NEW ENGLAND FUNDS TRUST I, N-30D, 1999-02-25

NEW ENGLAND FUNDS TRUST I
N-30D, 1999-02-25

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<PAGE>
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ANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)

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

New England
International Equity Fund

WHERE
THE BEST
MINDS
MEET(R)

[graphic omitted]

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December 31, 1998
- -----------------
<PAGE>

[Photo of Bruce R. Speca]

February 1999

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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."
- --------------------------------------------------------------------------------

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 500 Stock Index - 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
- --------------------------------------------------------------------------------

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.
<PAGE>

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

INVESTMENT RESULTS THROUGH DECEMBER 31, 1998

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 below 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 and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.

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

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

MAY 1992 (INCEPTION) THROUGH DECEMBER 1998

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

5/21/1992 $10,000 $ 9,425 $10,000
1992 $ 9,511 $ 8,964 $ 9,317
1993 $12,296 $11,589 $12,386
1994 $13,287 $12,523 $13,384
1995 $14,055 $13,247 $14,930
1996 $14,514 $13,680 $15,880
1997 $13,417 $12,646 $16,207
1998 $14,315 $13,492 $19,502

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

AVERAGE ANNUAL TOTAL RETURNS - 12/31/98
- --------------------------------------------------------------------------------

CLASS A (Inception 5/21/92) 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 6.7% 3.1% 5.6%
With Max. Sales Charge(2) 0.5 1.9 4.6
- --------------------------------------------------------------------------------

CLASS B (Inception 9/13/93) 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 5.8% 2.4% 2.3%
With CDSC(3) 0.8 2.0 2.2
- --------------------------------------------------------------------------------

CLASS C (Inception 12/30/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 5.9% 1.3%
With CDSC(3) 4.9 1.3
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CLASS Y (Inception 9/9/93) 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 7.3% 3.8% 3.8%
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SINCE SINCE SINCE SINCE
FUND'S FUND'S FUND'S FUND'S
CLASS A CLASS B CLASS C CLASS Y
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION INCEPTION INCEPTION INCEPTION
<S> <C> <C> <C> <C> <C> <C>
MSCI EAFE(4) 20.3% 9.5% 10.6% 8.7% 9.8% 8.7%
Lipper International Average(5) 13.1 7.7 10.0 9.2 9.8 9.2
Morningstar Foreign Stock Average(6) 12.3 7.4 9.2 9.0 9.7 9.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>

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

Notes to Charts
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance 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. With CDSC performance for Class C shares assumes a
maximum 1% sales charge on redemptions within the first year of purchase.
(4) Morgan Stanley Capital International (MSCI) Europe Australasia Far East
Index (EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,032 companies (as of 12/31/98)
representing stock markets in Europe, Australia, New Zealand and the Far
East. The Index performance has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual
fund investments.
(5) Lipper International Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives as calculated by Lipper, Inc., an independent mutual
fund ranking service. Class A since inception return is calculated from
5/28/92. Class B and Class Y since inception returns are calculated from
9/30/93.
(6) Morningstar Foreign Stock 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 since inception return is
calculated from 5/31/92. Class B and Class Y since inception returns are
calculated from 9/30/93.
<PAGE>

QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER

[Photo of Paul H. Drexler]

PAUL H. DREXLER
LOOMIS, SAYLES &
COMPANY, L.P.

Q. How did New England International Equity Fund perform?

For the 12-month period that ended December 31, 1998, the Fund's Class A shares
produced a total return of 6.7% based on net asset value. This return includes a
$0.20 per share gain and distributions of $0.72 per share. For the same period,
the Fund's benchmark, the MSCI EAFE Index, returned 20.3% and the Lipper
International Average generated a 13.1% return.

Q. What was the investment environment like during the 12 months?

It was the most turbulent global environment since 1990. Economic and financial
problems in Asia, Latin America and Russia had a negative effect on all major
markets. Some markets, such as those in Europe, were strong performers during
the first and second quarters of the year, but gave up most of their gains
during the third quarter and then rebounded strongly in the fourth quarter.

YOUR FUND'S COUNTRY MIX - 12/31/98

% OF
COUNTRY NET ASSETS
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1. Italy 14.5
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2. United Kingdom 12.9
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3. Portugal 8.3
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4. France 7.7
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5. Japan 7.0
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6. Spain 6.9
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7. Germany 4.6
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8. Hungary 4.2
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9. Canada 3.9
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10. South Korea 3.8
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Portfolio holdings and asset allocations will vary.

Q. How did you manage the Fund during the year?

We continued to use a value strategy in selecting stocks for the Fund - that is,
purchasing stocks that we believe are underpriced relative to the market and the
underlying company's potential earnings growth. We invested about 70% of the
Fund's assets in Europe. European stocks were attractive in 1998 for a number of
reasons. Most European markets are operating in very favorable economic
environments of lower interest rates and moderate growth. In addition, European
countries are making sweeping changes in the way they conduct their business and
economic affairs. The corporate restructuring that took place in the United
States over the last decade is being repeated in Europe, and European companies
are benefiting from downsizing, improved profits, increased productivity and a
focus on shareholder value. Another factor favoring European stocks is the
launch of a common currency, the euro. We believe the introduction of the euro
will make European companies more competitive, help accelerate corporate
restructuring and create more efficient financial markets in Europe.

Q. Where did you find the most opportunity in Europe?

We spread the Fund's investments across Europe - however, Italy at 14.5% of the
Fund's total net assets and the United Kingdom (UK) at 12.9% accounted for the
largest geographic allocations. Italy was particularly attractive to us because
it has experienced the largest decline in interest rates. At the end of the
period, Italian interest rates were lower than those of the United States. In
general, Italian companies are benefiting from significant cost cutting and
heightened productivity. Some of the Fund's best performing investments were
Italian financial companies, which profited from lower interest rates and
consolidation within the financial industry. Telecommunications companies in
Italy were also strong contributors to performance. For example, shares of
Telecom Italia, the national telephone company of Italy, rose more than 40% in
U.S. dollar terms in 1998. In the UK we favored defense-related companies, such
as British Aerospace and Rolls Royce Engines. We believe these companies should
profit from consolidation in the European defense industry, which is striving to
become more competitive with the U.S. defense industry.

Q. At the end of the 12-month period, about 7% of the portfolio's assets were
invested in Japan. What was attractive there?

Individual stock selection was key to our strategy in Japan. While the Japanese
economy was going through a difficult period, selected Japanese stocks were
attractive. We added SONY, a leading exporter of a broad range of electronics
products. We also invested in Daiwa House, a home construction company. With
Daiwa House we are attempting to take advantage of low interest rates and the
low stock prices reflecting the bottom of the home building cycle. Over the
course of the fiscal year, we sold some of our Japanese holdings. For example,
we eliminated two retailers - Familymart and Uny - because of the deteriorating
outlook for Japanese consumer spending.

Q. How did you manage the emerging market segment of the portfolio?

Although the Fund never had very large exposure to emerging markets - a maximum
of 15% - our holdings suffered from the extraordinary volatility of these
markets in 1998. We trimmed the Fund's asset allocation to emerging markets
during the year but have maintained a position of about 8% of the Fund's
investments in emerging markets in the form of bonds, (well below the Fund's 20%
ceiling for bond investments). By investing in U.S. dollar-denominated bonds,
the Fund was able to take advantage of good investment opportunities in emerging
markets while managing currency risk. In Korea, for example, we purchased the
Samsung Electronics convertible bond during the height of the economic crisis,
and it had a return of about 10% by year-end. Our emerging market positions
recovered in the second half of the year. We continue to believe that there are
attractive value opportunities in selected emerging markets, but the Fund's main
focus continues to be on stocks in developed countries - notably Europe.

YOUR FUND'S 10 LARGEST INVESTMENTS - 12/31/98

% OF
COMPANY NET ASSETS
- --------------------------------------------------------------------------------
1. Telecom Italia S.p.A. 3.0
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2. Edison International 2.9
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3. Banque Nationale de Paris 2.5
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4. Novartis AG 2.4
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5. Brisa-Auto Estradas de Portugal, S.A. 2.4
- --------------------------------------------------------------------------------
6. Magyar Tavkozlesi Rt. 2.3
- --------------------------------------------------------------------------------
7. Iberdrola S.A. 2.2
- --------------------------------------------------------------------------------
8. Air Liquide 2.1
- --------------------------------------------------------------------------------
9. Telecom Portugal S.A. 2.1
- --------------------------------------------------------------------------------
10. Unicredito Italiano 2.0
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.

Q. What is your outlook?

We believe global markets will continue to be volatile as they find it difficult
to increase their profits in the global investment environment. In 1999, returns
on stocks may not be as strong as they have been over the past three years.
However, we believe our value stocks have a good chance of outperforming the
growth stocks which have been market leaders. In addition, the international
markets have lagged the U.S. market over the past several years, and may be
ready to outpace U.S. stocks in the year ahead. We are particularly bullish on
Europe. Europeans are still in the early stages of revitalizing their businesses
and economies through corporate restructuring and the introduction of the euro
as a common currency. We believe that European companies should reap long-term
benefits from these trends.

Portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in
opinion may result in strategic and other portfolio changes. The Fund may
invest in foreign and emerging market securities, which can involve
special risks including currency fluctuations, information risks and
political and economic developments that can work for or against the
Fund. Investments in lower-rated, higher-yielding bonds may involve
greater credit risk. Small-company investments carry special risks
including narrower markets, limited financial and management resources,
less liquidity and greater volatility than do large-company stocks. See
the Fund's prospectus for details.
<PAGE>
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PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of December 31, 1998

COMMON STOCKS--86.6% OF TOTAL INVESTMENTS

SHARES (a) DESCRIPTION VALUE (b)
- ---------------------------------------------------------------------------
AUSTRALIA--3.5%
408,000 Fosters Brewing Group ...................... $ 1,105,068
175,000 QBE Insurance Group ........................ 723,850
235,000 Southcorp Holdings, Ltd. ................... 749,540
-----------
2,578,458
-----------
BELGIUM--0.9%
7,000 CBR Cimenteries ............................ 688,458
-----------
BRAZIL--0.2%
2,400,000 SABESP ..................................... 181,743
9,493 SABESP Rights (d) .......................... 0
-----------
181,743
-----------
CANADA--3.9%
70,000 Bombardier, Inc. ........................... 1,007,524
18,250 Canadian National Railway Co. .............. 952,200
18,400 Northern Telecom, Ltd ...................... 922,106
-----------
2,881,830
-----------
DENMARK--3.5%
2,895 Codan Forsikring ........................... 336,612
47,125 Tryg Baltica Forsikring .................... 1,221,756
11,000 Unidanmark A/S ............................. 993,825
-----------
2,552,193
-----------
FRANCE--7.7%
8,437 Air Liquide ................................ 1,546,758
22,000 Banque Nationale de Paris .................. 1,810,838
5,500 Cie de St. Gobain .......................... 776,158
16,000 Michelin Compagnie Generale B .............. 639,599
14,000 Pernod Ricard .............................. 908,961
-----------
5,682,314
-----------
GERMANY--4.6%
8,000 DaimlerChrysler AG ......................... 789,632
9,200 Henkel Kgaa ................................ 822,513
15,000 Siemens AG ................................. 967,539
1,000 Wella AG, Preferred ........................ 834,033
-----------
3,413,717
-----------
HUNGARY--4.2%
300,000 Magyar Tavkozlesi Rt. ...................... 1,714,405
28,000 OTP Bank ................................... 1,402,535
-----------
3,116,940
-----------
ITALY--14.5%
180,000 Edison International ....................... 2,119,024
215,000 ENI S.p.A. ................................. 1,404,336
11,500 Ericsson ................................... 473,646
50,000 IMI ........................................ 883,002
400,000 INA ........................................ 1,055,974
346,000 Telecom Italia S.p.A. ...................... 2,176,298
244,000 Unicredito Italiano ........................ 1,445,451
2,100,000 Unione Immobiliare ......................... 1,094,802
-----------
10,652,533
-----------
JAPAN--7.0%
40,000 Canon, Inc. ................................ 854,489
100,000 Daiwa House ................................ 1,064,131
13,000 Nintendo Co. ............................... 1,259,177
110 Nippon Telegraph & Telephone ............... 848,474
15,000 Sony Corp. ................................. 1,091,995
-----------
5,118,266
-----------
NETHERLANDS--1.5%
9,375 Grolsch NV ................................. 242,023
17,000 Koninklijke KPN NV ......................... 850,588
-----------
1,092,611
-----------
NEW ZEALAND--1.4%
471,000 Air New Zealand ............................ 738,571
151,105 Nuplex Industries .......................... 258,414
-----------
996,985
-----------
PORTUGAL--8.3%
18,000 BPI ........................................ 611,128
30,000 Brisa-Auto Estradas de Portugal, S.A. ...... 1,766,722
53,219 Engil Sgps ................................. 361,748
16,800 Jeronimo Martins Sgps ...................... 919,469
30,000 Mundial Confianca .......................... 954,557
33,000 Telecom Portugal S.A. ...................... 1,513,721
-----------
6,127,345
-----------
SPAIN--6.9%
32,555 Azucarera Ebro Agr ......................... 716,980
19,000 Fom Const y Contra ......................... 1,410,428
85,000 Iberdrola S.A. ............................. 1,587,918
14,325 Repsol S.A. ................................ 763,019
17,500 Sol Melia S.A. ............................. 609,520
-----------
5,087,865
-----------
SWEDEN--1.8%
64,000 Astra AB ................................... 1,303,663
-----------
SWITZERLAND--3.8%
900 Novartis AG ................................ 1,768,945
400 Schweizerische Ruckversicherungs 144A ...... 1,042,731
-----------
2,811,676
-----------
THAILAND--0.0%
32,250 Industrial Financial of Thailand Rights (d) 0
-----------
UNITED KINGDOM--12.9%
80,000 Boots Co. .................................. 1,367,669
146,000 British Aerospace .......................... 1,244,360
24,000 Cobham Plc ................................. 277,920
60,000 Commercial Union ........................... 946,004
183,333 FKI ........................................ 408,151
65,000 Lloyds TSB Group ........................... 925,486
206,500 London International Group ................. 425,420
180,000 Rolls-Royce ................................ 747,633
120,000 Sainsbury Plc .............................. 970,925
90,000 Scot & Newcastle ........................... 1,046,685
100,000 Scottish Hydro ............................. 1,127,264
-----------
9,487,517
-----------
Total Common Stocks
(Identified Cost $59,086,310) ............ 63,774,114
-----------
BONDS AND NOTES--8.3%

FACE
AMOUNT
- ---------------------------------------------------------------------------
ARGENTINA--1.4%
$ 300,000 Multicanal S.A., 10.500%, 4/15/2018 ........ 239,250
915,000 Perez Companc S.A., 144A, 8.125%,
7/15/2007 ................................. 802,913
-----------
1,042,163
-----------
SOUTH KOREA--3.8%
400,000 Pohang Iron & Steel, Ltd., 6.625%,
7/01/2003 ................................. 340,000
500,000 Pohang Iron & Steel, Ltd., 7.125%,
11/01/2006 ................................ 411,920
1,000,000 Republic of Korea, 8.875%, 4/15/2008 ....... 1,022,240
1,175,000 Samsung Electronics Company Ltd.,
Zero Coupon, 12/31/2007 ................... 1,051,625
-----------
2,825,785
-----------
THAILAND--2.5%
2,000,000 Bangkok Bank Public, Ltd., 144A, 8.375%,
1/15/2027 ................................. 1,160,000
175,000 Pindo Deli Finance Mauritius, Ltd.,
11.750%, 10/01/2017 ....................... 85,750
175,000 Pindo Deli Finance Mauritius, Ltd.,
10.875%, 10/01/2027 ....................... 84,000
640,000 Total Access Communications, 2.000%,
5/31/2006 ................................. 480,000
-----------
1,809,750
-----------
VENEZUELA--0.6%
650,000 Republic of Venezuela, 9.250%, 9/15/2027 ... 396,500
-----------
Total Bonds And Notes
(Identified Cost $7,302,573) .............. 6,074,198
-----------
SHORT TERM INVESTMENT--5.2%
- ---------------------------------------------------------------------------
3,850,000 Repurchase Agreement with State Street
Bank & Trust Company, dated 12/31/98
at 4.000% to be repurchased at
$3,851,711 on 1/04/99, collateralized
by $2,885,000 U.S. Treasury
Bond, at 8.125%, due 8/15/19 valued
at $3,933,066 ............................ 3,850,000
-----------
Total Short Term Investment
(Identified Cost $3,850,000) .............. 3,850,000
-----------
Total Investments--100.1%
(Identified Cost $70,238,883) (c) ......... 73,698,312
Other assets less liabilities .............. (45,305)
-----------
Total Net Assets--100% ..................... $73,653,007
===========

(a) Ordinary shares unless noted otherwise.
(b) See note 1a of Notes to Financial Statements.
(c) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation
on investments based on cost of $70,839,013 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 .................................. 8,160,690
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................... (5,301,391)
------------
Net unrealized appreciation .......................... 2,859,299
===========
(d) Non-income producing securities.
Rule 144A - Securities exempt from registration under Rule 144A of the
Securities act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these
securities amounted to $3,005,644 or 4.1% of net assets.

TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1998

Banking 13.1%
Telephone Communication 11.5
Insurance 8.5
Electric, Gas 6.6
Construction 6.1
Electrical 6.0
Transportation Services 4.8
Chemicals 3.5
Miscellaneous Retail 3.1
Transportation Equipment 2.9

See accompanying notes to financial statements

<PAGE>

- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------

December 31, 1998

<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $70,238,883) .......... $73,698,312
Cash ........................................................ 31,788
Foreign cash at value (Identified cost $8,103) .............. 8,151
Receivable for:
Fund shares sold .......................................... 97,654
Dividends and interest .................................... 228,023
Tax reclaims .............................................. 96,064
-----------
74,159,992
LIABILITIES
Payable for:
Fund shares redeemed ...................................... $291,638
Withholding taxes ......................................... 9,203
Accrued expenses:
Management fees ........................................... 87,594
Deferred trustees' fees ................................... 11,662
Accounting and administrative ............................. 2,545
Other expenses ............................................ 104,343
--------
506,985
-----------
NET ASSETS .................................................... $73,653,007
===========
Net Assets consist of:
Capital paid in ........................................... $72,291,141
Undistributed (overdistributed) net investment income ..... (537,133)
Accumulated net realized gains (losses) ................... (1,565,800)
Unrealized appreciation (depreciation) on investments and
foreign currency transactions ........................... 3,464,799
-----------
NET ASSETS .................................................... $73,653,007
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($47,443,758 divided by 3,327,382 shares of beneficial
interest) ................................................... $14.26
======

Offering price per share (100/94.25 of $14.26) ................ $15.13*
======
Net asset value and offering price of Class B shares
($19,797,433 divided by 1,416,262 shares of beneficial
interest) ................................................... $13.98**
======
Net asset value and offering price of Class C shares
($860,040 divided by 61,351 shares of beneficial interest) .. $14.02**
======
Net asset value, offering and redemption price of Class Y shares
($5,551,776 divided by 384,258 shares of beneficial interest) $14.45
======
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charges.
</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 : $207,128) ............. $1,376,198
Interest ................................................... 1,030,335
----------
2,406,533
Expenses
Management fees .......................................... $ 734,344
Service fees - Class A ................................... 132,000
Service and distribution fees - Class B .................. 225,391
Service and distribution fees - Class C .................. 10,161
Trustees' fees and expenses .............................. 8,906
Accounting and administrative ............................ 28,617
Custodian ................................................ 205,485
Transfer agent ........................................... 477,550
Audit and tax services ................................... 46,000
Legal .................................................... 4,122
Printing ................................................. 49,887
Registration ............................................. 32,961
Miscellaneous ............................................ 20,537
----------
Total expenses ............................................. 1,975,961
Less expenses waived by the investment adviser and sub-
adviser .................................................. (273,572) 1,702,389
---------- ----------
Net investment income ...................................... 704,144
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ........................................ 948,402
Foreign currency transactions - net ...................... 4,623
----------
Total realized gain (loss) on investments and foreign
currency transactions .................................... 953,025
----------
Unrealized appreciation (depreciation) on:
Investments - net ........................................ 4,833,656
Foreign currency transactions - net ...................... 7,350
----------
Total unrealized appreciation (depreciation) on
investments and foreign currency transactions ............ 4,841,006
----------
Net gain (loss) on investment transactions ................. 5,794,031
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .... $6,498,175
==========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998
------------- -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 654,496 $ 704,144
Net realized gain (loss) on investments and foreign
currency transactions .................................. 4,198,612 953,025
Unrealized appreciation (depreciation) on investments and
foreign currency transactions .......................... (15,166,223) 4,841,006
------------- -----------
Increase (decrease) in net assets from operations ........ (10,313,115) 6,498,175
------------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ 0 (743,361)
Class B ................................................ 0 (169,471)
Class C ................................................ 0 (7,274)
Class Y ................................................ 0 (116,545)
In excess of net investment income
Class A ................................................ 0 (699,993)
Class B ................................................ 0 (159,585)
Class C ................................................ 0 (6,849)
Class Y ................................................ 0 (109,746)
Net realized gain on investments
Class A ................................................ (4,763,407) (611,914)
Class B ................................................ (2,124,916) (261,317)
Class C ................................................ (60,863) (11,221)
Class Y ................................................ (1,298,267) (68,571)
In excess of net realized gain on investments
Class A ................................................ (204,054) (303,298)
Class B ................................................ (90,926) (129,523)
Class C ................................................ (2,607) (5,561)
Class Y ................................................ (55,616) (33,988)
------------- -----------
(8,600,656) (3,438,217)
------------- -----------
Increase (decrease) in net assets derived from capital share
transactions (101,186,621) (18,064,404)
------------- -----------
Total increase (decrease) in net assets .................. (120,100,392) (15,004,446)

NET ASSETS
Beginning of the year .................................... 208,757,845 88,657,453
------------- -----------
End of the year .......................................... $ 88,657,453 $73,653,007
============= ===========

UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year .......................................... $ (199,574) $ (537,133)
============= ===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 14.85 $ 15.50 $ 16.13 $ 16.31 $ 14.06
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ....................... 0.00 0.27 0.02(d) 0.09(d) 0.15(d)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 1.19 0.63 0.51 (1.25) 0.77
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 1.19 0.90 0.53 (1.16) 0.92
----------- ----------- ----------- ----------- -----------
Less Distributions (b)
Dividends From Net Investment Income ........ 0.00 (0.27) (0.02) 0.00 (0.23)
Dividends in excess of Net Investment Income 0.00 0.00 0.00 0.00 (0.21)
Distributions From Net Realized Capital Gains (0.53) 0.00 (0.33) (1.05) (0.19)
Distributions in excess of Net Realized Gains 0.00 0.00 0.00 (0.04) (0.09)
Distributions From Paid-in Capital .......... (0.01) 0.00 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.54) (0.27) (0.35) (1.09) (0.72)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26
=========== =========== =========== =========== ===========
Total Return (%) (a) ........................ 8.1 5.8 3.3 (7.6) 6.7
Ratio of Operating Expenses to
Average Net Assets (%) (c) ................ 1.75 1.75 1.75 1.75 1.91
Ratio of Net Investment Income to
Average Net Assets (%) .................... 0.01 1.24 0.14 0.62 1.04
Portfolio Turnover Rate (%) ................. 123 119 59 154 105
Net Assets, End of the Year (000) ........... $ 142,917 $ 136,848 $ 109,773 $ 57,845 $ 47,444

The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles
& Company, L.P. became the subadviser to the Fund.

(a) A sales charge is not reflected in total return calculations.
(b) See note 1e.
(c) The ratio of operating expenses
to average net assets without
giving effect to voluntary
expense limitations described in
Note 4 to the Financial
Statements would have been (%) .............. 1.79 1.83 1.79 2.14 2.25
(d) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------

CLASS B
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 14.81 $ 15.35 $ 15.93 $ 16.00 $ 13.71
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.00 0.19 (0.10)(d) (0.03)(d) 0.04(d)
Net Realized and Unrealized Gain
(Loss) on Investments ...................... 1.08 0.58 0.50 (1.17) 0.75
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 1.08 0.77 0.40 (1.20) 0.79
----------- ----------- ----------- ----------- -----------
Less Distributions (b)
Dividends From Net Investment Income ........ 0.00 (0.19) 0.00 0.00 (0.12)
Dividends in excess of Net Investment Income 0.00 0.00 0.00 0.00 (0.12)
Distributions From Net Realized Capital Gains (0.53) 0.00 (0.33) (1.05) (0.19)
Distributions in excess of Net Realized Gains 0.00 0.00 0.00 (0.04) (0.09)
Distributions From Paid-in Capital .......... (0.01) 0.00 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.54) (0.19) (0.33) (1.09) (0.52)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98
=========== =========== =========== =========== ===========
Total Return (%) (a) ........................ 7.3 5.0 2.5 (8.0) 5.8
Ratio of Operating Expenses to
Average Net Assets (%) (c) ................ 2.50 2.50 2.50 2.50 2.66
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ................. (0.74) 0.49 (0.61) (0.13) 0.29
Portfolio Turnover Rate (%) ................. 123 119 59 154 105
Net Assets, End of the Year (000) ........... $ 41,601 $ 52,895 $ 45,974 $ 25,216 $ 19,797

The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) A contingent deferred sales charge in the case of Class B shares is not reflected in total return calculations.
(b) See note 1e.
(c) The ratio of operating expenses
to average net assets without
giving effect to voluntary
expense limitations described in
Note 4 to the Financial Statements
would have been (%) ..................... 2.54 2.58 2.54 2.89 3.00
(d) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------

CLASS C
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ........................ $ 15.35 $ 15.96 $ 16.03 $ 13.74
--------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) .................................. 0.19 (0.10)(c) (0.03)(c) 0.05(c)
Net Realized and Unrealized Gain (Loss) on Investments ........ 0.61 0.50 (1.17) 0.75
--------- --------- --------- ---------
Total From Investment Operations .............................. 0.80 0.40 (1.20) 0.80
--------- --------- --------- ---------
Less Distributions (a)
Dividends From Net Investment Income .......................... (0.19) 0.00 0.00 (0.12)
Dividends in excess of Net Investment Income .................. 0.00 0.00 0.00 (0.12)
Distributions From Net Realized Capital Gains ................. 0.00 (0.33) (1.05) (0.19)
Distributions in excess of Net Realized Gains ................. 0.00 0.00 (0.04) (0.09)
--------- --------- --------- ---------
Total Distributions ........................................... (0.19) (0.33) (1.09) (0.52)
--------- --------- --------- ---------
Net Asset Value, End of the Year .............................. $ 15.96 $ 16.03 $ 13.74 $ 14.02
========= ========= ========= =========
Total Return (%) (d) .......................................... 5.2 2.5 (8.0) 5.9
Ratio of Operating Expenses to Average Net Assets(%)(b) ....... 2.50 2.50 2.50 2.66
Ratio of Net Investment Income (Loss) to Average Net Assets (%) 0.49 (0.61) (0.13) 0.29
Portfolio Turnover Rate (%) ................................... 119 59 154 105
Net Assets, End of the Year (000) ............................. $ 1,066 $ 850 $ 843 $ 860

The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis,
Sayles & Company, L.P. became the subadviser to the Fund.
(a) See note 1e.
(b) The ratio of operating expenses to average net assets
without giving effect to voluntary expense limitations
described in Note 4 to the Financial Statements would
have been (%) ............................................. 2.58 2.54 2.89 3.00
(c) Per share net investment income has been calculated using the average shares outstanding during the year.
(d) A contingent deferred sales charge is not reflected in total return calculations.

</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 14.86 $ 15.64 $ 16.25 $ 16.48 $ 14.35
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ....................... 0.00 0.42 0.11(c) 0.19(c) 0.25(c)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 1.32 0.60 0.54 (1.23) 0.77
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 1.32 1.02 0.65 (1.04) 1.02
----------- ----------- ----------- ----------- -----------
Less Distributions (a)
Dividends From Net Investment Income ........ 0.00 (0.41) (0.09) 0.00 (0.33)
Dividends in excess of Net Investment Income 0.00 0.00 0.00 0.00 (0.31)
Distributions From Net Realized Capital Gains (0.53) 0.00 (0.33) (1.05) (0.19)
Distributions in excess of Net Realized Gains 0.00 0.00 0.00 (0.04) (0.09)
Distributions From Paid-in Capital .......... (0.01) 0.00 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.54) (0.41) (0.42) (1.09) (0.92)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 15.64 $ 16.25 $ 16.48 $ 14.35 $ 14.45
=========== =========== =========== =========== ===========
Total Return (%) ............................ 8.9 6.6 4.0 (6.7) 7.3
Ratio of Operating Expenses to
Average Net Assets (%) (b) ................ 1.00 1.00 1.00 1.15 1.31
Ratio of Net Investment Income to
Average Net Assets (%) .................... 0.76 1.99 0.89 1.22 1.64
Portfolio Turnover Rate (%) ................. 123 119 59 154 105
Net Assets, End of the Year (000) ........... $ 56,561 $ 83,119 $ 52,161 $ 4,752 $ 5,552

The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles
& Company, L.P. became the subadviser to the Fund.

(a) See note 1e.
(b) The ratio of operating expenses to average
net assets without giving effect to voluntary
expense limitations described in Note 4 to the
Financial Statements would have been (%) 1.04 1.21 1.19 1.41 1.65
(c) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>

See accompanying notes to financial statements.
<PAGE>

- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

December 31, 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 total return from long-term growth of capital and
dividend income, primarily through investment in international equity
securities. 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. Class A shares
are sold with a maximum front end sales charge of 5.75%. Class B shares do not
pay a front end sales charge, but pay a higher ongoing distribution fee than
Class A shares for eight years (at which point they automatically convert to
Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within six years (or five years if purchased prior
to May 1, 1997). Class C shares do not pay front end sales charges and do not
convert to any 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 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 and transfer
agent 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 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 subadviser,
under the supervision of the Fund's trustees.

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

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

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

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

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 schedule of investments
under the caption "Forward Foreign Currency Contracts." This amount represents
the aggregate exposure to each currency the Fund has acquired or hedged
through currency contracts at period end. Losses may arise from changes in the
value of the foreign currency or if the counterparties do not perform under
the contracts terms. The U.S. dollar value of forward foreign currency
contracts is determined using forward currency exchange rates supplied by a
quotation service.

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.

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

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. The Fund's subadviser is
responsible for determining that the value of the collateral is at all times
at least equal to the repurchase price. Repurchase agreements could involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the portfolio's ability to
dispose of the underlying securities.

2. PURCHASES AND SALES OF SECURITIES. For the year ended December 31, 1998
purchases and sales of securities (excluding short-term investments) were
$80,487,860 and $97,013,227 respectively.

3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million. NEFM pays Loomis Sayles & Company, L.P.
("Loomis Sayles") at the rate of 0.40% of the first $200 million of the Fund's
average daily net assets and 0.35% of such assets in excess of $200 million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM and Loomis Sayles are wholly owned subsidiaries of Nvest Companies,
L.P. ("Nvest"), formerly known as New England Investment Companies, L.P.,
which is a subsidiary of Metropolitan Life Insurance Company ("MetLife").

Fees earned by NEFM and Loomis Sayles under the management agreement in effect
during the year ended December 31, 1998 are as follows:

FEES EARNED
-----------
$407,969 (a) NEFM
326,375 (a) Loomis Sayles

The effective management fee for the year ended December 31, 1998 was 0.56%
after reduction due to voluntary expense limitation.

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

B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of 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 $28,617 and are shown separately in the financial
statements as accounting and administrative.

C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") is
the transfer and shareholder servicing agent to the Fund and Boston Financial
Data Services serves as the sub-transfer agent for the Fund. For the year
ended December 31, 1998 the Fund paid NEFSCO $362,954 as compensation for its
services in that capacity. For the year ended December 31, 1998, the Fund
received $1,283 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 the New England Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1998, the Fund paid New England Funds $132,000 in fees
under the Class A Plan. If the expenses of New England Funds that are
otherwise reimbursable under the Class A Plan incurred in any year exceed the
amounts payable by the Fund under the Class A Plan, the unreimbursed amount
(together with unreimbursed amounts from prior years) may be carried forward
for reimbursement in future years in which the Class A Plan remains in effect.
The amount of unreimbursed expenses carried forward at December 31, 1998 is
$514,256.

Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of 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 $56,348 and $2,540 in
service fees under the Class B and Class C plans, respectively.

Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of 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 $169,043
and $7,621 in distribution fees under the Class B and Class C plans,
respectively.

Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors of shares of the Fund during the year ended
December 31, 1998 amounted to $185,175.

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

Annual Retainer $396
Meeting Fee 152/meeting
Annual Committee Member Retainer 59
Annual Committee Chairman Retainer 40

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

4. EXPENSE LIMITATIONS. Effective May 1, 1998 NEFM and Loomis Sayles have
voluntarily agreed, until further notice, to waive their respective management
and subadvisory fees and, if necessary, NEFM has agreed to bear certain
expenses associated with the Fund, to limit the Fund's expenses to the annual
rates of 2.00%, 2.75%, 2.75% and 1.40% of the average net assets of the Fund's
Class A,B,C, and Y shares, respectively. NEFM and/or Loomis Sayles may
terminate these voluntary limitations at any time.

From January 1 through April 30, 1998 the Fund's expenses were limited to the
annual rates of 1.75%, 2.50%, 2.50% and 1.15% of the average net assets of the
Fund's Class A,B,C, and Y shares, respectively. From February 15 through April
30, 1998 NEFM and New England Funds had voluntarily agreed to reduce their
fees and to bear certain operating expenses to limit the expenses as described
above. From January 1 through February 14, 1998 Loomis Sayles had voluntarily
agreed to waive its entire subadvisory fee and in addition NEFM and New
England Funds had voluntarily agreed to reduce their fees and to bear certain
operating expenses to limit the expenses as described above.

As a result of the Fund's expenses exceeding the voluntary expense limitation
during the year ended December 31, 1998, NEFM waived $164,220 of its $407,969
management fees and Loomis Sayles waived $109,352 of its $326,375 subadvisory
fees.

5. CONCENTRATION OF RISK. The Fund had the following geographic
concentration in excess of 10% of its total net assets at December 31, 1998:
Italy 14.5% and United Kingdom 12.9%. The Fund pursues its objectives by
investing in foreign securities. There are certain risks involved in investing
in foreign securities which are in addition to the usual risks inherent in
domestic investments. These risks include those resulting from future adverse
political or economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions.

6. CAPITAL SHARES. At December 31, 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 ........................ 11,054,765 $ 171,781,072 8,474,110 $ 124,114,863
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 0 0 95,988 1,345,238
Distributions from net realized
gain ........................... 314,622 4,722,476 60,507 854,966
------------- ------------- ------------- -------------
11,369,387 176,503,548 8,630,605 126,315,067
Shares repurchased ................. (13,988,640) (218,629,862) (9,416,378) (139,099,092)
------------- ------------- ------------- -------------
Net increase (decrease) ............ (2,619,253) $ (42,126,314) (785,773) $ (12,784,025)
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................ 224,357 $ 3,437,336 168,917 $ 2,457,017
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 0 0 22,260 308,524
Distributions from net realized
gain ........................... 139,657 2,045,975 26,508 367,396
------------- ------------- ------------- -------------
364,014 5,483,311 217,685 3,132,937
Shares repurchased ................. (1,398,212) (21,245,551) (641,262) (9,243,198)
------------- ------------- ------------- -------------
Net increase (decrease) ............ (1,034,198) $ (15,762,240) (423,577) $ (6,110,261)
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................ 76,616 $ 1,180,567 35,965 $ 530,364
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 0 0 977 13,569
Distributions from net realized
gain ........................... 4,089 60,026 1,161 16,123
------------- ------------- ------------- -------------
80,705 1,240,593 38,103 560,056
Shares repurchased ................. (72,366) (1,086,983) (38,140) (551,056)
------------- ------------- ------------- -------------
Net increase (decrease) ............ 8,339 $ 153,610 (37) $ 9,000
------------- ------------- ------------- -------------

<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ ------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................ 546,083 $ 8,727,937 108,270 $ 1,641,310
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 0 0 15,944 226,291
Distributions from net realized
gain ........................... 88,605 1,353,883 7,161 102,558
------------- ------------- ------------- -------------
634,688 10,081,820 131,375 1,970,159
Shares repurchased ................. (3,468,182) (53,533,497) (78,325) (1,149,277)
------------- ------------- ------------- -------------
Net increase (decrease) ............ (2,833,494) $ (43,451,677) 53,050 $ 820,882
------------- ------------- ------------- -------------
Increase (decrease) derived from
capital shares transactions ...... (6,478,606) $(101,186,621) (1,156,337) $ (18,064,404)
============= ============= ============= =============
</TABLE>

7. 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 INTERNATIONAL EQUITY 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 International
Equity 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, provide a reasonable basis for the opinion
expressed above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 15, 1999

<PAGE>

NEW ENGLAND EQUITY INCOME FUND

SUPPLEMENT DATED FEBRUARY 12, 1999
TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND C AND
CLASS Y PROSPECTUSES EACH DATED MAY 1, 1998

The following information supplements the second paragraph in the "Fund
Management" section of each Prospectus:

Effective immediately, Peter Ramsden and Tom Kolefas act as portfolio managers
of the Equity Income Fund.

<PAGE>

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

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

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

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

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

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

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

STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.

<PAGE>

- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE

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

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

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

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

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

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

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

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

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

<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -------------------------------------------------------------------------------

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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NEW ENGLAND FUNDS(R) U.S. POSTAGE
WHERE THE BEST MINDS MEET(R) PAID
BROCKTON, MA
PERMIT NO. 770
------------------

---------------------
399 Boylston Street

Boston, Massachusetts

02116
---------------------

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