<PAGE>
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
                         COMMISSION FILE nO.: 0-18018

                             AEROVOX INCORPORATED
                             --------------------
            (Exact name of Registrant as specified in its charter)

          DELAWARE                                          76-0254329
          --------                                          ----------
 (State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                          Identification No.)

                 740 BELLEVILLE AVENUE, NEW BEDFORD, MA 02745
                 --------------------------------------------
              (Address of principal executive offices) (Zip Code)

                                (508) 994-9661
                                --------------
                        (Registrant's telephone number)

       SECURITIES REGISTERED PURSUANT TO Section 12(b) OF THE Act: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

    COMMON STOCK, PAR VALUE $1.00 PER SHARE        TRADED ON THE NASDAQ NATIONAL
       PREFERRED SHARE PURCHASE RIGHTS                       MARKET SYSTEM

Shares Outstanding of the Registrant's Common Stock at March 15, 1999: 5,394,036
Aggregate market value of voting stock held by non-affiliates of the registrant
at March 15, 1999: $11,462,326.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days. Yes  X No__
                                           ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended January 2, 1999 are incorporated by reference into Parts I, II and IV
hereof. Portions of the Registrant's definitive Proxy Statement for use at the
1998 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.

An index to exhibits filed with this Report on Form 10-K appears at pages 20
through 24 hereof.

                                       1

<PAGE>
 
                                    PART I

ITEM 1.  BUSINESS

     Aerovox's predecessor, Aerovox Corporation, began in 1922 producing crystal
wireless radios.  In 1973, the Aerovox AC capacitor operations, including a
plant in New Bedford, Massachusetts, together with the Aerovox name, were
purchased from Aerovox Corporation by a newly-created corporation, Aerovox
Industries.  In 1978, RTE Corporation ("RTE"), a manufacturer of distribution
transformers and other utility electrical products, purchased all of the assets
of Aerovox Industries through its newly organized subsidiary, Aerovox
Incorporated, a Massachusetts corporation ("Aerovox Massachusetts").  In 1988,
RTE was acquired by Cooper Industries ("Cooper"), and Aerovox Massachusetts
became an indirect wholly-owned subsidiary of Cooper, through Aerovox Holding
Company ("AHC"); a Delaware corporation incorporated on May 3, 1988. On May 26,
1989, Aerovox Massachusetts was merged into AHC and AHC's name was changed to
Aerovox Incorporated.  The sole purpose of this merger was to eliminate the
passive holding company structure.  On February 26, 1990, 5,095,086 shares of
Aerovox Common Stock were distributed to Cooper shareholders of record on May 5,
1989.

     On March 5, 1993, Aerovox purchased all the stock of Aero M, Inc., an
aluminum electrolytic capacitor manufacturer, from Cooper Industries and
subsequently merged that company into Aerovox Incorporated.  On March 11, 1993,
Aerovox purchased certain assets of British aluminum electrolytic capacitor
manufacturer, BH Components Ltd., and formed a new company, BHC Aerovox Ltd.
which is located in Weymouth, England.

     In August 1998, the Company sold its Power Factor Correction business unit
to a division of General Electric.  The remaining product lines are manufactured
in the Company's three North American capacitor plants - one in New Bedford,
Massachusetts and two in Juarez, Mexico, and at its subsidiary, BHC Aerovox, in
Weymouth, England.  A principal component, aluminum  foil for electrolytic
capacitors, is produced in the Aerovox plant in Huntsville, Alabama.

PRODUCT DESCRIPTION

     Aerovox  is a leading manufacturer of electrostatic (film and paper) and
aluminum electrolytic capacitors, sold worldwide, principally to original
equipment manufacturers (OEMs) for use as components in electrical and
electronic products.

     Capacitors are basic electrical components that store electrical energy and
regulate the frequency, timing and condition of electrical signals.  They are
used to release predetermined amounts of energy and assist in running an
electrical device, to send predetermined amounts of energy to start an
electrical device, or to store energy for releases at unscheduled future times.
A principal functional element of every capacitor is its dielectric
(nonconductive) material, which functions as an insulator separating two
electrically charged plates (electrodes).  Dielectric systems can be made using
a variety of materials, such as air, ceramic, tantalum oxide, aluminum oxide,
polypropylene film and paper.  The capacitors manufactured by the Company
generally use film, paper and aluminum oxide as the dielectric material.

                                       2
<PAGE>
 
MARKETS AND APPLICATIONS

<TABLE>
<CAPTION>
MARKETS                APPLICATIONS                             AEROVOX PRODUCTS
==================================================================================================
<S>                    <C>                                      <C> 
MOTORS                 Compressors, air conditioners, pumps,    AC Oil Capacitors
                       refrigeration, laundry equipment,        AC Dry Capacitors
                       garage door openers, hospital beds       Aluminum Electrolytic Capacitors
--------------------------------------------------------------------------------------------------
LIGHTING               Electromagnetic and electronic            AC Oil Capacitors
                       ballasts for fluorescent and high         AC Dry Capacitors
                       intensity discharge (HID) fixtures,       DC Film Capacitors
                       and strobe lights                         Aluminum Electrolytic Capacitors
--------------------------------------------------------------------------------------------------
POWER ELECTRONICS      Variable speed drives,                    DC Film Capacitors
                       uninterruptible power supplies (UPS),     AC Oil Capacitors
                       power supplies, transportation,           AC Dry Capacitors
                       welders, motor speed controllers,         Aluminum Electrolytic Capacitors
                       telecommunications equipment,
                       audio/visual equipment, battery
                       chargers
--------------------------------------------------------------------------------------------------
SPECIALTY              Microwave ovens, medical equipment        Microwave Oven Capacitors
                       (defibrillator, X-ray equipment),         Custom and Pulse Power Capacitors
                       industrial equipment, government and      High Voltage Capacitors
                       university research, power factor         Power Factor Correction Capacitors
                       control systems
--------------------------------------------------------------------------------------------------
EMI/RFI FILTERS        Power supplies, industrial equipment,     Custom and General Purposes EMI/RFI
                       computer and telecommunications           Filters
                       equipment and appliances                 
--------------------------------------------------------------------------------------------------
</TABLE>

NORTH AMERICAN CAPACITOR OPERATIONS

Electrostatic Capacitors

     Aerovox manufactures electrostatic capacitors in New Bedford, Massachusetts
(since 1938), and in Juarez, Mexico where the Company began manufacturing its
most labor intensive film capacitors in 1992.

     All Aerovox alternating current (AC)  film capacitors are manufactured with
polypropylene film and/or kraft paper, or polyester film (used in small units)
as the dielectric system.  Aerovox's AC capacitors are utilized for continuous
duty in starting permanent split-phase motors and then provide power factor
correction during the running phase of the motor circuit.  Applications include
air conditioners, pumps,  refrigerators and other types of equipment.  Aerovox
AC film capacitors are also utilized in ballasts for high intensity discharge
(HID) and fluorescent magnetic lighting fixtures, uninterruptible power supplies
(UPS), power supplies, and in welding equipment.

     Direct current (DC) film capacitors utilize polyester films and
polypropylene (for high frequency applications) as the dielectric system.
Applications for Aerovox DC film capacitors include lighting (for electronic
ballasts in fluorescent fixtures), UPS and power supplies, variable speed
drives, and equipment for audio, communications and welding applications.

                                       3
<PAGE>
 
     The Company offers a complete line of high voltage, multipurpose custom and
pulse power capacitors for medical, industrial and government applications. The
smaller models in this product line are used as components in photocopiers,
laser equipment, defibrillators and other medical equipment, power supply
systems and welding equipment. Aerovox's larger DC capacitors are used in
government and university fusion power and particle acceleration research
products, government weaponry systems, in equipment for high energy x-rays, and
in high speed trains.

Aluminum Electrolytic Capacitors

     Aerovox manufactures AC and DC aluminum electrolytic capacitors for North
and South America and Far East markets in Juarez, Mexico (since 1993).
Aerovox's AC  motor start capacitors are utilized for intermittent duty in the
starting of electric motors and in limited gear motor applications.  Start
capacitors of this type are used in compressor motors, pump motors, dental
chairs, garage door openers and other similar applications.

     The Company's DC aluminum electrolytic capacitors are used in the
electrical equipment and electronic industry primarily for applications such as
power supplies, UPS, motor drives and energy discharge applications such as
welding, strobes and photo flash.

EMI /RFI Filters

     Also organized as an integrated business within the Company is the EMI
Filters Business Unit.  EMI filters protect electronic equipment from electrical
interference ("noise") coming from the power source and suppress high frequency
interference that would otherwise be transmitted out of the equipment along the
power cord.  They can also be used to suppress high frequency and unintentional
noise generated in electronic and electromechanical equipment.  Applications for
EMI filters include computer and computer peripheral equipment,
telecommunications and variable speed drives.  They are also used in sensitive
electronic test and medical equipment.  The Company's EMI filter product lines
are assembled in Juarez, Mexico.

COMPETITION

Electrostatic Capacitors

     AC capacitors are made by several domestic and foreign manufacturers, and
competition is intense.  In the North American AC capacitor market, Aerovox
competes primarily with domestic manufacturers.  Aerovox and the General
Electric Company are the primary producers, each offering a full line of AC
products.  Five other suppliers - York, Commonwealth Sprague, American
Radionics, Compania General de Electronica (CGE) in Mexico and Magnetek - though
smaller, all manufacture quality products, and contribute to price competition.

     Offshore competition has not been a major factor in this market because
normally the weight of a typical AC capacitor in relation to its cost makes
shipment to the United States uneconomical for overseas suppliers.  However, Far
East manufacturers are beginning to make inroads into the U.S. markets, and
passage in Congress in early 1997 of the Information Technology Agreement (ITA)
is expected to increase Far East competition, in particular.  (The ITA
eliminates tariffs on capacitors 

                                       4
<PAGE>
 
coming into the United States in four equal steps; beginning in July 1997, the
staged elimination will be completed by July 2000.) The principal competitive
factors in the industry include product quality and reliability, competitive
prices, on-time delivery, customer service, the ability to meet rigid customer
specifications, currency fluctuations, and the ability to add value to the
customer's product.

     The North American business of Aerovox is not a major supplier of general
purpose AC capacitors in either Europe or Asia and faces strong competition from
locally based manufacturers in those markets.  However, Aerovox has successfully
marketed energy discharge capacitors  for specialized applications in Europe and
in the Korean market.

     A significant number of DC film capacitor manufacturers, both domestic and
international, serve the North American market, including Vishay and Matsushita,
both of which are larger and have more resources than Aerovox.  Accordingly,
Aerovox faces stiff competition, and enjoys only a minor share of this market.
The competitive factors are primarily quality, delivery and pricing.

Aluminum Electrolytic Capacitors

     In the North American AC motor-start capacitor market, Aerovox has three
major competitors - North American Philips, North American Capacitor Company
(NACC) and Compania General de Electronica (CGE) in Mexico.  Offshore
competition has not been a factor in this market, but this situation may change
with the tariff elimination  resulting from passage of the ITA.  The principal
competitive factors in the industry are pricing, delivery, quality and customer
service.

     The large can computer grade DC electrolytic capacitor market is dominated
by Cornell Dubilier Electronics, North American Philips, and United Chemi-Con.
This marketplace has minimal standardization and is considered application-
specific, normally requiring design-in and qualification testing by its
customers.

EMI/RFI Filters

     A significant number of EMI custom filter manufacturers serve the North
American marketplace providing strong competition.  The principal competitive
factors are technical support, quality, delivery and price.

MANUFACTURING

     Many of Aerovox's manufacturing processes are automated; mechanization is
essential to its ability to control costs in order to meet competitive prices
and still maintain acceptable profit margins.  The control of quality levels is
an equally important function throughout all operations and various tests are
conducted to assure continuity of high standards.

     Most recently, the Company has embarked on a program to significantly
improve operating efficiency.  In all its plants, goals to improve on-time
delivery performance, to reduce cycle times, and to reduce inventory investment
have been established, and information systems, materials acquisition and flows,
and production have been re-designed to meet these goals.  Continuous flow 

                                       5
<PAGE>
 
pull-through techniques, with emphasis on speed and waste elimination, are
replacing inflexible large-quantity batch production on the factory floor.

     In December 1992, the Company formed a maquiladora in Juarez, Mexico for
the assembly of high labor content AC capacitor products and EMI filters.  Both
oil-filled and dry AC and DC film capacitors are now assembled in this plant
(referred to as Plant II by the Company) in addition to EMI filters.

     A special products department in New Bedford assembles the custom and pulse
power product lines.

     The key material element of an aluminum electrolytic capacitor is an
essentially pure aluminum foil that has been processed, chemically and
electrically, to meet the capacitance and voltage specifications of the finished
capacitor.  This processing, known as etching and forming of the aluminum foil,
is done at the Aerovox plant in Huntsville, Alabama.  Slitting of the processed
foil to required widths is also completed at this plant.  The foil is then
forwarded to Plant I in Juarez and to BHC Aerovox in England for assembly into a
finished aluminum electrolytic capacitor.

BHC AEROVOX LTD.

     BHC Aerovox Ltd., located in Weymouth, England, is one of Europe's leading
manufacturers of aluminum electrolytic capacitors with sales throughout Europe.

PRODUCTS AND MARKETS

     BHC Aerovox is a major supplier of AC motor-start capacitors to the
European market, serving the fractional horsepower motor and the compressor
markets.  Additionally, BHC Aerovox supplies high-voltage DC capacitors to all
the major European motor drives manufacturers.  Other applications for their
products include uninterruptible power supplies, telecommunication power
supplies, traction units for trains, audio/visual equipment, welding equipment
and other general industrial electronics applications.  A third product line,
begun in 1996, is electrostatic paper/foil capacitors for microwave ovens.

COMPETITION

     There is keen competition from a number of European and Far Eastern
suppliers for all of the aluminum electrolytic products made by BHC Aerovox.
Among the more significant competitors are Siemens and Evox-Rifa.  In each of
the main countries, there is at least one local supplier.  BHC Aerovox has
increased its market share by offering technical backup to support a range of
high quality, technically advanced products at value prices.

     There is only one European competitor for microwave capacitors (in Italy).
The main competitors are in Korea. Competitive factors are mainly due to
pricing.

     BHC's business is subject to influence by foreign currency exchange rates.
The principal raw material is purchased in US dollars from the parent company
and approximately 60% of all sales are outside the United Kingdom, primarily
into Europe and are typically priced in the local currency. 

                                       6
<PAGE>
 
Introduction of the European Currency Unit ("Euro") is not expected to adversely
affect the financial results of BHC Aerovox.

MANUFACTURING

     BHC Aerovox purchases etched aluminum foil from three sources, including
the Aerovox foil operation in Huntsville.  The etched foil is processed to form
a dielectric (aluminum oxide) layer according to the voltage requirements.  This
processed foil is slit to the required width, wound with specially selected
tissue, impregnated with an electrolyte fluid and then assembled into
containers. A large part of the production is for non-standard parts, custom
designed to meet the specific customer applications.  In 1998, BHC Aerovox began
a program of significant investment to upgrade and automate its capacitor
assembly operations.

     BHC's microwave production is based on the proven technology from Aerovox
USA and incorporates relatively new product lines.

GENERAL

SALES AND DISTRIBUTION

     Aerovox sells its products worldwide to over 1,000 customers, primarily
original equipment manufacturers ("OEMs"), who purchase capacitors and other
products manufactured by the Company for use as components in the products they
manufacture.  No one customer, in 1998, accounted for 10% or more of the net
sales of the Company.  In 1998, approximately 41% of the Company's net sales
were to its ten largest customers and 89% were made to its 100 largest
customers.  The Company expects that sales to these customers will continue to
represent a significant portion of its total sales.

     Sales to customers outside the U.S., primarily from BHC Aerovox Ltd., the
Company's United Kingdom subsidiary, represented approximately 23% of total
sales in 1998.

     The Company markets its products directly to domestic OEMs and through a
network of independent manufacturers' sales representative organizations which
collectively employ over 150 sales people, and in the case of certain large
customers, directly through its own sales force. In England and Europe, the
Company also sells directly to OEMs and through independent manufacturers'
representatives.  In addition, independent  sales organizations represent the
Company in the Far East, Japan, Australia, Mexico, the Middle East and South
America.  A smaller portion of the Company's sales are through distributors.
The Company continually reviews the performance of its independent
representatives, and from time to time, makes changes in its relationships with
them.

     The Company's sales are slightly seasonal and are affected by the buying
cycles of the various industries it serves.  Approximately 75% of the net sales
are produced under agreements negotiated on an annual basis, usually during the
latter part of the year.  The Company sells approximately 95% of its products on
a manufactured-to-order basis. If an order is canceled, the Company bills the
customer for materials and labor expended on the order prior to cancellation.
Increasingly, customers require that the Company maintain stock of finished
capacitors for them, 

                                       7
<PAGE>
 
either at Aerovox plants or at the customer's designated location. This trend
has resulted in an increase in the Company's investment in finished goods
inventory.

     A critical element to the Company's strategy is its emphasis on customer
service.  The Company maintains continual, multilevel contacts with many
customers and places a high priority on meeting each customer's requirements in
a timely manner.

BACKLOG

     Aerovox's total backlog represents approximately 6.5 weeks of production.
The Company's manufacturing lead times vary from one to six weeks depending on
the product type, although some filter products and special larger pulse power
products that must be built specifically to order may require longer lead times.
The Company books orders, for purposes of calculating backlog, when a firm
delivery date that is no more than twelve months out is scheduled.  The trend of
major OEM customers to demand shipments from stock, as noted above, reduces the
order backlog and short-term visibility of demand.  The total active backlog was
$13.9 million at February 27, 1999, and $19.0 million at February 21, 1998.  The
Company expects to fill all backlog orders scheduled for 1999 delivery.

PRODUCT DEVELOPMENT AND QUALITY CONTROL

     Product development and improvement are important elements of Aerovox's
strategy.  The Company's efforts to develop new products and to improve existing
products are continuous and benefit from long-term technical relationships with
a number of key suppliers and customers.  Formal and informal consultation and
discussion on technical matters of common interest with key suppliers have
resulted in a number of significant product improvements, including the
development of thinner dielectric materials resulting in a more cost efficient
capacitor and development of improved capacitor fluid impregnants that reduce
capacitance loss.

     Technical exchanges between the Company's operations have resulted in the
development of additional new products and processes, a trend the Company is
fostering.

     The Company places a high degree of emphasis on quality control both in
product design (through improved design specifications) and in the production
process by means of continuous  process monitoring and control throughout the
manufacturing cycle.  Statistical Process Control (SPC), a program aimed at
encouraging employee involvement and participation through fact-based decision
making, is typical of the programs that have helped Aerovox achieve significant
quality improvements.

     The Company adheres to worldwide quality standards in all its operations.
Its North American manufacturing facilities in New Bedford, Massachusetts and
Juarez, Mexico have achieved International Standards Organization (ISO) 9002
certification. BHC Aerovox Ltd. has been ISO 9001 certified for several years.

MANAGEMENT INFORMATION AND CONTROL SYSTEMS

     The Company has substantially completed a company-wide project to
convert all 

                                       8
<PAGE>
 
management information and control systems to an integrated and uniform system
that is compliant with year 2000 computing requirements. In addition to meeting
compliance requirements, the Company expects to gain the benefit of better, more
consistent and more timely information. BHC Aerovox Ltd. successfully converted
to the new system in January 1998. North American headquarters, and the New
Bedford and Juarez II plants converted during the third quarter of 1998. The
remaining two plants will complete their conversion in mid-1999.

RAW MATERIALS

     The Company purchases raw materials from a number of regional, national and
international suppliers.  All of these raw materials are available from a
variety of suppliers with whom the Company has had long-term relationships.  The
Company purchases its plain and metallized polypropylene from several sources in
Europe and Asia and three sources in the United States.  There are several
Company-approved suppliers for metallized polyester, two in the United States
and two in Europe.  A number of sources are approved to provide aluminum foil
for the Company's electrolytic products - three in the United States, two in
Europe, and two in Asia.

PATENTS, LICENSES AND TRADEMARKS

     The Company's most important intellectual property is its capacitor
manufacturing processes which have been developed over a period of many years.
Aerovox has approximately twelve active patents and one pending patent.

     Aerovox licenses some of its product technology and process know-how to
Lumisistemas in Mexico.  An agreement renewing the license was signed  by  both
companies in September 1996. The Company has also granted a license to American
Radionic to make, use, import, sell, and/or offer for sale a certain capacitor
patented by Aerovox

     The Aerovox trademark is registered or registration is pending in 22
countries in Europe, North and South America, the Far East, the Middle East and
Australia.  This trademark has been in force since 1976.  In addition, the
Company holds or has pending, thirteen other United States registered
trademarks, some of which are registered in other countries.  The duration of
Aerovox's product trademark registrations range from one year to fifty-nine
years.  The Company believes that its trademark status helps to maintain the
proprietary nature of its products.



EMPLOYEES

     As of February 27, 1999, Aerovox had 1,428 employees worldwide.  An
aggregate of 297 employees hold salaried management, supervisory, sales and
clerical positions and 1,131 hourly employees are engaged in production and
related activities.  Unions represent 2.5% of the employees.  None of the
Company's production departments are unionized.  Approximately 290 employees
have been with their respective Aerovox company for ten years or more.

                                       9
<PAGE>
 
     Aerovox considers its employee relations to be good.  There have been no
labor stoppages in recent years, and union contracts have been renegotiated
without difficulty.   In New Bedford, a three-year agreement with the
International Union of Operating Engineers is set to expire in April 2001, and a
three-year contract with the International Brotherhood of Electrical Workers
will also expire in April 2001.

ENVIRONMENTAL COMPLIANCE

     The Company has made substantial capital expenditures on environmental
controls and compliance at its facilities.  See, "Environmental Matters -
Environmental Compliance" below.

ITEM 2.  PROPERTIES

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
PROPERTY                                       Sq. Feet    Owned/Leased        Year Lease
                                                                                 Expires
---------------------------------------------------------------------------------------------
<S>                                            <C>         <C>                 <C> 
New Bedford, MA                                 435,000        Owned                -
---------------------------------------------------------------------------------------------
 
Huntsville, AL                                   85,000        Owned                -
---------------------------------------------------------------------------------------------
 
Juarez, Mexico                                   45,000        Leased              1999
---------------------------------------------------------------------------------------------
 
Juarez, Mexico                                  100,000        Leased              2003
---------------------------------------------------------------------------------------------
 
Weymouth, England                                35,000        Leased              2008
---------------------------------------------------------------------------------------------
 
Weymouth, England                                37,000        Owned                -
---------------------------------------------------------------------------------------------
</TABLE>

     Prior to 1997, the Company invested in automation and equipment necessary
to increase production capability (primarily for the metallized polypropylene
product line) in New Bedford.  In Weymouth, England, a 27,000 square foot
building to facilitate expanded aluminum electrolytic capacitor and microwave
oven capacitor production was completed in 1995 and $1.4 million was spent on
new production equipment at that plant in 1998.  During 1997 and 1998, capital
spending at the Company's North American plants has been limited to maintenance,
environmental and cost reduction projects.  Equipment at Plant I in Juarez
continues to be upgraded and new equipment acquired for greater efficiency and
capability.  A quality control, and research and development labs were installed
at the plant in Huntsville, Alabama during 1995.  The Company believes that its
facilities are adequate for its foreseeable needs.

     As a result of the environmental matter related to the Company's New
Bedford plant, as described in Item 3 below, the Company will construct a new
plant to house the headquarters and manufacturing operations currently conducted
in that facility.  The Company is currently in negotiations with the City of New
Bedford to receive a grant of land in that city, and expects to begin
construction of a new plant and headquarters during 1999 and to complete the
relocation in 2000. This project will cause the Company to expend capital or
incur lease obligations of between $8.0 and $12.0 million.  The Company believes
it can obtain the financing necessary to complete this project.

ITEM 3.  ENVIRONMENTAL MATTERS

                                       10
<PAGE>
 
     The Company manufactures film capacitors and maintains its corporate
offices in a building located in New Bedford, Massachusetts, which has been
occupied by the Company and predecessor organizations also engaged in the
manufacture of capacitors since 1938.  In June 1997, the United States
Environmental Protection Agency (EPA) conducted preliminary tests within the
building that revealed the presence of polychlorinated biphenyls (PCBs) on
surfaces within the plant.  Subsequent engineering tests by independent
consultants retained by the Company confirmed the presence of residual PCBs
throughout the plant, which resulted from their use prior to 1978.  While the
Company and its expert advisors consider the PCBs to represent no threat to the
health of the employees of the Company or the surrounding community, subsequent
engineering studies indicated that the cost to remove PCBs within the building
to the levels proscribed by the EPA and the Toxic Substances Control Act would
be prohibitive.  Therefore, the Company has decided, and has so informed the
EPA, that it intends to vacate the building, to demolish it, and to dispose of
all contaminated building materials in a legally compliant manner.  Accordingly,
a reserve was established and charged to income as of December 27, 1997, in the
amount of $7.2 million which the Company believes is adequate to dismantle and
dispose of the building, clean equipment located within it, and  to pay for
related engineering, legal and professional services.  Of this amount,
approximately $6.0 million has been classified as a long-term liability and $0.4
million was expended and charged against the reserve in 1998 for engineering and
legal services.  Additionally, the Company wrote-off, as of December 27, 1997,
the depreciated value of that building, all improvements thereto, and certain
machinery and equipment which the Company believes will become surplus,
abandoned, or otherwise unusable upon disposal of the building.  The amount of
this write-off was $5.8 million.

     On February 9, 1990, the Company entered into a settlement agreement (the
"Settlement Agreement") with the United States and The Commonwealth of
Massachusetts (the "governments") resolving litigation commenced by the
governments in the U.S. District Court for the District of Massachusetts, on
December 10, 1983 under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, commonly known as the "Superfund" legislation.  The
litigation concerned the alleged disposal by various defendants of
polychlorinated biphenyls (PCBs) in the Acushnet River and New Bedford Harbor.
The Settlement Agreement resolved all of the governments' claims against the
Company and Aerovox Industries, Inc. (the Company's predecessor, now known as
Belleville Industries, Inc.) arising out of the contamination of the Acushnet
River and New Bedford Harbor with PCBs, including cleanup costs, study costs and
damages to natural resources, now or hereafter incurred, except that the
Settlement Agreement provides that the governments may seek damages from the
Company and Aerovox Industries, Inc. for future liability in the event that such
future liability arises out of unknown conditions at the site.  The Company,
based on information presently available, does not believe that this matter will
have any further material adverse effect on the Company's financial condition.

     The Company is currently subject to a National Pollutant Discharge
Elimination System (NPDES) permit to discharge water from the New Bedford,
Massachusetts facility into the Acushnet River / New Bedford Harbor.  The NPDES
permit has a limitation of up to ten parts per billion (ppb) of PCBs in its
storm water and other discharges.  For several years, the Company and the United
States Environmental Protection Agency (EPA) have been discussing possible
changes to this permit.  In June of 1994, the Company submitted the following
plans to the EPA and the Department of Environmental Protection (DEP):
Stormwater Study Plan, Quality Assurance Project Plan, and 

                                       11
<PAGE>
 
Stormwater Best Management Practices Plan. Aerovox will proceed with
implementation of the plans upon receipt of EPA and DEP approvals. The Company
can not predict what further actions the EPA or DEP may take with regard to the
permit or what impact any such actions may have on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.  No matter was submitted to stockholders of the Company
during the fourth quarter of fiscal 1998.

ITEM 4A.  EXECUTIVE OFFICERS - Set forth below are the names, ages and positions
of the executive officers of Aerovox in 1998 and currently:

<TABLE>
<CAPTION>
 
NAME                  AGE                                 OFFICE(S)
--------------------  ---  -----------------------------------------------------------------------
<S>                   <C>  <C>
Robert D. Elliott......47  President and Chief Executive Officer
Timothy J. Brown.......49  Senior Vice President, Marketing and Sales
Martin Hudis...........56  Senior Vice President, Technology Development
Ted M. Miller..........56  Senior Vice President, Engineering and Operations
Earl F. Sherman........62  Senior Vice President, Business Development
Jeffrey A. Templer.....51  Senior Vice President, Chief Financial Officer, Secretary and Treasurer
</TABLE>

     Mr. Elliott graduated in 1973 from Clarkson University with a Bachelor of
Science Degree in Industrial Distribution, and received a Master of Business
Administration from the University of Wisconsin in 1981.  From 1991 to 1993, Mr.
Elliott served as President of Hendrix Wire & Cable, a manufacturer of cable and
accessories for the electric utility market, and a business unit of the
Electrical Products Division of Eagle Industries, a diversified manufacturing
company.  From 1993 to 1996, he was Group Executive of Eagle's Electrical
Products Division.  Mr. Elliott joined Aerovox as President in March 1996 and
was named Chief Executive Officer of the Company in September 1996.

     Mr. Brown graduated with a Bachelor of Arts degree in Physics from Hamilton
College (1971) an received a Master of Arts from the University of Massachusetts
(1973).  From 1987 to 1998, Mr. Brown was Vice President of Marketing and Sales
at Alberox Corporation, a manufacturer of technical ceramics.  He joined Aerovox
in April, 1998 as Senior Vice President, Marketing and Sales.

     Dr. Hudis holds a Bachelor of Science degree from the University of
California in Los Angeles (1965), a PhD in Nuclear Engineering from the
Massachusetts Institute of Technology (1970), and a Master of Business
Administration from the University of Chicago (1981).  He was Vice President for
Engineering and Marketing of LH Research, a manufacturer of power supplies, from
1989 to 1991.  Dr. Hudis joined Aerovox as Vice President, Technology in
January, 1992 and became a Senior Vice President in 1995.  He is a senior member
of The Institute of Electrical and Electronics Engineers, an international
organization of electrical and electronic engineers.

     Mr. Miller graduated from Syracuse University with a Bachelor of Science in
Electrical Engineering (1964), and holds a Master of Business Administration
degree from the Rochester 

                                       12
<PAGE>
 
Institute of Technology (1982) and an Executive Master of Business
Administration degree from Stanford University (1989). Mr. Miller was Vice
President of Operations and Engineering for Microtouch Systems Inc., a
manufacturer of computer touch screens, from 1991 to 1996. He joined Aerovox as
Senior Vice President, Operations, in 1997. He became Senior Vice President,
Engineering and Operations in September, 1998.

     Mr. Sherman graduated from Bryant College with a Bachelor of Arts degree in
1972.  He served as President of Ludell Manufacturing Co., a manufacturer of
heat recovery systems and electronic controls for the petro-chemical industry,
for five years before joining Aerovox as General Manager of the Electronic Group
in 1990.  He became Vice President, Marketing, in November 1993, and became a
Senior Vice President in 1997.

     Mr. Templer holds a Bachelor of Science Degree from Salem State College
(1972) and a Master of Business Administration from the Harvard Business School
(1974).  From 1985 to 1996, Mr. Templer was employed by Freudenberg  and
Company, and its subsidiaries, as Vice President, Finance (1985-1991), and
President and CEO (1992-1996) of Freudenberg Nonwoven, a manufacturer of
industrial fabrics and materials.  In June 1996,  Mr. Templer joined Aerovox as
Senior Vice President and Chief Financial Officer and was appointed Treasurer in
August, 1996 and Secretary in May, 1998.

                                       13
<PAGE>
 
                                    PART II
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     The Company's Common Stock trades on NASDAQ National Market System under
the symbol ARVX.  The Company's Common Stock was distributed to the
beneficiaries of the Aerovox Liquidating Trust on February 26, 1990.  See
"Shareholder Information" in the Annual Report to stockholders for the year
ended January 2, 1999, incorporated herein by reference, for the quarterly
market price range of the Company's Common Stock.  The number of shareholders of
the Company's Common Stock on March 15, 1999 was 8,738.  Of that total, 6,132
were stockholders of record.  The Company has not declared dividends previously
and currently intends to continue to retain earnings for use in its business and
does not expect to pay dividends for the foreseeable future. The Company's
common stock dividend policy will be reviewed periodically by the Board of
Directors.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The information required by this item appears in the Company's 1998 Annual
Report to Stockholders on page 23 and is incorporated herein by reference.  Such
information should be read in conjunction with the Company's consolidated
financial statements and the notes thereto which are included in such Annual
Report and are incorporated by reference in Item 8 hereof.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The information required by this item appears in the Company's 1998 Annual
Report to Stockholders on pages 7 through 9 and is incorporated herein by
reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following financial statements of Aerovox Incorporated appear in the
Company's 1998 Annual Report to Stockholders on the pages indicated below and
are incorporated herein by reference:

Consolidated Statements of Operations for the years ended January 2, 1999,    15
December 27, 1997, and December 28, 1996.                                     
 
Consolidated Statements of Stockholders' Equity for the years ended January   15
2, December 27, 1997, and December 28, 1996.                                  
 
Consolidated Balance Sheets at January 2, 1999 and December 27, 1997.         16
 
Consolidated Statements of Cash Flows for the years ended January 2, 1999,    17
December 27, 1997, and December 28, 1996.                                     

Notes to Consolidated Financial Statements                                    18
 
Report of Independent Accountants                                             36
 

                                       14
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a)  Directors - Information with respect to all directors may be found in
the Company's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders on pages 1 through 4 under the caption "Election of Directors",
which Statement is to be filed with the Securities and Exchange Commission.
Such information is incorporated herein by reference.

     (b)  Executive Officers - Information with respect to executive officers
appears in Item 4A. of Part I.

ITEM 11.  EXECUTIVE COMPENSATION

     This information is contained in the Company's definitive Proxy Statement
for the 1999 Annual Meeting of Stockholders on pages 10 and 14 under the caption
"Executive Compensation" and "Compensation Committee Report", which Statement is
to be filed with the Securities and Exchange Commission.  Such information is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This information is contained in the Company's definitive Proxy Statement
for the 1999 Annual Meeting of Stockholders on pages 16 and 17 under the caption
"Security Ownership of Certain Beneficial Owners and Management", which
Statement is to be filed with the Securities and Exchange Commission.  Such
information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Not applicable.


                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.

     (a)  Exhibits - A list of Exhibits filed with or incorporated by reference
in this Report on Form 10-K appears at pages 20 through 23 hereof, which list is
incorporated herein by reference.

     (b)  Financial Statements - A list of consolidated financial statements is
contained in Item 8 and is incorporated here by reference.

                                       15
<PAGE>
 
FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts for the years ended January   17
2, 1999, December 27, 1997, and December 28, 1996.

Report of Independent Accountants on Financial Statement Schedules.           18

     All other financial statement schedules are inapplicable or the required
information is contained in the Company's consolidated financial statements or
notes thereto, which have been incorporated by reference herein.

     (c)  Reports on Form 8-K - None in 1998.  On March 8, 1999, the Company
filed Form 8-K relating to the agreement in principle to acquire the capacitor
business of Compania General de Electronica of Mexico City.

                                       16
<PAGE>
 
                             AEROVOX INCORPORATED
                       VALUATION AND QUALIFYING ACCOUNTS
                            (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                ADDITIONS
                                                             --------------------------------------------------
                                           BALANCE AT          CHARGED          CHARGED TO          DEDUCTIONS          BALANCE
           DESCRIPTION                      BEGINNING            TO               OTHER             DESCRIBE(1)          END OF
                                            OF PERIOD          EXPENSE           ACCOUNTS                                PERIOD
<S>                                        <C>                 <C>               <C>                <C>                 <C> 
Year ended January 2, 1999:                                                                                             
Allowance for doubtful                        $617              $115                 -                 $126              $606
accounts receivable                                                                                                          
                                                                                                                             
                                                                                                                             
Year ended December 27, 1997:                                                                                                
Allowance for doubtful                        $685              $  4                 -                 $ 72              $617
accounts receivable                                                                                                          
                                                                                                                             
                                                                                                                             
Year ended December 28, 1996:                                                                                                
Allowance for doubtful                        $635              $715                 -                 $665              $685 
accounts receivable
</TABLE>


(1)  Write-off of accounts receivable.

                                       17
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors
and Stockholders of Aerovox Incorporated


     Our report on the consolidated financial statements of Aerovox Incorporated
has been incorporated by reference in this Form 10-K from page 24 of the 1998
Annual Report to Stockholders of Aerovox Incorporated.  In connection with our
audit of such financial statements, we have also audited the related financial
statement schedule listed in Item 14(b) of this Form 10-K.  In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements as a whole, presents fairly, in all
material respects, the information required to be included therein.



                                             BY /S/  PRICEWATERHOUSECOOPERS LLP
                                             ----------------------------------
                                             PRICEWATERHOUSECOOPERS LLP


Boston, Massachusetts
February 23, 1999, except for certain
information presented in Note 3 for which the
date is February 26, 1999

                                       18
<PAGE>
 
Signatures

     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Aerovox Incorporated
(Registrant)


BY /S/ ROBERT D. ELLIOTT                  BY /S/ JEFFREY A. TEMPLER
------------------------                  --------------------------
President and Chief Executive Officer     Sr. Vice President and Chief Financial
March 29, 1999                            Officer
                                          March 29, 1999

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signatures

 
/S/ SHEREL D. HORSLEY         Chairman of the Board         March 29, 1999
---------------------         of Directors
Sherel D. Horsley
 
/S/ JOHN F. BRENNAN           Director                      March 29, 1999
-------------------
John F. Brennan
 
/S/ DENNIS HOROWITZ           Director                      March 30, 1999
-------------------
Dennis Horowitz
 
/S/ WILLIAM G. LITTLE         Director                      March 29, 1999
---------------------
William G. Little
 
/S/BENEDICT P. ROSEN          Director                      March 26, 1999
--------------------
Benedict P. Rosen
 
/S/ JOHN L. SPRAGUE           Director                      March 26, 1999
-------------------
John L. Sprague

                                       19
<PAGE>
 
                                 EXHIBIT INDEX
                        AEROVOX INCORPORATED FORM 10-K
                    (FOR FISCAL YEAR ENDED JANUARY 2, 1999)

<TABLE> 
<CAPTION> 
Exhibit                                                                                Page/SEC 
 Item                                                                  Exhibit          Document
------                                                               -----------    -----------------
<S>     <C>                                                          <C>            <C>            
(3)     Articles of Incorporation and By-Laws.
        --------------------------------------
 
            3.1  Restated Certificate of Incorporation.                   3.1                *

                 3.1.1  Certificate of Designations, Preferences          3.1.1        Form 10-K for
                        and Rights of Series A Junior Participating                    year ended
                        Preferred Stock.                                               Dec. 30, 1989
 
            3.2  Certificate of Ownership and Merger of Aerovox           3.2                *
                 Incorporated (a Massachusetts corporation)
                 into Aerovox Holding Company (a Delaware
                 corporation).
 
            3.3  By-Laws.                                                 3.3                *
 
(4)     Instruments Defining the Rights of Security Holders,
        ----------------------------------------------------
        Including Indentures.
        ---------------------
 
            4.1  Instruments Defining Rights of Security                  4.1                *
                 holders (See Exhibits 3.1, 3.1.1, 3.2, 3.3,
                 4.2 and 4.3).
 
            4.2  Form of Stock Certificate.                               4.2        Form 10-K for
                                                                                     year ended
                                                                                     Dec. 30, 1989
 
            4.3  Form of Aerovox Incorporated Rights Agreement.           4.3               ***
 
            4.4  Amended and Restated Revolving Credit                    4.4        Form 10-K for
                 Agreement, dated July 8, 1993, between the                          year ended
                 Company and the First National Bank of Boston.                      Jan. 1, 1994
 
                 4.4.1  First Amendment to Amended and                    4.3        Form 10-Q for
                        Restated Revolving Credit Agreement,                         quarter ended
                        dated August 30, 1994, between the                           Oct. 1, 1994
                        Company, BHC Aerovox Ltd. and the First
                        National Bank of Boston.
 
 
                 4.4.2  Revolving Credit Facility, dated                  4.4.2      Form 10-K for
</TABLE> 

                                       20
<PAGE>
 
<TABLE> 
            <S>                                                           <C>        <C> 
                        September 7, 1994, between BHC Aerovox Ltd.                  year ended
                        and the First National Bank of Boston.                       Dec. 31, 1994

                 4.4.3  Second Amendment to Amended and                   4.4.3      Form 10-K for
                        Restated Revolving Credit Agreement, dated                   year ended
                        December 29, 1995.                                           Dec. 30, 1995

                 4.4.4  Third Amendment to Amended and                    4.4.4      Form 10-Q for
                        Restated Revolving Credit Agreement, dated May               quarter ended
                        15, 1996.                                                    June 29, 1996
 
                 4.4.5  Fourth Amendment to Amended and                   4.4.5      Form 10-Q for
                        Restated Revolving Credit Agreement, dated                   quarter ended
                        November 1, 1996.                                            September 28, 1996
 
                 4.4.6  Fifth Amendment to Amended and                    4.4.6      Form 10-K for
                        Restated Revolving Credit Agreement, dated                   year ended
                        February 14, 1997.                                           December 28, 1996

                 4.4.7  Sixth Amendment to Amended and                    4.4.7      Form 10-K for
                        Restated Revolving Credit Agreement, dated                   year ended
                        February 27, 1998.                                           December 27, 1997

                 Filed Herewith:
 
                 4.4.8  Seventh Amendment to Amended and                  ----              ----
                        Restated Revolving Credit Agreement, dated
                        September 28, 1998.
 
                 Filed Herewith:
                                                                          ----              ----
                 4.4.9  Eighth Amendment to Amended and
                        Restated Revolving Credit Agreement, dated
                        February 18, 1999.
 
            4.5  Loan and Security Agreement, dated March 30,             4.5        Form 10-K for
                 1992, between the Company and The CIT                               year ended
                 Group/Equipment Financing, Inc., as amended by                      Jan. 2, 1993
                 Amendment No. 1 dated March 1, 1993.
</TABLE> 
 
                                       21
<PAGE>
 
<TABLE> 
                 <S>                                                      <C>        <C> 
                 4.5.1  Amendment No. 2 dated May 30, 1995.               4.5.1      Form 10-K for
                                                                                     year ended
                                                                                     Dec. 30, 1995
</TABLE> 

NOTE:  The Company agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of any other instrument with respect to long term debt of
the Company & its subsidiaries. Such instruments are not filed herewith because
no such instrument relates to outstanding debt in an amount greater than 10% of
the total assets of the Company and its subsidiary on a consolidated basis.

(10)    Material Contracts.
        -------------------

        Compensation Agreements
        -----------------------

<TABLE> 
           <S>                                                             <C>       <C>  
           10.1  1989 Stock Incentive Plan.                                10.1            *

                 10.1.1  Amended Stock Incentive Plan                      10.1.1    Form 10-K for
                                                                                     year ended
                                                                                     Dec. 31, 1994
 
           10.2  Profit-Sharing Savings Plan.                              10.2            **
 
           10.3  Deferred Supplemental No. 1 to Deferred                   10.3.1    Form 10-K for
                 Supplemental Savings Plan.                                          year ended
                                                                                     Dec. 29, 1990
 
           10.4  Deferred Compensation Plan for Directors.                 10.4            *
 
           10.5  1989 Stock Option Plan for Directors.                     10.4            *

                 10.5.1  Amended Stock Option Plan for                     10.5.1    Form 10-K for
                 Directors.                                                          year ended
                                                                                     Dec. 31, 1994
 
           10.7  Forms of Indemnification Agreements between
                 Aerovox Incorporated and its directors and                10.7            *
                 certain officers.
 
 
           10.8  Severance Agreements:

                 (a)  Severance Agreement with Robert D. Elliott           10.8
                                                                                     Form 10-K for
                                                                                     year ended Dec.
                                                                                     28, 1996
</TABLE> 

                                       22
<PAGE>
 
<TABLE> 
<S>        <C>                                                             <C>       <C> 
                 (b)  Severance Agreement with Jeffrey A. Templer          10.8
                 
                 Filed Herewith:
 
                 (c)  Severance Agreement with Timothy J. Brown            ----             ----

                 (d)  Form of Severance Agreement with other               10.8              **
                      executives.
 
           10.9  Consulting Agreements:

                 (a)  Consulting Agreement with Clifford H. Tuttle         10.12
                                                                                     Form 10-K for
                                                                                     year ended
                                                                                     Jan. 1, 1994
                 (b)  Consulting Agreement with Ronald F. Murphy           10.12
 
        Other Agreements
        ----------------
 
          10.10  Form of Sales Representative Agreement.                   10.9              **
 
          10.11  Purchase Agreement dated March 5, 1993 between             2.1      Form 8-K dated
                 the Company and Cooper Ind.                                         March 5, 1993
 
(13)    Annual Report to Security Holders.
        ----------------------------------
 
                 Filed Herewith:
                 13.1  The Annual Report to Shareholders for
                       the fiscal year ended January 2, 1999.  With
                       the exception of the information specifically
                       incorporated by reference in Parts I, II and
                       IV of this report on Form 10-K, the Annual          ----      ----
                       Report Stockholders for the fiscal year ended
                       January 2, 1999 is not being filed as part of
                       this report.

 
(21)    Subsidiaries.
        -------------
                 Filed Herewith:
                 21.1  List of Subsidiaries of the Company.                ----      ----
 
(23)    Consents of Experts and Counsel.
        --------------------------------
</TABLE> 

                                       23
<PAGE>
 
<TABLE> 
                 <S>                                                       <C>       <C>  
                 Filed Herewith:
                 23.1    Consent of PricewaterhouseCoopers LLP             ----      ----
</TABLE>

*    Filed as an Exhibit to Registration Statement on Form 10 filed with the
     Securities and Exchange Commission on October 4, 1989, and incorporated
     herein by reference.

**   Filed as an Exhibit to Amendment No. 1 to the Registration Statement to
     Form 10 filed with the Securities and Exchange Commission on December 1,
     1989, and incorporated herein by reference.

***  Filed as and Exhibit to Amendment on Form 8 to the Registration Statement
     on Form 10, filed with the Securities and Exchange Commission on February
     16, 1990.

                                       24