor pays to investment dealers at the time of sale a sales
commission of 1.00% of the sales price of Class C shares sold by such investment
dealer. The Distributor will retain the service and distribution fees assessed
against Class C shares in the first year of investment, and the entire amount of
the CDSC paid by Class C shareholders upon redemption in the first year, in
order to compensate the Distributor for providing distribution- related services
to the Fund in connection with the sale of Class C shares, and to reimburse the
Distributor, in whole or in part, for the commissions paid (and related
financing costs) to investment dealers at the time of a sale of Class C shares.
Unlike Class B shares, there are no conversion features associated with Class C
shares; therefore, if Class C shares are held for more than eight years Class C
shareholders will thereafter be subject to higher distribution fees than
shareholders of other classes.

The holding period for determining the CDSC will continue to run after an
exchange to Class C shares of another series of the Trusts. If an exchange is
made to Class C shares of a Money Market Fund, then the one-year holding period
for purposes of determining the expiration of the CDSC will stop and resumes
only when an exchange is made back into Class C shares of a series of the
Trusts. If the Money Market Fund shares are redeemed rather than exchanged back
into a series of the Trusts, then the CDSC applies to the redemption. For
purposes of the CDSC, it is assumed that the shares held longest are the first
to be redeemed.

The CDSC on Class C shares is not imposed on shares purchased prior to March
1, 1998.

The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
same Fund purchased with reinvested dividends or capital gain distributions. The
first year of purchase ends one year after the day on which the purchase was
accepted.

The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested. The CDSC may be eliminated
for certain persons and organizations. See "Sales Charges--General" below.

THE SECTION ENTITLED "OWNING FUND SHARES--EXCHANGING AMONG NEW ENGLAND FUNDS--
CLASS C SHARES" IS REVISED TO READ AS FOLLOWS:

You may exchange Class C shares of any series of the Trusts for Class C shares
of any other series of the Trusts which offers Class C shares or for Class C
shares of New England Cash Management Trust - Money Market Series. Such
exchanges will be made at the next-determined net asset value of the shares.

IN THE SECTION ENTITLED "FUND DETAILS--PERFORMANCE CRITERIA," THE THIRD SENTENCE
IN THE FIRST PARAGRAPH IS REVISED TO READ AS FOLLOWS:

Total return is measured by comparing the value of a hypothetical $1,000
investment in a class at the beginning of the relevant period to the value of
the investment at the end of the period (assuming deduction of the current
maximum sales charge on Class A shares, automatic reinvestment of all dividends
and capital gains distributions and, in the case of Class B and C shares,
imposition of the CDSC relevant to the period quoted).
<PAGE>

GLOSSARY FOR MUTUAL FUND INVESTORS
- --------------------------------------------------------------------------------

TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.

INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.

CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.

PRICE/EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.

GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more
aggressive than "value" investing.

VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.

STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<PAGE>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE

With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.

The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.

- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------

[A chart in the form of a line graph appears here, comparing the growth of
investments made for 35 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]

Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890

Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364

Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.

Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.

New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>

- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------

STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income Fund
Balanced Fund

INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund

BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund

TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York

MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust

To learn more, and for a free prospectus,
contact your financial representative.

VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM

New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478

This material is authorized for distribution to prospective investors when it is
preceded or accompanied by the Funds current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
<PAGE>
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- ----------------------
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02116
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- ---------------------
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MUTUAL FUND
SERVICE AWARD
- ---------------------
DALBAR
HONORS COMMITMENT TO:
INVESTORS
- ---------------------
1995 o 1996 o 1997

IE56-1297

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