NEW ENGLAND FUNDS TRUST I, N-30D, 1999-02-26

NEW ENGLAND FUNDS TRUST I
N-30D, 1999-02-26

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ANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England
Star Advisers Fund

[graphic omitted]
Where
The Best
Minds
Meet(R)

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DECEMBER 31, 1998
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FEBRUARY 1999
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[Photo of Bruce R. Speca]

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"Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score."
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In September 1998, I became President of New England Funds. As an 18-year
veteran of the mutual fund industry, I was pleased and honored to accept this
important post. In my first message to you, I hope to present what I believe
you, our valued shareholders, really want to know and to offer it in a
straightforward manner.

How did my fund perform?

There's no question that long-term performance is the bottom line of your
investment program. With that in mind, please review the other sections of this
report. You'll see your fund's performance and commentary from your fund manager
that summarizes the fund's successes and shortcomings and the outlook for the
year ahead.

Our assessment of New England Funds' overall performance in 1998 is that we had
a solid, but not spectacular, year. While extremely pleased with both absolute
and relative returns in many of our stock and bond portfolios, we were
disappointed by the results of those equity funds that pursue a `value' rather
than a `growth' strategy. Value stocks were largely ignored in 1998, as
investors focused on very large, high visibility growth stocks (indeed, 45% of
the gain in the Standard & Poor's Composite Index of 500 Stocks (the "S&P 500")
- - a market value-weighted, unmanaged index of common stock prices for 500
selected stocks - came from just 10 stocks!) and select technology companies.

Much of the underperformance in value-oriented funds can be attributed to market
cycles, but we continue to pursue strategies to increase returns in these funds.

Can the stock market keep going up?

Like any winning streak, sooner or later the market will experience setbacks.
Does that mean 1999 will see the last burst of energy from the bull market? It's
easy to argue both sides of this question. Employment is high, inflation is low
and economic growth is continuing. But corporate profits may start to lag and
commodity prices, notably oil, are depressed around the world. The conclusion?
Economists, like weathermen and other forecasters, can only hope to be right
more often than they are wrong.

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Not FDIC insured May lose value No bank guarantee
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My Own Two Cents

All too often investors lament, "What I could have made if only . . ." instead
of "What I actually made." But experience has taught me that the more important
question is, "Did I stick with my investment program and make progress toward my
financial goals?"

Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score.

The mutual fund industry has become extremely complex, with more funds, new
strategies and approaches to analyzing performance. What hasn't changed is your
financial representative's primary objective: to help you sort it all out and
increase your returns in line with your goals.

Your financial adviser can help you avoid being distracted by the daily noise
and avoid what I view as the most important risk that investors face. It's the
risk of not staying invested and possibly falling short of your long-term goals.
Your adviser will help you stick with your investment program during periods of
uncertainty.

One last thought: All of us at New England Funds appreciate the trust that you
and your representative have placed in us. We look forward to serving you in the
years ahead.

Sincerely,

/s/ Bruce R. Speca

Bruce R. Speca
President and CEO

PROGRESS ON THE Y2K FRONT
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New England Funds has been and continues to engage in initiatives aimed at
having our computer systems tested and ready to function capably for the Year
2000. We are insisting on the same standard from vendors whose systems must
interact reliably with ours as well as from the subadvisers to our funds. We are
monitoring their progress and pursuing assurances of their readiness. Our
systems are being tested on a four-digit format (2000, not 00) and updated as
needed to perform competently. Additionally, we are developing contingency plans
to diminish the possibility of inconvenience related to Year 2000. Stay informed
on our Year 2000 readiness by visiting our Web site at www.mutualfunds.com.

This material represents Year 2000 Readiness disclosure pursuant to the Year
2000 Information and Readiness Act.

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NEW ENGLAND GROWTH FUND
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INVESTMENT RESULTS THROUGH DECEMBER 31, 1998
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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. In
the past the Standard & Poor's 500 Stock Index5 served as a benchmark for New
England Star Advisers. Going forward the Standard & Poor's 400 Midcap Index7
will be the primary benchmark and the S&P 500 Stock Index will be the secondary
benchmark. While no benchmark is a perfect match for a managed fund, the
addition of the new Index better reflects the characteristics that may be
represented in the Fund.

GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
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[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 Star Advisers Fund's
inception on 7/7/94 compared to Standard & Poor's 500(5). The data points from
the graph are as follows:]

NAV(1) MSC(2) S&P 500(5) S&P 400(7)
- -----------------------------------------------------------
07-Jul-94 $10,000 $9,425 $10,000 $10,000
12/94 $10,638 $10,026 $10,391 $10,401
6/95 $12,252 $11,547 $12,484 $12,228
12/95 $14,293 $13,471 $14,281 $13,610
12/96 $17,006 $16,028 $17,552 $16,216
6/97 $18,775 $17,695 $21,167 $18,323
6/98 $23,293 $21,954 $27,534 $23,290
12/98 $24,372 $22,970 $30,073 $25,530

These illustrations represent 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. All Index and Fund
performance assumes reinvestment of distributions. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges.

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NEW ENGLAND STAR ADVISERS FUND
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AVERAGE ANNUAL TOTAL RETURNS - 12/31/98
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CLASS A (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 19.3% 21.9%
With Max. Sales Charge(2) 12.4 20.4
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CLASS B (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 18.4% 21.1%
With CDSC(3) 13.4 20.8
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CLASS C (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 18.5% 21.1%
With CDSC(3) 17.5 21.1
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CLASS Y (Inception 11/15/94)* 1 YEAR SINCE INCEPTION
Net Asset Value(1) 19.6% 22.0%
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SINCE FUND'S SINCE FUND'S
COMPARATIVE PERFORMANCE 1 YEAR CLASS A, B & C CLASS Y
INCEPTION INCEPTION
S&P 400 Midcap Index(7) 19.1% 23.2% 23.2%
S&P 500 Stock Index(5) 28.5 27.8 29.2
Lipper Growth Average(4) 22.9 22.3 24.0
Morningstar Mid Cap Growth Avg(6) 18.0 20.3 20.9
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These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.

* Class Y shares are available only to certain institutional investors and are
not subject to a sales charge.

NOTES TO CHARTS (PAGES 1 & 2)

(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 (MSC) 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) Contingent Deferred Sale Charge (CDSC) performance for Class B shares
assumes that a maximum 5% sales charge is applied to redemptions. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares. CDSC for Class C shares assumes a maximum 1% sales
charge on redemptions within the first year of purchase.

(4) Lipper Growth 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, Inc., an independent mutual
fund ranking service. Class Y since inception return is calculated from
11/30/94.

(5) Standard & Poor's Composite Index of 500 Stocks (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. Investors cannot
purchase an index directly.

(6) Morningstar Mid Cap Growth 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 Morningstar Inc. an
independent mutual fund ranking service. Class A, B and C share total
returns since inception are calculated from 7/31/94. Class Y since inception
return is calculated from 11/30/94.

(7) Standard and Poor's Midcap 400 Index (S&P 400) is an unmanaged index
representing the performance of the mid-sized company segment of the U.S.
market. The S&P 400 performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. Investors cannot purchase an index directly.

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NEW ENGLAND STAR ADVISERS FUND
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OVERVIEW: HOW THE FUND PERFORMED
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Calendar year 1998 was a rewarding but turbulent period for most U.S. stock
investors. Despite a healthy economic backdrop, U.S. stocks were affected by the
uncertainty that resulted from continuing economic and financial troubles in
global markets. While the U.S. market ended the year with strong gains, it did
so only after experiencing a steep drop.

New England Star Advisers Fund is composed of four separate segments, each
managed by a different leading investment management firm. This multiple-adviser
approach is the foundation of the Star concept. It provides a means to diversify
among not just individual securities but also among investment styles and
strategies.

For the 12-month period that ended December 31, 1998, New England Star Advisers
Fund's Class A shares at net asset value produced a total return of 19.3%,
reflecting a $1.85 per share gain to $20.02 and a $1.38 capital gain
distribution.

Investing in the U.S. stock market in 1998 was similar to riding a roller
coaster. The market produced double-digit returns in the first quarter of the
year, pulled back slightly in the second quarter, reached a record high in July,
experienced a nearly 20% decline in August and September and then rebounded
strongly to close the year with significant gains. Ironically, this volatility
occurred at a time when economic fundamentals in the United States were nearly
ideal. Relatively strong growth, low inflation and interest rates, high levels
of consumer confidence and spending and solid corporate profits were positive
for stocks. Nevertheless, investors could not ignore the economic events that
took place beyond U.S. borders. For the most part, the gyrations in the U.S.
market resulted from persistent economic problems in foreign markets. The
Federal Reserve Board made three successive interest rates cuts as stocks hit
their lowest point of the year. The Fed's action restored confidence in the U.S.
economy and in equity securities, and the stock market recovered lost ground.

The economic and financial crises that began in the Asian emerging markets in
1997 continued to cast a shadow over the U.S. stock market. Despite government
and International Monetary Fund (IMF) bailout packages, several emerging market
countries devalued their currencies. In Japan, a new government and a spate of
tax and spending initiatives designed to jump-start the economy couldn't budge
the country from recession. With the Russian government's default on its debt
and devaluation of its currency, the Russian economy nearly collapsed. In Latin
America, concerns that individual economies, especially Brazil, would buckle
under the weight of high interest rates and fallout from troubles in other
emerging markets eroded confidence in the region. The effect of the global
economy on U.S. stocks was dramatic. Nevertheless, the U.S. stock market
persevered.

As in the three previous years, 1998 will go into the financial record books as
a "year of the large-caps." Once again large-cap growth stocks maintained their
position as market leaders. The uncertainty caused by the "Asian flu," as Asia's
economic troubles are sometimes called, prompted investors to seek what they
perceived to be safe havens. As a result, investors tended to focus on the
familiar - the large, well known companies with consistent growth records.
Despite their attractive earnings, low prices and relatively little exposure to
the world's financial trouble spots, small-cap and mid-cap stocks barely
participated in the stock market's upward trend.

Just as the performance of different types of stocks varied during 1998, the
performance of various industry groups differed. Technology companies of all
types - computer manufacturers, software developers, internet companies - ended
1998 as the clear winners. In addition, pharmaceutical companies and consumer
stocks generated strong returns. On the other hand, companies that had virtually
anything to do with commodities were stymied by weak worldwide demand for their
products. Energy, precious metals and natural resources stocks also lost ground.

Volatility is an intrinsic part of the investment process, and our experience in
1998 has shown that events in world markets can have a strong effect on domestic
investments. Nevertheless, we believe stocks continue to be good long-term
investments. While we will not attempt market predictions or your Fund's
performance in the coming months, your investments are in the hands of some of
the most experienced and prominent investment managers in the country. The four
portfolio segments of New England Star Advisers Fund are managed autonomously.
However, the chart below shows the areas of emphasis for the Fund as a whole. In
the following pages, your Fund's four subadvisers discuss their investment
strategies during 1998.

YOUR FUND'S 5 LARGEST SECTORS - 12/31/98

% OF
SECTOR NET ASSETS
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1. DRUGS & HEALTH CARE 8.0
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2. FOOD & BEVERAGES 7.0
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3. BANKS & THRIFTS 6.3
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4. BROADCASTING 4.8
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5. TELECOMMUNICATION 4.0

Portfolio holdings and asset allocations will vary.

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NEW ENGLAND STAR ADVISERS FUND
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OAKMARK/HARRIS ASSOCIATES L.P. - ROBERT SANBORN
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During calendar year 1998, long-term value investors faced a difficult and
unusual investment environment. Mega-cap stocks and growth stocks performed very
well. However, smaller company stocks and value stocks were relatively poor
performers. While the Standard & Poor's Composite Index of 500 Stocks
appreciated more than 28%, other indexes lagged.

In hindsight, the place to invest in 1998 was clearly large-cap, growth stocks.
However, we found such stocks to be overpriced. In our view, over the course of
the year these stocks went from being substantially overpriced to being
extremely overpriced.

In managing the portfolio, we follow a rigorous discipline that refrains from
paying more than 60 cents for every $1 of value we see in a stock. We do not try
to anticipate the psychology of the market nor do we buy "hot" stocks in the
hope that they will continue to rise in price. No matter what the environment,
we adhere to our value strategy.

Our analysis of the market environment at the end of 1998 indicated that
investors were willing to assume large amounts of stock price risk but not
willing to take on much business or fundamental risk. In other words, investors
seemed to be overpaying for growth. As a result, when a company had any negative
news, its investors quickly sold their shares, even if the company's economic
fundamentals remained intact. Investors avoided stocks with any fundamental
controversies. We have several holdings that reported various business problems
in 1998. These include Mattel, Lockheed Martin, Boeing and Nike. We believe
prices on these stocks have declined to a point where future appreciation could
be significant.

Several holdings made strong gains during the period. The segment's largest
position, Philip Morris, rose more than 20% as many of the threats to the
tobacco industry's prosperity disappeared. We believe Philip Morris continues to
be undervalued. Black & Decker recovered from very depressed price levels and
rose almost 50%. We continue to hold the stock and believe it has a good
possibility for more gains.

LARGEST HOLDINGS IN OAKMARK/HARRIS SEGMENT
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% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Philip Morris Cos. 10.6 2.1
2. Banc One Corp. 6.2 1.2
3. Dun & Bradstreet Corp. 6.0 1.2
4. First Data Corp. 5.7 1.1
5. H & R Block, Inc. 5.3 1.0
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While we have been surprised at the continued strong performance of mega-cap and
growth stocks, we are not tempted to change our successful long term strategies.
We are confident that the significant run-up in prices on big company growth
stocks has created favorable conditions for value stocks to perform well.

FOUNDERS ASSET MANAGEMENT, LLC - PAUL LAROCCO
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During the 12-month period that ended December 31, 1998, the Asian economic and
financial crises accelerated and spread to emerging markets in Russia and South
America. As a result, a number of large companies with multinational operations
reported disappointing earnings. This situation, coupled with the fact that
prices on domestic stocks were high, led us to believe that a market drop was
imminent. Therefore, we made portfolio adjustments during the year.

During the first half of 1998, large-cap stocks were popular with investors
because of their liquidity and safety. As the year progressed, however,
investors began to focus more on earnings growth and began to move down the
capitalization spectrum in search of growth. We believe we may see more investor
interest in mid-cap and small-cap stocks because such companies are not as
exposed to troubled overseas economies.

Because of weakness in foreign markets in 1998, we trimmed holdings in several
large, multinational consumer products companies. We also reduced our position
in Citicorp, which has significant emerging market exposure. In the
pharmaceutical area, we reduced Pfizer, the Fund's largest holding. Sales of
Pfizer's new drug, Viagra, were strong, but they failed to meet some
expectations.

While defense spending has been low for several years, recently there have been
discussions in Congress about increasing the defense budget because of concern
that the economic problems overseas could result in unrest or conflict. To
capitalize on this possibility, we added to our holdings of defense contractor
Lockheed Martin, which at year-end was 1.8% of the segment. We also added to
Northrop Grumman, which was 1.0% of the segment at the end of the year. In
addition to winning new defense contracts, these companies have been successful
at exploiting commercial opportunities for their products.

LARGEST HOLDINGS IN FOUNDERS SEGMENT
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% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. General Electric Co. 4.3 1.2
2. Microsoft Corp. 4.2 1.2
3. Pfizer, Inc. 3.4 1.0
4. Intel Corp. 3.1 0.9
5. MCI Worldcom, Inc. 2.9 0.8

Major segment positions at the end of the period included Intel, 3.1% of the
segment, GE, 4.3% and Pfizer, 3.4%. These high-quality companies are established
leaders in their industries and are among the segment's long-term top-ten
holdings.

Looking ahead, Founders plans to invest in mid-cap and large-cap growth
companies with enduring quality. To identify such companies, we use a
comprehensive ten-step qualitative checklist we call the "Pyramid of Growth."
This checklist helps us uncover companies with strong and growing brand
identities that evoke trust and reliability. Many are household names with
strong brand franchises. We seek companies that have demonstrated consistent,
above-average earnings growth and those with unique or proprietary products that
have the ability to capitalize on the inefficiencies in their industry. We look
for companies that are leaders in exploiting broad societal trends and that have
seasoned and respected management teams, willing to buy back shares for the
benefit of the company.

Effective January 1999, Scott A. Chapman and Thomas M. Arrington became
portfolio managers of the segment. They have been Vice Presidents of Investments
at Founders since December 1998.

LOOMIS, SAYLES & COMPANY, L.P. - MARY CHAMPAGNE AND JEFF PETHERICK
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The past year was difficult for small-cap value investors. Because economic
troubles in global markets had a negative effect on U.S. stocks, most investors
were risk-averse. As a result, they favored the liquidity and perceived safety
of large-cap stocks, even though (in our opinion) small-caps were more
attractively valued and had greater potential for earnings growth and price
appreciation.

Throughout the year, the segment held its value relative to the market as a
whole. It weathered the July-August market correction well, and when the market
rebounded in the fall, the segment outperformed many of its competitors.

In managing the segment, we emphasized high quality securities with attractive
valuations and consistent earnings growth. During the first six months, we
invested a significant portion of the segment's assets in Real Estate Investment
Trusts (REITs). While REITs provided relatively high dividend yields in the 6%
to 8% range, they underperformed. Because of their poor performance, we reduced
the segment's allocation to REITs, and at the end of the period, they comprised
about 5.5% of assets. We believe the remaining REITs have the potential to
produce solid gains and should be attractive to investors because of their
yields and low prices.

During the second half of the year, we emphasized companies that had been out of
favor for a significant period. We found the most value in technology and health
care stocks. At the end of the period, technology stocks accounted for 13% of
segment assets. Many high quality technology companies had been underperformers
since 1996 and were selling at very low prices. Two particularly strong
performers were Alpha Industries, a semiconductor manufacturer, and Hutchinson
Technology, a company that supplies components to the disk-drive industry. Both
stocks more than doubled in price in the fourth quarter.

At the end of the period, 11% of assets were invested in selected health care
stocks. While these stocks got off to a slow start in 1998, by year-end they
also generated double-digit returns. In the health care area we invested in
Allegiance Corporation, Pathogenesis and Respironics, all of which performed
well for the year.

Looking ahead, we believe the economic troubles in world markets may result in a
slower growing U.S. economy. We anticipate a challenging investment environment,
one in which industry groups rotate in and out of favor with investors. We feel
strongly, however, that small-cap value stocks are poised for strong performance
in 1999. The valuations of these companies are at twenty-year lows relative to
large-cap stocks, and most small companies have little exposure to global
markets. We believe these companies have the potential for strong earnings
growth and price appreciation in the months ahead.

LARGEST HOLDINGS IN LOOMIS SAYLES SEGMENT
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% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Viad Corp. 2.1 0.5
2. Protective Life Corp. 1.4 0.3
3. Premark International 1.4 0.3
4. Conmed Corp. 1.4 0.3
5. Everest Reinsurance Holdings 1.2 0.3

JANUS CAPITAL CORP. - WARREN LAMMERT
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Early in the year, we were uncertain if the worst effects of the "Asian
contagion" were over. Consequently, we reduced the number of holdings in the
segment and concentrated on companies that we believed had the most resilient
earnings. Although we maintained investments in a variety of industries, we
focused on selected technology, pharmaceutical and cable companies. These
holdings contributed to strong returns in the first half of 1998. In the
technology area, Dell and Microsoft were among the best performers. Comcast, a
cable company, also logged strong returns. Despite positive overall performance,
there were a few disappointments. Our investments in oil services stocks had a
rough first quarter because the decline in oil prices outweighed the
technological advancements in the sector. Eventually, we sold several oil sector
stocks at a loss. However, the segment's biggest disappointment of the year came
in July when Parametric Technology announced an earnings shortfall. This
earnings decline was the result of a change in the company's product line, and
as a result we liquidated the position.

After the market tumult of late summer, we continued to concentrate on high
quality companies with broad franchises or niche products. This served us well.
When the market rebounded in October, investors no longer focused on liquidity.
Instead, they emphasized the underlying fundamentals of specific companies. This
change in investor attitude helped performance in the final four months of the
year.

LARGEST HOLDINGS IN JANUS SEGMENT
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% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Nokia Corp. (ADR) 6.3 1.9
2. Time Warner, Inc. 5.3 1.6
3. Comcast 4.7 1.4
4. Cisco Systems 4.5 1.4
5. TCI Ventures Group 3.8 1.2

We positioned the segment to capitalize on the productivity benefit that has
resulted from technology and on the meteoric rise of Internet usage. For
instance, our position in Amazon.com had a tremendous run. While Amazon.com's
stock has risen to dizzying levels by virtually any traditional measure, we
believe the company's potential is open-ended. Amazon.com has moved beyond being
simply an Internet bookseller. It is adding to its product offerings, and we
have found that its prominent brand name is an asset. On a fundamental level, we
like the company's business model. The company immediately receives cash for the
products it sells, but it does not have to pay its vendors for a relatively long
period.

Looking ahead, after a six-year expansion, it appears the economy is slowing.
However, we believe slower economic activity is the optimal environment for
adept stock pickers. Against a backdrop of vigorous growth, as we have seen over
the past few years, it is relatively easy for businesses to increase their
profits. In a slow growth environment, that is not the case, and we have already
seen many businesses become less profitable. We will continue to search for
selected nimble businesses that have the potential to increase their earnings
through pricing or because of their leading positions in dynamic industries.

The opinions expressed are those of the portfolio managers and are subject to
change. The occurrence of forcasted events and predictions is not certain and
cannot be assured.

The Fund may invest in foreign and emerging market securities,which involves
special risks. Investments in small-cap companies involve greater risk than is
customarily associated with more established companies. The Fund may invest in
high yielding, lower-rated securities, which may involve greater credit risk.
The Fund may invest in REITS, which are subject to changes in underlying real
estate values, rising interest rates, limited diversification of holdings,
higher costs and prepayment risk associated with related mortgages. This Fund
may invest in derivative securities for hedging purposes. See the Fund's
prospectus for more complete information.

<PAGE>

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PORTFOLIO COMPOSITION
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Investments as of December 31, 1998

AEROSPACE & DEFENSE--2.2%
30,300 Alliant Techsystems............................ $ 2,497,856
31,400 GenCorp........................................ 783,038
80,000 Lockheed Martin Corp........................... 6,780,000
43,400 Newport News Shipbuilding, Inc................. 1,451,187
48,600 Nichols Research Corp.......................... 1,014,525
43,675 Orbital Sciences
Corp. (c).................................... 1,932,619
299,000 The Boeing Co.................................. 9,754,875
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24,214,100
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AIRLINES--0.2%
113,115 Southwest Airlines............................. 2,538,018
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APPAREL & TEXTILES--1.4%
23,150 Cintas Corp.................................... 1,630,628
37,200 Liz Claiborne, Inc............................. 1,174,125
301,670 NIKE, Inc., Class B............................ 12,236,489
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15,041,242
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AUTO PARTS--0.3%
28,025 Danaher Corp................................... 1,522,108
27,565 Federal-Mogul.................................. 1,640,117
--------------
3,162,225
--------------
AUTOMOTIVE--0.9%
31,154 DaimlerChrysler AG............................. 2,992,731
50,900 Dura Automotive Systems (c).................... 1,736,962
17,225 Harley Davidson, Inc........................... 816,034
93,800 Intermet Corp.................................. 1,225,263
19,700 SPX Corp. (c).................................. 1,319,900
54,100 Tower Automotive, Inc.......................... 1,349,119
--------------
9,440,009
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BANKS & THRIFTS--6.3%
258,000 Banc One Corp.................................. 13,174,125
239,955 Bank of New York Company, Inc.................. 9,658,189
50,900 Bank United.................................... 1,997,825
54,300 City National.................................. 2,260,237
33,160 CNB Bancshares................................. 1,546,085
78,737 Commercial Federal............................. 1,825,714
91,900 Community First Bankshares, Inc................ 1,935,644
37,400 Cullen/Frost Bankers........................... 2,052,325
50,150 Downey Financial............................... 1,275,691
52,078 Firstar Corp................................... 4,856,273
63,600 Local Financial Corp........................... 572,400
150,000 Mellon Bank Corp............................... 10,312,500
16,825 Northern Trust Corp............................ 1,469,033
4,100 Pacific Bank National Association.............. 178,863
20,275 State Street Corp.............................. 1,410,380
50,300 Staten Islands Bancorp, Inc.................... 1,002,856
40,275 U.S. Bancorp................................... 1,429,762
272,500 Washington Mutual, Inc......................... 10,406,094
33,100 Western Bancorp................................ 968,175
--------------
68,332,171
--------------
BROADCASTING--4.8%
61,415 Cablevision Systems (c)........................ 3,082,265
70,390 Chancellor Media Corp. (c)..................... 3,369,921
349,345 Comcast........................................ 20,502,185
71,765 Cox Communications (c)......................... 4,960,756
51,800 Hearst-Argyle Television, Inc.................. 1,709,400
216,800 MediaOne Group,
Inc. (c)..................................... 10,189,600
72,625 Tele-Communications, Inc....................... 3,345,289
135,660 United International Holdings, Inc............. 2,611,455
90,310 USA Networks, Inc.............................. 2,991,519
--------------
52,762,390
--------------
BUILDING & RELATED--0.7%
101,200 Champion Enterprises (c)....................... 2,770,350
75,400 Furniture Brands International................. 2,054,650
43,700 Giant Cement Holding, Inc...................... 1,081,575
58,600 Shaw Industries, Inc........................... 1,421,050
--------------
7,327,625
--------------
BUSINESS SERVICES--1.0%
13,900 Automatic Data Processing, Inc................. 1,114,606
60,087 Fiserv, Inc. (c)............................... 3,090,725
106,494 Outdoor Systems (c)............................ 3,194,820
82,147 Penton Media, Inc.............................. 1,663,477
30,275 Robert Half International, Inc. (c)............ 1,352,914
9,675 The Interpublic Group of Companies, Inc........ 771,581
--------------
11,188,123
--------------
CHEMICALS--1.3%
47,500 CUNO, Inc...................................... 771,875
44,300 Cytec Industries, Inc.......................... 941,375
58,700 Ferro Corp..................................... 1,526,200
28,800 Great Lakes Chemical Corp...................... 1,152,000
29,400 Minerals Technologies, Inc..................... 1,203,563
116,245 Monsanto Co.................................... 5,521,637
34,100 Scotts Co...................................... 1,310,719
78,900 Solutia, Inc................................... 1,765,387
--------------
14,192,756
--------------
COMPUTER SOFTWARE &
SERVICES--3.8%
41,100 ChoicePoint, Inc. (c).......................... 2,650,950
35,125 Computer Sciences (c).......................... 2,263,367
66,700 DSP Group (c).................................. 1,392,363
380,000 First Data Corp................................ 12,041,250
149,030 IMS Health, Inc................................ 11,242,451
123,500 PLATINUM Technology (c)........................ 2,361,937
91,295 Sapient Corp................................... 5,112,520
45,900 Sterling Software, Inc......................... 1,242,169
71,600 Symantec Corp. (c)............................. 1,557,300
53,575 Technology Solutions (c)....................... 574,257
53,100 Wang Labs, Inc................................. 1,473,525
--------------
41,912,089
--------------
COMPUTERS & BUSINESS
EQUIPMENT--1.4%
1,890 CDW Computer Ctrs, Inc......................... 181,322
35,575 Compaq Computer Corp........................... 1,491,927
50,325 Dell Computer
Corp. (c).................................... 3,683,161
50,750 EMC Corp. (c).................................. 4,313,750
31,650 International Business Machines Corp........... 5,847,337
--------------
15,517,497
--------------
CONGLOMERATES--1.0%
139,294 TYCO International, Ltd........................ 10,507,991
--------------
COMPUTER HARDWARE--0.8%
72,000 Digi International (c)......................... 801,000
69,300 FORE Systems (c)............................... 1,269,056
21,500 Hutchinson Technology, Inc..................... 765,937
35,100 Micron Electronics (c)......................... 607,669
64,200 Quantum Corp. (c).............................. 1,364,250
85,500 Sequent Computer Systems, Inc.................. 1,031,344
46,000 SMART Modular Technologies, Inc................ 1,276,500
18,150 Sun Microsystems, Inc. (c)..................... 1,554,094
--------------
8,669,850
--------------
CONSUMER GOODS & SERVICES--2.0%
250,000 H & R Block, Inc............................... 11,250,000
301,650 Mattel, Inc.................................... 6,881,391
210,000 Polaroid Corp.................................. 3,924,375
--------------
22,055,766
--------------
CONSUMER-JEWELRY/NOVELTY/
GIFTS--0.2%
53,800 Jostens, Inc................................... 1,408,888
25,800 Zale Corp...................................... 832,050
--------------
2,240,938
--------------
DRUGS & HEALTH CARE--8.0%
128,065 ALZA Corp. (c)................................. 6,691,396
44,625 Amgen, Inc. (c)................................ 4,666,102
44,700 Biovail Corporation International (c).......... 1,690,219
37,275 Bristol-Myers Squibb........................... 4,987,861
40,240 Centocor, Inc. (c)............................. 1,815,830
25,800 ChiRex, Inc.................................... 551,475
380,000 Columbia/HCA Healthcare........................ 9,405,000
117,675 Eli Lilly...................................... 10,458,366
10,725 Glaxo Wellcome, Inc. (ADR)..................... 745,387
17,400 Johnson & Johnson.............................. 1,459,425
41,800 Jones Pharma, Inc.............................. 1,525,700
21,675 Merck & Co..................................... 3,201,127
162,910 Pfizer, Inc.................................... 20,435,023
61,695 Pharmacia & Upjohn, Inc........................ 3,493,479
101,125 Schering-Plough Corp........................... 5,587,156
DRUGS & HEALTH CARE--CONTINUED
1 SmithKline Beecham plc ........................ 14
146,405 Warner-Lambert Co.............................. 11,007,826
--------------
87,721,386
--------------
ELECTRIC--1.2%
130,525 General Electric Co............................ 13,321,708
--------------
ELECTRIC UTILITIES--0.6%
28,500 BEC Energy..................................... 1,173,844
25,700 Commonwealth Energy Systems.................... 1,040,850
43,600 Rochester Gas & Electric Corp.................. 1,362,500
77,200 WPS Resources Corp............................. 2,721,300
--------------
6,298,494
--------------
ELECTRICAL EQUIPMENT--0.3%
26,800 Alpha Industries............................... 964,800
54,400 Artesyn Technologies, Inc...................... 761,600
89,800 Sensormatic Electronics Corp................... 622,987
68,170 Vishay Intertechnology......................... 988,465
--------------
3,337,852
--------------
ELECTRONIC COMPONENTS--0.6%
70,775 Maxim Integrated Products (c).................. 3,091,983
83,105 Vitesse Semiconductor Corp. (c)................ 3,791,665
--------------
6,883,648
--------------
ELECTRONICS--1.8%
28,500 ATMI, Inc. (c)................................. 719,625
52,400 AVX Corp....................................... 887,525
33,300 Beckman Coulter, Inc........................... 1,806,525
29,900 Credence Systems Corp.......................... 553,150
108,900 Cypress Semiconductor Corp..................... 905,231
27,500 Litton Industries,
Inc. (c)..................................... 1,794,375
68,350 Lucent Technologies, Inc....................... 7,518,500
21,000 Motorola, Inc.................................. 1,282,312
6,000 Novellus Systems, Inc.......................... 297,000
21,100 Photronics, Inc................................ 505,741
28,400 Speedfam International......................... 486,350
47,600 Tektronix, Inc................................. 1,430,975
11,200 Texas Instruments, Inc......................... 958,300
3,850 The Perkin-Elmer Corp.......................... 375,616
--------------
19,521,225
--------------
ENTERTAINMENT--0.1%
46,000 CEC Entertainment, Inc......................... 1,276,500
--------------
FINANCE--0.4%
30,700 American Express Co............................ 3,139,075
18,400 Hartford Financial Services Group.............. 1,009,700
--------------
4,148,775
--------------
FINANCIAL SERVICES--1.9%
140,700 AMRESCO, Inc................................... 1,231,125
131,200 Anthracite Capital............................. 1,025,000
39,048 Associates First Capital....................... 1,654,659
90,900 Brandywine Realty Trust (c).................... 1,624,838
133,500 Capital Automotive............................. 1,985,812
13,750 Charles Schwab Corp............................ 772,578
16,575 Franklin Resources, Inc........................ 530,400
81,550 Healthcare Realty Trust........................ 1,819,584
32,810 Household International........................ 1,300,096
88,300 Imperial Credit Industries (c)................. 739,513
67,700 Koger Equity, Inc.............................. 1,163,594
92,200 Liberty Property Trust......................... 2,270,425
22,455 Newcourt Credit Group, Inc..................... 784,522
70,200 Sun Communities, Inc........................... 2,443,837
10,910 The FINOVA Group, Inc.......................... 588,458
154,300 Unicapital Corp................................ 1,137,963
--------------
21,072,404
--------------
FOOD & BEVERAGES--7.0%
84,225 Coca-Cola Co................................... 5,632,547
27,600 Corn Products International, Inc............... 838,350
195,000 H.J. Heinz Co.................................. 11,041,875
11,700 Hershey Foods.................................. 727,594
60,600 International Home Foods, Inc.................. 1,022,625
98,800 International Multifoods....................... 2,550,275
95,900 Michael Foods, Inc............................. 2,877,000
220,000 Nabisco Holdings Corp.......................... 9,130,000
35,850 PepsiCo, Inc................................... 1,467,609
501,575 Philip Morris Cos.............................. 26,834,262
160,000 Quaker Oats Co................................. 9,520,000
167,823 Raisio Group plc............................... 1,843,124
1,325 Tootsie Roll Industries Inc.................... 51,841
30,400 Vlasic Foods International, Inc................ 723,900
51,500 Whitman Corp................................... 1,306,813
8,125 William Wrigley Jr. Co......................... 727,695
--------------
76,295,510
--------------
GOVERNMENT AGENCIES--0.5%
70,575 Federal National Mortgage Association.......... 5,222,550
--------------
HEALTH CARE -- MEDICAL TECHNOLOGY--2.7%
86,000 ADAC Labs...................................... 1,717,313
55,705 Arterial Vascular Engineering, Inc............. 2,924,512
101,850 Conmed Corp. (c)............................... 3,361,050
95,900 DENTSPLY International......................... 2,469,425
88,800 DVI, Inc. (c).................................. 1,609,500
132,900 EndoSonics Corp................................ 1,320,694
60,790 Medtronic, Inc................................. 4,513,657
10,080 MiniMed, Inc................................... 1,055,880
39,700 PSS World Medical.............................. 913,100
52,700 Respironics, Inc............................... 1,055,647
43,800 Safeskin Corp.................................. 1,056,675
52,155 Sofamor/Danek Group, Inc. (c).................. 6,349,871
47,300 Steris Corp.................................... 1,345,094
--------------
29,692,418
--------------
HEALTH CARE -- SERVICES--0.4%
52,800 Alternative Living Services.................... 1,808,400
76,200 Capital Senior Living Corp..................... 1,062,037
48,600 Curative Technologies, Inc..................... 1,628,100
--------------
4,498,537
--------------
HOTELS & RESTAURANTS--1.0%
42,400 Brinker International, Inc..................... 1,224,300
78,700 Foodmaker, Inc................................. 1,736,319
53,300 McDonald's Corp................................ 4,084,112
68,701 MeriStar Hospitality Corp...................... 1,275,262
42,575 Outback Steakhouse, Inc........................ 1,697,678
56,200 Wendy's International, Inc..................... 1,225,863
--------------
11,243,534
--------------
HOUSEHOLD PRODUCTS--2.1%
200,000 Black & Decker Corp............................ 11,212,500
6,550 Clorox Co...................................... 765,122
24,200 Colgate-Palmolive.............................. 2,247,575
47,300 Dial Corp...................................... 1,365,787
92,425 Gillette Co.................................... 4,465,283
37,600 Procter & Gamble............................... 3,433,350
--------------
23,489,617
--------------
INFORMATION SERVICES--1.5%
72,000 ACNielson Corp................................. 2,034,000
400,000 Dun & Bradstreet Corp.......................... 12,625,000
78,600 Nielsen Media Research, Inc.................... 1,414,800
--------------
16,073,800
--------------
INSURANCE--3.3%
44,575 American International Group................... 4,307,059
41,200 AmerUs Life Holdings, Inc...................... 921,850
3,050 Berkshire Hathaway, Inc., Class B, (c)......... 7,167,500
52,500 Capital Re Corp................................ 1,053,281
58,987 Citigroup, Inc................................. 2,919,856
25,200 CMAC Investment Corp........................... 1,157,625
74,600 Everest Reinsurance Holdings................... 2,904,738
67,200 Horace Mann Educators.......................... 1,915,200
53,650 Marsh & McLennan............................... 3,135,172
30,650 Medical Assurance, Inc......................... 1,013,366
86,100 Protective Life Corp........................... 3,427,856
22,600 Reinsurance Group America, Inc................. 1,582,000
136,500 Reliance Group Holdings, Inc................... 1,757,438
59,300 Trigon Healthcare, Inc......................... 2,212,631
11,815 UNUM Corp...................................... 689,701
--------------
36,165,273
--------------
INTERNET CONTENT--3.2%
36,320 Amazon.com, Inc. (c)........................... 11,667,800
109,431 America Online................................. 17,508,960
46,415 At Home Corp................................... 3,446,314
57,440 DoubleClick, Inc............................... 2,617,110
--------------
35,240,184
--------------
INVESTMENT COMPANIES--1.2%
537,635 TCI Ventures Group (c)......................... 12,668,025
--------------
LEISURE--0.4%
17,225 Carnival Corp.................................. 826,800
113,125 Walt Disney Co................................. 3,393,750
--------------
4,220,550
--------------
MANUFACTURING--1.5%
46,200 A.O. Smith..................................... 1,134,788
40,100 Cognex Corp. (c)............................... 802,000
28,100 Crane Co....................................... 848,269
71,100 Federal Signal................................. 1,946,362
84,000 Hussmann International......................... 1,627,500
24,125 Illinois Tool Works, Inc....................... 1,399,250
72,900 MascoTech, Inc................................. 1,248,413
31,000 National Service Industries, Inc............... 1,178,000
45,000 Pentair, Inc................................... 1,791,562
98,000 Premark International.......................... 3,393,250
41,600 Regal Beloit Corp.............................. 956,800
--------------
16,326,194
--------------
METALS & MINING--0.8%
39,600 AK Steel Holding Corp.......................... 930,600
76,700 Bethlehem Steel Corp. (c)...................... 642,363
448,000 De Beers Centenary AG (ADR).................... 5,712,000
7,300 Quanex Corp. (c)............................... 164,706
118,400 Worthington Industries, Inc.................... 1,480,000
--------------
8,929,669
--------------
NATURAL GAS--0.6%
40,200 Eastern Enterprises............................ 1,758,750
86,900 MCN Corp....................................... 1,656,531
17,900 New Jersey Resources Corp...................... 707,050
50,500 Public Service North Carolina, Inc............. 1,313,000
33,800 Washington Gas
Light Co..................................... 916,825
--------------
6,352,156
--------------
OFFICE EQUIPMENT & SUPPLIES--0.4%
43,600 Bell & Howell (c).............................. 1,648,625
37,200 HON Industries................................. 890,475
43,200 National Computer Systems...................... 1,598,400
--------------
4,137,500
--------------

OIL & GAS/EXPLORATION & PRODUCTION--0.3%
109,500 Forcenergy, Inc. (c)........................... 287,438
55,800 Newfield Exploration Co........................ 1,164,825
67,400 Plains Resources (c)........................... 947,812
119,400 Vintage Petroleum, Inc......................... 1,029,825
--------------
3,429,900
--------------
PAPER & FOREST PRODUCTS--0.1%
33,600 Chesapeake Corp. (Rights)...................... 1,239,000
--------------
PETROLEUM SERVICES--0.3%
74,600 BJ Services (c)................................ 1,165,625
66,300 Key Energy Group (c)........................... 310,781
1,532,285 Ocean Rig ASA.................................. 419,445
23,150 Schlumberger, Ltd.............................. 1,073,581
--------------
2,969,432
--------------
PUBLISHING--3.3%
200,000 Knight-Ridder, Inc............................. 10,225,000
83,825 Lamar Advertising (c).......................... 3,122,481
5,025 McGraw-Hill Companies, Inc..................... 511,922
181,100 R. H. Donnelley Corp........................... 2,637,269
311,304 Time Warner, Inc............................... 19,320,304
--------------
35,816,976
--------------
RETAIL--3.5%
23,450 Bed Bath & Beyond, Inc. (c).................... 800,231
12,750 Best Buy Company, Inc. (c)..................... 782,531
30,800 BJ's Wholesale
Club (c)..................................... 1,426,425
114,700 Burlington Coat Factory........................ 1,871,044
38,300 Claire's Stores................................ 785,150
86,950 Costco Cos. (c)................................ 6,276,703
5,405 Dollar Tree Stores, Inc........................ 236,131
42,150 Gap, Inc....................................... 2,370,938
78,625 Home Depot, Inc................................ 4,810,867
29,375 Kohls Corp. (c)................................ 1,804,727
26,500 Payless ShoeSource, Inc. (c)................... 1,255,438
33,500 Ross Stores, Inc............................... 1,319,063
85,090 Staples, Inc. (c).............................. 3,717,369
41,600 Talbots, Inc................................... 1,305,200
108,700 Venator Group, Inc. (c)........................ 699,756
83,050 Wal-Mart Stores, Inc........................... 6,763,384
37,200 Walgreen Co.................................... 2,178,525
--------------
38,403,482
--------------
RETAIL -- GROCERY--0.4%
14,700 Great Atlantic & Pacific Tea Co................ 435,487
41,500 Hannaford Brothers............................. 2,199,500
37,700 Safeway, Inc. (c).............................. 2,297,344
--------------
4,932,331
--------------
SERVICES--1.2%
77,300 Borg-Warner Security Corp...................... 1,449,375
49,500 Cort Business Services (c)..................... 1,200,375
91,900 Daisytek International Corp.................... 1,746,100
59,150 DeVry, Inc (c)................................. 1,811,469
48,400 Information Resources (Rights)................. 493,075
900 StaffMark, Inc................................. 20,137
25,500 Sykes Enterprises, Inc. (c).................... 777,750
171,000 Viad Corp...................................... 5,194,125
--------------
12,692,406
--------------
SOFTWARE--3.3%
3,055 Inktomi Corp................................... 395,241
74,755 Intuit, Inc. (c)............................... 5,419,738
173,065 Microsoft Corp. (c)............................ 24,001,952
42,025 Solectron Corp. (c)............................ 3,905,698
43,762 Wind River Systems (c)......................... 2,056,814
--------------
35,779,443
--------------
SPECIALTY PRINTING--0.5%
33,625 Banta Corp..................................... 920,484
44,800 Cadmus Communications.......................... 845,600
34,800 Deluxe Corp.................................... 1,272,375
22,000 Gannett Co..................................... 1,419,000
52,600 Harte-Hanks, Inc............................... 1,499,100
--------------
5,956,559
--------------
TECHNOLOGY--3.4%
218,425 Cisco Systems (c).............................. 20,272,570
81,275 Intel Corp..................................... 9,636,167
33,675 Oracle Systems Corp. (c)....................... 1,452,235
164,514 Pittway Corp................................... 5,439,244
--------------
36,800,216
--------------
TELECOMMUNICATION--4.0%
57,550 AirTouch Communications, Inc. (c).............. 4,150,794
59,900 BellSouth Corp................................. 2,987,512
7,780 Global Crossing, Ltd........................... 351,073
147,650 MCI Worldcom, Inc. (c)......................... 10,593,887
44,920 Qwest Communications International,
Inc. (c)..................................... 2,246,000
54,800 SBC Communications, Inc........................ 2,938,650
301,759 Tele-Communications, Inc. (c).................. 16,691,045
363,511 Telecom Italia S.p.A........................... 3,099,885
19,200 Transaction Network Services, Inc.............. 385,200
--------------
43,444,046
--------------
TELECOMMUNICATION
EQUIPMENT--2.5%
39,600 General Instrument Corp. (c)................... 1,343,925
58,200 Inter Tel, Inc................................. 1,360,425
196,650 Nokia Corp. (ADR).............................. 23,684,035
61,700 Tekelec, Inc................................... 1,021,906
--------------
27,410,291
--------------
TRUCKING & FREIGHT
FORWARDING--0.2%
46,300 CNF Transportation, Inc........................ 1,739,144
--------------
UTILITIES--0.1%
36,500 American States Water Co....................... 994,625
--------------
WASTE MANAGEMENT--0.0%
6,975 World Fuel Services Corp....................... 74,981
--------------
Total Common Stock
(Identified Cost $852,536,428) .............. 1,014,923,131
--------------

BONDS AND NOTES--0.0%

FACE
AMOUNT
- -------------------------------------------------------------------------------
INTERNET CONTENT--0.0%
$ 158,000 Amazon.com, Inc.,
0/10.00% 5/01/2008 (d)....................... 105,070
--------------
Total Bonds and Notes
(Identified Cost $89,855) ................... 105,070
--------------

SHORT TERM INVESTMENTS--6.2%
- -------------------------------------------------------------------------------
FACE
AMOUNT DESCRIPTION VALUE(a)
- -------------------------------------------------------------------------------
$15,015,000 Repurchase Agreement with State Street Bank
and Trust Co. dated 12/31/98 at 4.00% to be
repurchased at $15,021,673 on 1/04/99,
collateralized by $11,235,000 U.S. Treasury
Bond 8.125% due 8/15/19 with a value of
$15,353,967.................................. $ 15,015,000
15,340,000 Repurchase Agreement with State Street Bank
and Trust Co. dated 12/31/98 at 4.50% to be
repurchased at $15,347,670 on 1/04/99,
collateralized by $11,480,000 U.S. Treasury
Bond 8.125% due 8/15/19 with a value of
$15,688,788.................................. 15,340,000
13,600,000 CIT Group Holdings, 5.300%, 1/04/1999......... 13,593,993
11,611,289 Associates First Capital, 5.000%, 1/04/1999... 11,611,289
10,000,000 Federal National Mortgage Association Discount
Notes, Zero Coupon, 4/01/1999................ 9,876,750
2,100,000 Chevron Corp., 4.800%, 1/04/1999.............. 2,100,000
--------------

Total Short Term Investments (Identified Cost
$67,537,032) ............................... 67,537,032
--------------

Total Investments--99.1% (Identified Cost
$920,163,315) (b) .......................... 1,082,565,233

Other assets less liabilities ................ 9,903,306
--------------

Total Net Assets--100% ....................... $1,092,468,539
==============

<TABLE>
<CAPTION>
FORWARD CURRENCY CONTRACTS OUTSTANDING -- at December 31, 1998

LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
------------- ------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Finnish Markka (sold)..... 1/22/99 44,400,000 $ 8,719,408 $ 8,717,200 $ 2,208
Finnish Markka (sold)..... 1/26/99 14,600,000 2,886,739 2,867,042 19,697
Italian Lira (sold)....... 1/22/99 1,050,000,000 633,943 635,706 (1,763)
Italian Lira (sold)....... 1/26/99 3,050,000,000 1,884,669 1,846,928 37,741
------------
$ 57,883
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on cost of
$921,913,041 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 ............................................................... $212,149,068
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value ............................................................... (51,496,876)
------------
Net unrealized appreciation ............................................................ $160,652,192
============
(c) Non-income producing security.
(d) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date.

ADR An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive
securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
</TABLE>

See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1998

<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $920,163,315) ... $1,082,565,233
Cash .................................................. 79,768
Receivable for:

Fund shares sold .................................... 6,727,009
Securities sold ..................................... 33,075,105
Open forward currency contracts - net ............... 57,883
Accrued dividends and interest ...................... 1,148,714
Tax reclaims ........................................ 11,659
Unamortized organization expense ...................... 25,125
--------------
1,123,690,496

LIABILITIES
Payable for:

Securities purchased ................................ $26,230,720
Fund shares redeemed ................................ 3,797,661
Accrued expenses:

Management fees ..................................... 924,623
Deferred trustees' fees ............................. 23,149
Accounting and administrative ....................... 17,056
Other ............................................... 228,748
-----------
31,221,957
--------------
NET ASSETS .............................................. $1,092,468,539
==============
Net Assets consist of:

Capital paid in ..................................... $ 878,120,873
Undistributed net investment income ................. 163,718
Accumulated net realized gains (losses) ............. 51,723,374
Unrealized appreciation (depreciation) on
investments, forward
currency contracts and foreign currency
transactions ...................................... 162,460,574
--------------
NET ASSETS .............................................. $1,092,468,539
==============

Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($443,165,006 divided by 22,131,746 shares of
beneficial interest) ................................ $20.02
======
Offering price per share (100/94.25 of $20.02) .......... $21.24*
======
Net asset value and offering price of Class B shares
($508,937,215 divided by 26,459,982 shares of
beneficial interest) ................................. $19.23**
======
Net asset value and offering price of Class C shares
($97,849,290 divided by 5,083,452 shares of beneficial
interest) ............................................ $19.25**

======
Net asset value, offering and redemption price of Class Y
shares
($42,517,028 divided by 2,087,425 shares of beneficial
interest) ........................................... $20.37
======

* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of these amounts.
**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges.
</TABLE>

See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Year Ended December 31, 1998

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign taxes of: $49,327) ............ $ 11,009,396
Interest ................................................ 3,501,398
------------
14,510,794
Expenses
Management fees ....................................... $ 10,961,734
Service fees - Class A ................................ 1,072,116
Service and distribution fees - Class B ............... 4,826,734
Service and distribution fees - Class C ............... 958,465
Trustees' fees and expenses ........................... 56,849
Accounting and administrative ......................... 191,247
Custodian ............................................. 472,561
Transfer agent ........................................ 2,135,502
Audit and tax services ................................ 46,000
Legal ................................................. 74,306
Printing .............................................. 238,159
Registration .......................................... 127,138
Amortization of organization expenses ................. 33,000
Miscellaneous ......................................... 42,531
------------
Total expenses .......................................... 21,236,342
------------
Net investment loss ..................................... (6,725,548)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD
CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ..................................... 120,836,368
Forward currency contracts - net ...................... (488,909)
Foreign currency transactions - net ................... (4,014)
------------
Total realized gain (loss) on investments, forward
currency contracts and
foreign currency transactions ......................... 120,343,445
------------
Unrealized appreciation (depreciation) on:
Investments - net ..................................... 65,141,097
Forward currency contracts - net ...................... 94,795
Foreign currency transactions - net ................... 1,569
------------
Total unrealized appreciation (depreciation) on
investments, forward
currency contracts and foreign currency transactions .. 65,237,461
------------
Net gain (loss) on investment transactions .............. 185,580,906
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS . $178,855,358
============
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ................................. $ (5,022,287) $ (6,725,548)
Net realized gain (loss) on investments, forward
currency contracts and foreign currency
transactions ...................................... 180,780,558 120,343,445
Unrealized appreciation (depreciation) on
investments, forward currency contracts and foreign
currency transactions ............................. (10,460,445) 65,237,461
-------------- --------------
Increase (decrease) in net assets from operations ... 165,297,826 178,855,358
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ........................................... (71,019,226) (29,743,099)
Class B ........................................... (80,282,014) (34,777,382)
Class C ........................................... (16,094,369) (6,853,215)
Class Y ........................................... (5,967,515) (2,746,734)
-------------- --------------
(173,363,124) (74,120,430)
-------------- --------------
Increase (decrease) in net assets derived from
capital
share transactions ................................ 204,607,502 (22,655,877)
-------------- --------------
Total increase (decrease) in net assets ............. 196,542,204 82,079,051

NET ASSETS
Beginning of the year ............................... 813,847,284 1,010,389,488
-------------- --------------
End of the year ..................................... $1,010,389,488 $1,092,468,539
============== ==============

UNDISTRIBUTED NET INVESTMENT INCOME
End of the year ..................................... $ 162,760 $ 163,718
============== ==============
</TABLE>

See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------------------------
JULY 7, 1994(a)
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998
----------------------- ------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ......... $12.50 $13.25 $16.78 $18.18 $18.17
------ ------ ------ ------ ------
Income From
Investment
Operations
Net Investment
Income (Loss) .. 0.05 0.00 (0.06)(e) (0.02)(e) (0.05)(e)
Net Realized and
Unrealized Gain
(Loss) on
Investments .... 0.75 4.52 3.17 3.62 3.28
------ ------ ------ ------ ------
Total From
Investment
Operations ..... 0.80 4.52 3.11 3.60 3.23
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment
Income ......... (0.05) 0.00 0.00 0.00 0.00
Distributions From
Net Realized
Capital Gains .. 0.00 (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Total
Distributions .... (0.05) (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Net Asset Value,
End of Period .. $13.25 $16.78 $18.18 $18.17 $20.02
====== ====== ====== ====== ======
Total Return (%)(c) 6.4 34.4 19.0 20.2 19.3
Ratio of Operating
Expenses to
Average Net
Assets (%) (d) . 1.94(b) 1.82 1.68 1.66 1.62
Ratio of Net
Investment
Income to
Average Net
Assets (%) ..... 1.06(b) (0.33) (0.36) (0.14) (0.24)
Portfolio Turnover
Rate (%) 100 142 127 168 101
Net Assets, End of
Period (000) ... $91,218 $223,596 $348,573 $416,938 $443,165

(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 1.98% for period ended December 31, 1994.
(e) Per share net investment loss 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
--------------------------------------------------------------------------------------------------------------
JULY 7, 1994(a)
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998
----------------------- ------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ......... $12.50 $13.23 $16.63 $17.86 $17.63
------ ------ ------ ------ ------

Income From
Investment
Operations
Net Investment
Income (Loss) .. 0.02 0.00 (0.20)(e) (0.17)(e) (0.18)(e)
Net Realized and
Unrealized Gain
(Loss) on
Investments .... 0.73 4.39 3.14 3.55 3.16
------ ------ ------ ------ ------
Total From
Investment
Operations ..... 0.75 4.39 2.94 3.38 2.98
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment
Income ......... (0.02) 0.00 0.00 0.00 0.00
Distributions From
Net Realized
Capital Gains .. 0.00 (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Total
Distributions .... (0.02) (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Net Asset Value,
End of Period .. $13.23 $16.63 $17.86 $17.63 $19.23
====== ====== ====== ====== ======
Total Return (%)(c) 6.0 33.4 18.1 19.3 18.4
Ratio of Operating
Expenses to
Average Net
Assets (%) (d) . 2.69(b) 2.57 2.43 2.41 2.37
Ratio of Net
Investment
Income to
Average Net
Assets (%) ..... 0.31(b) (1.08) (1.11) (0.89) (0.99)
Portfolio Turnover
Rate (%) 100 142 127 168 101
Net Assets, End of
Period (000) ... $72,889 $220,017 $366,314 $462,034 $508,937

(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 2.75% for period ended December 31, 1994.
(e) Per share net investment loss 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 C
--------------------------------------------------------------------------------------------------------------
JULY 7, 1994(a)
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998
----------------------- ------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ......... $12.50 $13.24 $16.65 $17.87 $17.64
------ ------ ------ ------ ------
Income From
Investment
Operations
Net Investment
Income (Loss) .. 0.02 0.00 (0.20)(e) (0.17)(e) (0.18)(e)
Net Realized and
Unrealized Gain
(Loss) on
Investments .... 0.74 4.40 3.13 3.55 3.17
------ ------ ------ ------ ------
Total From
Investment
Operations ..... 0.76 4.40 2.93 3.38 2.99
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment
Income ......... (0.02) 0.00 0.00 0.00 0.00
Distributions From
Net Realized
Capital Gains .. 0.00 (0.99) (1.71) (3.61) (1.38)
----- ----- ----- ----- -----
Total
Distributions .... (0.02) (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Net Asset Value,
End of Period .. $13.24 $16.65 $17.87 $17.64 $19.25
====== ====== ====== ====== ======
Total Return (%)(c) 6.0 33.4 18.0 19.3 18.5
Ratio of Operating
Expenses to
Average Net
Assets (%) (d) . 2.69(b) 2.57 2.43 2.41 2.37
Ratio of Net
Investment
Income to
Average Net
Assets (%) ..... 0.31(b) (1.08) (1.11) (0.89) (0.99)
Portfolio Turnover
Rate (%) 100 142 127 168 101
Net Assets, End of
Period (000) ... $20,096 $45,672 $80,312 $94,412 $97,849

See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS Y
--------------------------------------------------------------------------------------------------------------
NOVEMBER 15(a)
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998
---------------------- ------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ......... $13.59 $13.24 $16.83 $18.33 $18.41
------ ------ ------ ------ ------
Income From
Investment
Operations
Net Investment
Income (Loss) .. 0.06 0.00 (0.02)(e) 0.03(e) 0.00(e)
Net Realized and
Unrealized Gain
(Loss) on
Investments .... (0.35) 4.58 3.23 3.66 3.34
------ ------ ------ ------ ------
Total From
Investment
Operations ..... (0.29) 4.58 3.21 3.69 3.34
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment
Income ......... (0.06) 0.00 0.00 0.00 0.00
Distributions From
Net Realized
Capital Gains .. 0.00 (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Total
Distributions .... (0.06) (0.99) (1.71) (3.61) (1.38)
------ ------ ------ ------ ------
Net Asset Value,
End of Period (000) $13.24 $16.83 $18.33 $18.41 $20.37
====== ====== ====== ====== ======
Total Return (%)(c) (2.1) 34.8 19.6 20.5 19.6
Ratio of Operating
Expenses to
Average Net
Assets (%) (d) . 1.79(b) 1.57 1.43 1.41 1.37
Ratio of Net
Investment
Income to
Average Net
Assets (%) ..... 2.26(b) (0.08) (0.11) 0.11 0.01
Portfolio Turnover
Rate (%) 100 142 127 168 101
Net Assets, End of
Period (000) ... $196 $5,569 $18,649 $37,006 $42,517

(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 1.90% for period ended December 31, 1994.
(e) Per share net investment loss 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, 1998

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
Fund seeks long term growth of capital. 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 seeks
long term growth of capital. 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
of purchase (or five years if purchased before May 1, 1997). Class C shares do
not pay front end sales charges and do not convert to any other class of shares,
but they do pay a higher ongoing distribution fee than Class A shares and may be
subject to a contingent deferred sales charge if those shares are redeemed
within one year. Class Y shares do not pay a front end sales charge, a
contingent deferred sales charge or service and 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 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 and subadvisers, 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. Interest
income for the Fund is increased by the accretion of discount. 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 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 at fiscal year end, resulting from changes in the
exchange rate.

D. 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 portfolio composition under the caption
"Forward Currency Contracts Outstanding." This amount represents the aggregate
exposure to each currency the Fund has acquired or hedged through currency
contracts outstanding 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.

All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.

E. 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.

F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for organization
costs, distributions from real estate investment trusts and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclassification to capital accounts.

G. 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 including interest. Each 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 Fund's ability to dispose of the underlying securities.

H. ORGANIZATION EXPENSE. Costs incurred in fiscal 1994 in connection with the
Fund's organization and registration, amounting to approximately $165,000 in the
aggregate, were paid and are being amortized by the Fund over 60 months.

2. PURCHASES AND SALES OF SECURITIES. For the year ended December 31, 1998
purchases and sales of securities (excluding short-term investments) were
$986,127,201 and $1,098,618,386, respectively.

3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its adviser, New England Funds Management, L.P. ("NEFM"), at
the annual rate of 1.05% on the first $1 billion of the Fund's average daily net
assets and 1.00% of such assets in excess of $1 billion. NEFM pays the Fund's
investment subadvisers, Founders Asset Management, Inc., Harris Associates,
Janus Capital Corporation and Loomis, Sayles & Company, L.P. (the "Subadvisers")
as follows: Founders Asset Management, Inc., Janus Capital Corporation and
Loomis, Sayles & Company, L.P. at the annual rate of 0.55% of the first $50
million of the average daily net assets of the segment of the Fund that the
subadviser manages, 0.50% of the next $200 million and 0.475% of such assets in
excess of $250 million. NEFM pays Harris Associates at the annual rate of 0.65%
of the first $50 million of the average daily net assets of the segment of the
Fund that the subadviser manages, 0.60% of the next $50 million and 0.55% of
such assets in excess of $100 million. Certain officers and directors of the
Adviser are also officers or trustees of the Fund. NEFM, Harris Associates and
Loomis, Sayles & Company, L.P. are wholly owned subsidiaries of Nvest Companies,
L.P. ("Nvest") formerly New England Investment Companies, L.P., which is a
subsidiary of Metropolitan Life Insurance Company ("MetLife").

Fees retained by NEFM and paid to each Subadviser under the management
agreement in effect during the year ended December 31, 1998 are as follows:

$ 5,476,306 NEFM
1,350,200 Harris Associates
1,463,599 Founders Asset Management, Inc.
1,358,439 Janus Capital Corporation
1,313,190 Loomis, Sayles & Company, L.P.
-----------
$10,961,734
===========

The effective management fee for the year ended December 31, 1998 was 1.05%.

B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest 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, 1998, these expenses amounted to $191,247 and are shown
separately in the financial statements as accounting and administrative.

C. TRANSFER AGENT FEES. New England Funds Service Corporation ("NEFSCO") is the
transfer and shareholder servicing agent to the Fund and Boston Financial Data
Services serves as a sub-transfer agent for the Fund. For the year ended
December 31, 1998, the Fund paid NEFSCO $1,731,776 as compensation for its
services in that capacity. For the year ended December 31, 1998, the Fund
received $21,969 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 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
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,
1998, the Fund paid New England Funds $1,072,116 in fees under the Class A Plan.

Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of 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, 1998 the Fund paid New England Funds $1,206,684 and $239,616 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
monthly distribution fees at the annual rate of 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, 1998, the Fund paid New England Funds
$3,620,050 and $718,849 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 in shares of the Fund during the year ended
December 31, 1998 amounted to $2,573,691.

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, NEFSCO, Nvest, NEFM or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:

Annual Retainer $5,684
Meeting Fee 152/meeting
Annual Committee Member Retainer 853
Annual Committee Chairman Retainer 568

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. CAPITAL SHARES. At December 31, 1998 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, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 11,237,845 $ 216,916,475 7,745,900 $ 144,536,590
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gain ......................... 3,794,070 69,274,984 1,738,294 29,133,801
------------- ------------- ------------- -------------
15,031,915 286,191,459 9,484,194 173,670,391
Shares repurchased ............. (11,253,282) (216,169,035) (10,305,177) (192,986,379)
------------- ------------- ------------- -------------
Net increase (decrease) ........ 3,778,633 $ 70,022,424 (820,983) $ (19,315,988)
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 4,908,106 $ 89,778,147 3,638,826 $ 67,366,177
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gain ......................... 4,286,660 76,148,745 2,058,653 33,226,657
------------- ------------- ------------- -------------
9,194,766 165,926,892 5,697,479 100,592,834
Shares repurchased ............. (3,497,668) (65,093,904) (5,444,982) (99,728,292)
------------- ------------- ------------- -------------
Net increase ................... 5,697,098 $ 100,832,988 252,497 $ 864,542
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 1,933,560 $ 35,540,097 1,232,859 $ 22,880,050
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gain ......................... 877,348 15,592,950 411,134 6,639,808
------------- ------------- ------------- -------------
2,810,908 51,133,047 1,643,993 29,519,858
Shares repurchased ............. (1,953,987) (36,192,030) (1,911,802) (34,992,392)
------------- ------------- ------------- -------------
Net increase (decrease) ........ 856,921 $ 14,941,017 (267,809) $ (5,472,534)
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 1,010,270 $ 19,247,891 499,785 $ 9,729,009
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gain ....................... 322,823 5,967,509 161,193 2,746,731
------------- ------------- ------------- -------------
1,333,093 25,215,400 660,978 12,475,740
Shares repurchased ............. (340,009) (6,404,327) (584,070) (11,207,637)
------------- ------------- ------------- -------------
Net increase ................... 993,084 $ 18,811,073 76,908 $ 1,268,103
------------- ------------- ------------- -------------
Increase (decrease) derived from
capital shares
transactions ................. 11,325,736 $ 204,607,502 (759,387) $ (22,655,877)
============= ============= ============= =============
</TABLE>

5. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
New England Funds (the "Funds") participate in a $100,000,000 committed line of
credit provided by Citibank, N.A., under a credit agreement (the "Agreement")
dated March 5, 1998. Advances under the Agreement are taken primarily for
temporary or emergency purposes. Borrowings under the Agreement bear interest at
a rate tied to one of several short-term rates that may be selected from time to
time. In addition, the Funds are charged a facility fee equal to 0.07% per annum
on the unused portion of the line of credit. The annual cost of maintaining the
line of credit and the facility fee is apportioned pro rata among the
participating Funds. There were no borrowings as of or during the period ended
December 31, 1998.

<PAGE>

- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

To the Trustees of New England Funds Trust I and Shareholders of
NEW ENGLAND STAR ADVISERS FUND

In our opinion, the accompanying statement of assets and 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 the New England Star Advisers Fund
(the "Fund"), a series of New England Funds Trust I, at December 31, 1998, 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 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 at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 15, 1999

<PAGE>

- -------------------------------------------------------------------------------
SUPPLEMENT DATED FEBRUARY 12, 1999 TO NEW ENGLAND STAR FUNDS PROSPECTUS DATED
MAY 1, 1998 AND NEW ENGLAND STOCK FUNDS CLASS Y PROSPECTUS DATED MAY 1, 1998

NEW ENGLAND STAR SMALL CAP FUND

CHANGE IN PORTFOLIO MANAGER
The following supplements the paragraph entitled "Montgomery" in the "Fund
Management" section of each prospectus:

Effective March 1, 1999, Kathryn Peters replaces Andrew Pratt as the
portfolio manager of the Montgomery segment of the Fund. Ms. Peters, Vice
President of Montgomery, joined the firm in 1995. Prior to 1995 she was an
associate in the investment banking division of Donaldson, Lufkin & Jenrette
in New York.

CHANGE IN CONTROL
Effective February 12, 1999, the following supplements the paragraph entitled
"Robertson Stephens" in the "Fund Management" section of each Prospectus:

Members of senior management of Robertson Stephens have agreed to purchase
Robertson Stephens Investment Management Co. Inc., Robertson Stephens's
parent company, from BankAmerica Corporation, in a transaction expected to
be completed in March 1999. Robertson Stephens will continue to serve as a
subadviser to the Star Small Cap Fund following the transaction, and it is
expected that John L. Wallace and John Seabern will continue to serve as co-
managers of Robertson Stephens segment of the Fund. The trustees of the New
England Funds Trust I approved the continuation of the Star Small Cap Fund's
current arrangements with Robertson Stephens following the consummation of
the transaction.

NEW ENGLAND STAR ADVISERS FUND

CHANGE IN PORTFOLIO MANAGERS
The following supplements the paragraph entitled "Founders" in the "Fund
Management" section of each Prospectus:

Effective January 1999, the Founders segment of the Star Advisers Fund is
managed by Scott A. Chapman and Thomas M. Arrington. Mr. Chapman and Mr.
Arrington have been Vice Presidents of Investments at Founders since
December 1998. Prior to joining Founders, Mr. Chapman was Vice President and
Director of Growth Strategy and Mr. Arrington served as Vice President and
Director of Income Equity Strategy at HighMark Capital Management.

<PAGE>

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

LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth Opportunities Fund
Balanced Fund
Value Fund

ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund

SMALL-CAP EQUITY FUNDS
Star Small Cap Fund

CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund

GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund

TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free Fund of California
Tax Free Income Fund of New York
(formerly Intermediate Term Tax Free Fund of NY)
Massachusetts Tax Free Income Fund

MONEY MARKET FUNDS
Cash Management Trust
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 Fund's
current prospectus, which contains
information about distribution charges, management and other
items of interest. Investors are advised to read the
prospectus carefully before investing.

New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc. (NASD).
As a service to investors, the NASD has asked that we inform you of the
availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.

<PAGE>

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------------------

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