<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 
    For the fiscal year ended June 30, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For the transition period from                  to
                                   ----------------    ----------------

Commission file number 1-8824

                               CLAYTON HOMES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                              <C>
Delaware                                         62-1671360
--------------------------------------------     ---------------------------------------
State or other jurisdiction of incorporation     (I.R.S. Employer Identification Number)
or organization

5000 Clayton Road
Maryville, Tennessee                             37804
--------------------------------------------     ---------------------------------------
(Address of principal executive offices)         (Zip Code)
</TABLE>

Registrant's telephone number, including area code: 423-380-3000
Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange on
Title of each class                                     which registered
--------------------------------------------------------------------------------
COMMON STOCK, $.10 PAR VALUE PER SHARE                  NEW YORK STOCK EXCHANGE


      Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether 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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 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]

Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 31, 1998, was approximately $1,332,713,123 (86,329,595
shares at closing price on the NYSE of $15.4375).

Shares of common stock, $.10 par value, outstanding on August 31, 1998, were
118,463,076.

Exhibit index appears on pages 15-16.

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
Part of Form 10-K               Documents from which portions are incorporated by reference
-----------------               -----------------------------------------------------------------
<S>                             <C>
Part II (except for Item 5)     Annual Report to Shareholders for fiscal year ended June 30, 1998

Part III                        Proxy Statement relating to Company's Annual Meeting of Shareholders 
                                on November 12, 1998
</TABLE>





                                       1
<PAGE>   2







                               CLAYTON HOMES, INC.

                                     PART I
ITEM 1. BUSINESS.

GENERAL

Clayton Homes, Inc. and its subsidiaries (the Company) produce, sell, finance
and insure primarily low to medium priced manufactured homes. The Company's 18
manufacturing plants produce homes which are marketed in 28 states through 1,046
retailers, of which 273 are Company-owned sales centers and 71 are Company-owned
community sales operations. The Company provides installment financing to
purchasers of manufactured homes sold by its retail centers and by selected
independent retailers. Such financing is provided through its wholly-owned
finance subsidiary, Vanderbilt Mortgage and Finance, Inc. (VMF). The Company
acts as agent, earns commissions and reinsures risks on physical damage, family
protection, and home buyer protection insurance policies issued by a non-related
insurance company (ceding company) in connection with the Company's retail
sales. The Company also develops, owns, and manages manufactured housing
communities.

The Company is a Delaware corporation whose predecessor was incorporated in 1968
in Tennessee. Its principal executive offices are located in Knoxville,
Tennessee.

The following table shows the percentage of revenue derived from sales by
Company-owned retail centers, sales to independent retailers and financial
services operations and other income for each of the last three fiscal years.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30,
                                                                     1998         1997        1996
                                                                     ----         ----        ----
<S>                                                                  <C>          <C>         <C>
         Sales by Company-owned retail centers
            and communities ....................................       50%          52%         52%
         Sales to independent retailers ........................       28%          28%         30%
         Financial services and other ..........................       22%          20%         18%
                                                                      ----         ----        ----
         Total .................................................      100%         100%        100%
                                                                      ====         ====        ====
</TABLE>

For information relating to the Company's three major business segments, see
Note 11 to the Consolidated Financial Statements in the Company's Annual Report
to Shareholders.

Company sales reflect the seasonality of the manufactured housing industry. In
recent years, approximately 31% of the Company's sales have occurred in its
fourth quarter ended June 30.

MANUFACTURED HOMES

A manufactured home made by the Company is a factory-built, completely finished
dwelling. Constructed to be transported by truck, the home is mounted on wheels
attached to its frame. Manufactured homes are designed to be permanent, primary
residences sited and attached to utilities.

The Company manufactures a variety of single and multi-section homes in a wide
price range. Retail prices range from $10,000 to $75,000 with sizes from 500 to
2,330 square feet.

The Company markets homes under a variety of model names. Homes include as
standard features central heating, range, refrigerator, and color-coordinated
window, wall and floor coverings. Optional features include central air
conditioning, wood-burning fireplaces, bay windows, hardwood floors, whirlpool
tubs, skylights, and furniture.




                                       2
<PAGE>   3


MANUFACTURING OPERATIONS

The Company owns or leases 18 manufacturing plants, ranging in size from 63,000
to 194,000 square feet. Plants are located in Andersonville, Ardmore, two in
Bean Station, Halls, Maynardville, Rutledge, White Pine, and two in Savannah,
Tennessee; in Henderson, Oxford and Richfield, North Carolina; in Waycross,
Georgia; and in Bonham, Sulphur Springs, and two in Waco, Texas. See "Item 2.
Properties." The Company's manufactured homes are built in its plants using
assembly-line techniques. Completion of a home ordinarily takes two days. Homes
are generally produced against orders received from independent and
Company-owned retail centers; therefore the Company does not normally maintain a
significant inventory of homes at its plants. Completed homes are transported to
the retail centers by independent carriers.

The Company's plants operate on a one-shift-per-day basis, normally for a
five-day week, with the capacity to produce approximately 35,000 homes per year.
During the fiscal year ended June 30, 1998, the Company produced 27,640 homes.

The principal materials utilized in the production of the Company's homes are
steel, aluminum, wood, fiberglass, carpet, vinyl floor covering, hardware items,
appliances and electrical items. The Company purchases these and other items
from a number of supply sources, and it believes that the materials and parts
necessary for the construction and assembly of its homes will remain readily
available from these sources. In the event that any of these items are not
readily available or are available at a higher cost than could be passed on to
consumers, the operations of the Company could be adversely affected.

The Company offers one to five year limited warranty programs covering
manufacturing defects in materials or workmanship in a home. Warranties covering
appliances and equipment installed in the homes generally are obligations of the
manufacturers of such items and not those of the Company. Warranty and service
costs during the years ended June 30, 1998, and June 30, 1997, amounted to
approximately $14,801,000 and $12,308,000, respectively.

The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $54,800,000 and
$40,500,000 on June 30, 1998, and 1997, respectively. Based on the Company's
production rate, approximately four weeks would be required to fill backlog
orders at June 30, 1998.

SALES OF HOMES MANUFACTURED BY THE COMPANY

The following table sets forth manufacturing sales data for the number of homes
shipped to Company-owned retail centers and to independent retailers, total
number of homes sold, number of plants, number of independent retailers and
number of Company-owned retail centers for the periods indicated.

<TABLE>
<CAPTION>
                                                                                       AT OR FOR THE YEAR
                                                                                         ENDED JUNE 30,
                                                                                1998         1997         1996
                                                                                ----         ----         ----
<S>                                                                            <C>          <C>          <C>
Number of homes sold to independent retailers .........................        14,728       14,375       14,068
Number of homes shipped to Company-owned retail centers................        12,922       11,455       10,613
                                                                               ------       ------       ------
Total    ..............................................................        27,650       25,830       24,681
                                                                               ======       ======       ======

Number of plants operating ............................................            18           17           17
Number of independent retailers .......................................           702          663          580
Number of Company-owned communities ...................................            71           67           64
Number of Company-owned retail centers ................................           273          245          216
</TABLE>


COMPANY RETAIL OPERATIONS

As of June 30, 1998, the Company sold homes through 273 Company-owned retail
centers in 21 states. In addition to selling homes built by the Company,
virtually all of these retail centers sell new homes manufactured by other
companies and previously-owned manufactured homes.



                                       3
<PAGE>   4


The following table indicates the number of Company-owned retail centers and
certain information relating to homes sold during the last three fiscal years.

<TABLE>
<CAPTION>
                                                                                        YEAR  ENDED JUNE 30,
                                                                                 1998          1997         1996
                                                                                 ----          ----         ----
<S>                                                                            <C>           <C>           <C>  
Number of Company-owned retail centers ................................            273           245           216
Number of new homes sold (including homes built by the
    Company and by other manufacturers) ...............................         13,250        13,425        12,750
Average retail price of new homes sold ................................        $37,864       $34,209       $33,043
Number of previously-owned homes sold .................................          3,287         3,621         3,039
</TABLE>

All of the Company-owned retail centers employ salespeople who are primarily
compensated on a commission basis. The retail centers do not have administrative
staffs since most administrative functions are performed at the Company's
corporate headquarters.

To provide customers a wider price range of homes, the Company purchases
previously-owned homes from individuals and from other retailers, as well as
repossessed homes from lenders throughout its trade territory.

Homes sold by Company-owned retail centers are delivered to the homeowners'
sites by trucks either owned by the Company or leased for the particular
delivery. The purchase price of the home may include delivery and setup of the
home at the retail homeowners' site. Electrical, water, and gas connections are
performed by licensed technicians.

INDEPENDENT RETAILERS

In the years ended June 30, 1998, and 1997, 53% and 56%, respectively, of homes
manufactured by the Company were sold to its independent retailers. As of June
30, 1998, the Company had 702 independent retailers in 26 states. The Company's
independent retailer network enables it to distribute homes to more markets,
more quickly, without as large an investment in management resources and
overhead expenses as is required with Company-owned retail centers. Sales to
independent retailers also help the Company ensure that its homes are
competitive with other manufacturers in terms of consumer acceptability, product
design, quality and price.

The Company's finance subsidiary, VMF, generally does not, but may provide
financing for retail customers of selected independent retailer locations with
terms and conditions similar to those provided to Company-owned locations.

The Company establishes relationships with independent retailers through sales
representatives from its manufacturing plants. These representatives visit
independent retailers in assigned areas to solicit orders for the Company's
homes. The area is generally limited to a 400 to 500 mile radius from each of
the Company's manufacturing plants due to the relatively significant cost of
transporting a home. Depending on the cost of the home and the wholesale
competition within the area, a home may be competitively shipped shorter or
longer distances. During each of the last three fiscal years no retailer
accounted for more than 2% of the Company's consolidated revenues.

Because independent retailers have their own source of inventory financing, the
Company typically receives payment for homes within two weeks of delivery to the
independent retailer. The Company has no written agreements with its independent
retailers, and the relationship between the Company and each of its independent
retailers may be terminated at any time by either party. The Company believes
its relationships with independent retailers are good, and has experienced
relatively little turnover among independent retailers in the past several
years. The Company generally has no control over the operations of independent
retailers.

Typically the Company neither provides inventory financing arrangements for
independent retailer purchases nor consigns homes. As is customary in the
industry, lenders financing independent retailer purchases require that the
Company execute repurchase agreements which provide that, in the event of
retailer default under the retailer's inventory financing arrangements, the
Company will repurchase homes 




                                       4

<PAGE>   5


for the amount remaining unpaid to the lender, excluding interest and
repossession costs. Historically, any homes repurchased under such agreements
have been resold to other retailers, including Company-owned retail centers, at
no less than the repurchase price. During the last five fiscal years, the
Company has incurred no significant losses resulting from these contingent
obligations, but there can be no assurance that losses will not occur in the
future.


FINANCIAL SERVICES

The Company believes that the ability to make financing available to retail
purchasers is a material factor affecting the market acceptance of its product.
The Company facilitates retail sales by making loans through its finance
subsidiary, VMF, and by maintaining relationships with conventional lenders such
as banks and finance companies for the pre-arranged sale of retail installment
contracts. The following table reflects the relative percentages of homes sold
by Company-owned retail centers which were financed through the Company, either
by VMF or by conventional lenders, and those sales made to customers who
arranged their own financing or paid cash.

<TABLE>
<CAPTION>
                                                                              YEAR ENDED JUNE 30,
                                                                       1998          1997        1996
                                                                       ----          ----        ----
<S>                                                                    <C>           <C>         <C>
         VMF ...................................................        75%           77%         76%
         Conventional lenders ..................................         5%            3%          5%
         Customer arranged or cash .............................        20%           20%         19%
                                                                       ----          ----        ----
         Total..................................................       100%          100%        100%
                                                                       ====          ====        ====
</TABLE>

VMF also purchases and originates manufactured housing installment contract
receivables (also referred to as manufactured housing contracts) on an
individual basis from independent retailers. Such retailers must make an
application to VMF for approval. Upon satisfactory results of VMF's
investigation of the credit worthiness and general business reputation, VMF and
the retailer enter into a contractual agreement.

In addition to purchasing manufactured housing contracts from Company-owned and
independent retailers on an individual basis, VMF makes bulk purchases of
manufactured housing contracts. It also performs, on behalf of other
institutions, servicing of manufactured housing contracts that were not
purchased or originated by VMF. These purchases and servicing arrangements may
relate to the portfolios of other lenders or finance companies, governmental
agencies or instrumentalities, or other entities that purchase and hold
manufactured housing contracts.

UNDERWRITING POLICIES. Retail customers of the Company who express a desire to
obtain financing by or through the Company complete a credit application form
which is initially reviewed by the manager of the retail center and then is
forwarded to VMF or another source of financing.

Credit applications are then evaluated by VMF credit managers. VMF's
underwriting guidelines generally require that each applicant's credit,
residence, and employment history and income to debt payment ratios be examined.
There are no requirements on the basis of which, if met, credit is routinely
approved; or if they are not met, credit is routinely denied. If in the judgment
of the VMF credit manager an applicant does not meet minimum underwriting
criteria, there generally must be compensating higher ratings with respect to
other criteria in order for an applicant to be approved. Credit managers must
confirm that the credit investigation gave a complete and up-to-date accounting
of the applicant's creditworthiness. Credit managers are encouraged to obtain
second opinions on loans for relatively large dollar amounts or those which in
their judgment, tend to rank lower in terms of underwriting criteria. Generally,
the sum of the monthly installment housing obligation, which includes the
manufactured home loan payment and monthly site costs, should not exceed 28% of
the applicant's gross monthly income.

With respect to those customers determined to be credit worthy, VMF requires a
down payment in the form of cash, the trade-in value of a previously-owned
manufactured home, and/or the estimated value of equity in real property pledged
as additional collateral. For previously-owned homes, the trade-in allowance
accepted by the retailer must be consistent with the value of the home as
determined by VMF in light of current market conditions. The value of real
property pledged as additional collateral is estimated by retail personnel, who
are not appraisers but are familiar with the area in which the property is
located. The minimum amount of the down payment is 5% of the purchase price. The
purchase price includes the stated cash sale price of the manufactured home,
sales or other taxes and fees, set-up costs and certain 



                                       5
<PAGE>   6

insurance premiums (including up to five years of premiums on required physical
damage insurance).

The balance of the purchase price is financed by an installment sales contract
providing for a purchase money security interest in the manufactured home and a
mortgage on any real property pledged as additional collateral. Normally, the
contracts provide for equal monthly payments, generally over a period of seven
to twenty years at fixed or variable rates of interest. VMF believes the typical
manufactured home purchaser is primarily sensitive to the amount of the monthly
payment, and not necessarily to the interest rate.

VMF has developed financing options such as contracts with a seven-year term
(compared to the industry norm of 15 to 20 years) which provide financing to its
customers at a relatively lower cost. The Company also offers a bi-weekly
payment contract which provides for 26 payments a year which are made by
electronically drafting the purchaser's checking account. The Company believes
that such financing options are attractive to the customer and improve market
acceptance of its homes as well as improve its delinquency and repossession
experience.

During the last 11 fiscal years, VMF was the most significant source of
financing for purchasers of homes sold by the Company-owned retail centers. In
fiscal 1988, VMF originated 5,692 contracts and in fiscal 1998, VMF originated
24,304 contracts. At June 30, 1998, VMF was servicing approximately 126,000
contracts with an aggregate dollar amount of $2.9 billion of which VMF has
ownership interest or contingent liability on approximately 109,000 contracts
with an aggregate dollar amount of $2.6 billion. The Company expects that VMF
will continue to originate a significant portion of the financing for purchasers
of its homes.

The volume of manufactured housing contracts originated by VMF for the periods
indicated below and certain other information at the end of such periods are as
follows:

<TABLE>
<CAPTION>
                                                                                   CONTRACT ORIGINATIONS
                                                                                     YEAR ENDED JUNE 30,
                                                                          1998              1997           1996
                                                                          ----              ----           ----
<S>                                                                      <C>              <C>            <C> 
         Principal balance of contracts originated
           (in thousands) ......................................         $801,865         $646,624       $476,467
         Number of contracts originated ........................           24,304           21,691         16,910
         Average contract size .................................         $ 32,993         $ 29,811       $ 28,177
         Average interest rate..................................           10.51%           11.10%         10.72%
</TABLE>

The following table shows the size of the portfolio of manufactured housing
contracts serviced by VMF on which it was contingently liable or owner on the
dates indicated:

<TABLE>
<CAPTION>
                                                                                CONTRACT SERVICING PORTFOLIO
                                                                                     YEAR ENDED JUNE 30,
                                                                           1998             1997           1996
                                                                           ----             ----           ----
<S>                                                                       <C>               <C>            <C>
         Total number of contracts being serviced ..............          109,191           87,126         74,154
         Originated by VMF......................................           88,378           76,403         64,298
         Acquired from other institutions.......................           20,813           10,723          9,856
</TABLE>

VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans. Additionally, the Company funds home lending
activities through the capital markets. In fiscal 1998, the Company completed
four public offerings of asset-backed securities totaling $899 million. In
excess of $2.8 billion of securities have been issued and sold since 1991.

VMF's capital market activity, the primary source of permanent funding for its
lending activities, is in the form of asset-backed securities issued through its
special purpose subsidiary. These securities, which are sold in public markets,
are collateralized by manufactured housing receivables which are either
originated or acquired by VMF. Certain of these receivables are originated and
subserviced by other entities. With respect to the securitized pools that
contain receivables originated or acquired by other entities, VMF is servicer
for all loans in the pools, with a subservicing arrangement for those loans
originated or acquired by those entities.



                                       6
<PAGE>   7


Loans insured by the Federal Housing Administration (FHA) or guaranteed by the
Veterans Administration (VA) are permanently funded through the Government
National Mortgage Association (GNMA) pass-through program. Under the GNMA
program, installment sales contracts are warehoused by VMF and then pooled in
denominations of approximately $2,500,000 to collateralize the issuance by VMF
of securities guaranteed by GNMA under the provisions of the National Housing
Act. Under the GNMA program, VMF retains the servicing of the installment sales
contracts and is responsible for passing through payments under the contracts to
GNMA security holders. During the fiscal year ended June 30, 1998, VMF
originated installment sales contracts eligible for financing under the GNMA
program having aggregate principal balances of $4 million. As of June 30, 1998,
VMF was servicing 253 GNMA pools totaling $157 million in principal balances.
Use of FHA financing minimizes the Company's contingent liability for these
installment sales contracts because of the government-insured nature of the
loans. Accordingly, the Company believes that the use of this form of financing,
for customers who qualify, increases the marketability of its manufactured
homes.

Certain of the agreements related to borrowings include covenants with respect
to the Company's financial condition, corporate existence and employment of
certain key individuals. The Company may remain contingently liable on
installment sales contracts sold with recourse to institutional investors; this
contingent liability amounted to approximately $23 million as of June 30, 1998.
See Note 6 to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders.

The Company believes that, as long as buyers of the Company's homes remain
sensitive primarily to the amount of their monthly payments rather than interest
rates and VMF is able to continue to implement its loan practice and pricing
policies, changes in interest rates will not materially effect its business.
There can be no assurance, however, that a significant change in interest rates
will not materially effect the Company's business and financial condition.

ACQUIRED CONTRACTS AND SERVICING ARRANGEMENTS. The Acquired Contracts were
originated by savings and loan associations, savings banks, or other lenders,
and acquired indirectly or directly from them by VMF. The Acquired Contracts
were underwritten on the basis of underwriting criteria that were different from
and, as a whole, not as strict as VMF's underwriting criteria.

In fiscal 1994 and 1998, VMF became the servicer of 20,180 and 10,013
manufactured housing installment sales contracts with approximate principal
balances of $285 million and $267 million, respectively. VMF acts solely as
servicer with respect to these contracts and, thus, has no ownership interest
nor contingent liability related to this portfolio. At June 30, 1998, VMF was
servicing approximately 17,094 of these installment sales contracts with an
approximate principal balance of $332 million.

DELINQUENCY AND REPOSSESSION EXPERIENCE. VMF performs recordkeeping and
collection activities on all loans that it originates or purchases through
portfolio acquisitions. Unrelated institutions purchasing the Company's
installment sales contracts individually and directly from Company-owned retail
centers perform their own recordkeeping and collection activities, although the
Company is in some cases responsible for repossessing homes in the event such
action becomes necessary.

Although the terms of the installment sales contracts vary according to the
financial institutions which purchase the contracts, most contracts provide that
the failure to make a payment as scheduled is an event of default which gives
rise to the right to repossess the home. However, it is the policy of the
Company, not to repossess the home until payments are three months delinquent,
unless the borrower has no apparent ability to bring payments current, in which
case repossession may occur sooner. The Company generally follows the same
policy with respect to loans insured by the FHA or guaranteed by the VA,
although the Company must also file a notice of claim within nine months after
default with the agency to preserve its rights under the programs.

The following table sets forth delinquent installment sales contracts as a
percentage of the total number of installment sales contracts on which the
Company provided servicing and was either contingently liable or owner. A
contract is considered delinquent if any payment is past-due 30 days or more.



                                       7
<PAGE>   8



<TABLE>
<CAPTION>
                                                                            DELINQUENCY PERCENTAGE AT JUNE 30,
                                                                               1998                    1997         1996
                                                                               -----                   ----         ----
                                                                   *Including          Excluding
                                                                      Access             Access
                                                                      ------             ------
<S>                                                                <C>                 <C>             <C>          <C>
         Total delinquencies as percentage of
            contacts outstanding
            All contracts.....................................         3.34%              2.16%         2.08%       2.04%
            Contracts originated by VMF ......................         1.98               1.98          1.99        1.88
            Contracts acquired from other institutions........         8.68               3.26          2.68        3.04
</TABLE>

The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the Company is
either owner or contingently liable:

<TABLE>
<CAPTION>
                                                                       LOAN LOSS/REPOSSESSION EXPERIENCE
                                                                        AT OR FOR THE YEAR ENDED JUNE 30,
                                                                         1998               1997        1996
                                                                         ----               ----        ----
                                                              *Including     Excluding
                                                                 Access        Access
                                                                 ------        ------  
<S>                                                           <C>            <C>            <C>         <C> 
         Net losses as percentage of average loans outstanding:
            All contracts ....................................     0.8%           0.8%       0.2%       0.3%
            Contracts originated by VMF ......................     0.8%           0.8%       0.0%       0.0%
            Contracts acquired from other institutions .......     1.8%           1.7%       1.8%       1.4%

         Number of contracts in repossession:
            Total.............................................    1,682          1,343        937        709
            Contracts originated by VMF.......................    1,229          1,229        885        635
            Contracts acquired from other institutions........      453            114         52         74

         Total number of contracts in repossession
            as percentage of total contracts..................    1.54%          1.33%      0.87%      0.96%
</TABLE>

         * In the month of May, the Company purchased $245 million in loans from
Access Financial Lending Corporation  (Access) and contracted to service an 
additional $267 million - for a total of $512 million in servicing.

Generally, the Company pays off the related installment sales contract upon
repossession of a home and then resells the home. The Company believes that as
long as it is able to sell repossessed homes at satisfactory margins, the
increased repossession costs associated with payoffs of installment sales
contracts will be largely offset by resales of repossessed homes. There can be
no assurance that the Company's future results with respect to the payoff and
resale of repossessed homes will be consistent with its past experience. See
Note 6 to the Consolidated Financial Statements in the Company's Annual Report
to Shareholders.

INSURANCE OPERATIONS. The Company acts as agent on physical damage, family
protection, and home buyer protection plan insurance policies written by
unaffiliated insurance companies (ceding companies) for purchasers of its
manufactured homes. During the fiscal year ended June 30, 1998, the Company
acted as the agent on physical damage, family protection, and home buyer
protection policies on approximately 71%, 54%, and 77%, respectively, of Company
retail sales. Physical damage and home buyer protection plan policies issued
through the Company's agency are reinsured through Vanderbilt Property and
Casualty Insurance Co., LTD (VPAC), a wholly-owned subsidiary of the Company.

The family protection insurance policies issued through the Company's agency are
reinsured through Vanderbilt Life and Casualty Insurance Co., LTD, (VLAC),
Midland States Life Insurance Company (MSLC) and Eastern States Life Insurance
Company (ESLC), which are majority-owned subsidiaries of the Company.

MANUFACTURED HOUSING COMMUNITIES

In fiscal 1998 the Communities group acquired 945 sites in 4 communities and
developed 222 sites at existing communities, bringing total sites owned to
18,964 at June 30, 1998, a 7% increase from the prior 



                                       8

<PAGE>   9


year. See "Item 2. Properties." The following table lists the number of
community sites owned and the aggregate occupancy rate at the end of the last
three fiscal years: 

<TABLE>
<CAPTION>
                                                           JUNE 30, 
                                                   1998      1997      1996 
                                                   ----      ----      ----
<S>                                               <C>       <C>       <C>
         Home sites owned .....................   18,964    17,797    16,780 
         Occupancy rate .......................       72%       70%       64%
</TABLE>

REGULATION

The Company's manufactured homes are subject to a number of federal, state and
local laws. Construction of manufactured housing is governed by the National
Mobile Home Construction and Safety Standards Act of 1974. In 1976, the
Department of Housing and Urban Development (HUD) issued regulations under this
Act establishing comprehensive national construction standards. The HUD
regulations cover all aspects of manufactured home construction, including
structural integrity, fire safety, wind loads and thermal protection. The
Company's manufacturing facilities and the plans and specifications for its
manufactured homes have been approved by a HUD-designated inspection agency. A
HUD-approved organization regularly inspects the Company's manufactured homes
for compliance during construction. Failure to comply with the HUD regulations
could expose the Company to a wide variety of sanctions, including closing the
Company's plants. The Company believes the homes it manufactures comply with all
present HUD requirements. In addition, certain components of manufactured homes
are subject to regulation by the Consumer Product Safety Commission which is
empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require the manufacturer to repair
defects in components in its homes. In February 1983, the Federal Trade
Commission adopted regulations requiring disclosure of a manufactured home's
insulation specifications.

A variety of laws affect the sale of manufactured homes on credit by the
Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z (issued by the Board of Governors of the Federal Reserve System)
require written disclosure of information relative to such credit sales,
including the amount of the annual percentage rate and the finance charge. The
Federal Fair Credit Reporting Act also requires disclosure of certain
information used as a basis to deny credit. The Federal Equal Credit Opportunity
Act and Regulation B (issued by the Board of Governors of the Federal Reserve
System) prohibit discrimination against any credit applicant based on sex,
marital status, race, color, religion, national origin, age (provided the
applicant has the capacity to contract), receipt of income from any public
assistance program or the good faith exercise by the applicant of any right
under the Consumer Credit Protection Act. Regulation B establishes
administrative requirements for compliance with the Equal Credit Opportunity Act
and, among other things, requires the Company to provide a customer whose credit
request has been denied with a statement of reasons for the denial. The Federal
Trade Commission has issued or proposed various Trade Regulation Rules dealing
with unfair credit practices, collection efforts, preservation of consumers'
claims and defenses and the like. Installment sales contracts eligible for
inclusion in the GNMA Program are subject to credit underwriting requirements of
the FHA or the VA.

The movement and use of the Company's manufactured homes are subject to highway
use laws, ordinances and regulations of various federal, state and local
authorities. Such regulations may prescribe size and road use limitations and
impose lower than normal speed limits and various other requirements. The
Company's manufactured homes and its development of manufactured housing
communities are also subject to local zoning and housing regulations.

The Company is subject to the Magnuson-Moss Warranty Improvement Act which
regulates the descriptions of warranties on products. The description and
substance of the Company's warranties are also subject to a variety of state
laws and regulations. Insurance agency activities are subject to state insurance
laws and regulations as determined by the particular insurance commissioner for
each state in accordance with the McCarran-Ferguson Act. Sales practices are
governed at both the federal and state level through various consumer
protection, trade practices and public accommodation laws and regulations.

VPAC and VLAC are subject to insurance and other regulations of the British
Virgin Islands. MSLC and ESLC are subject to insurance and other regulations of
the Turks and Caicos Islands.



                                       9

<PAGE>   10


COMPETITION

The manufactured housing industry is highly competitive at the manufacturing,
retail, and finance levels in terms of price, service, delivery capabilities and
product performance. There are many firms in direct competition with the
Company. The Company believes it has a competitive advantage over firms which do
not have manufacturing, retailing and financing capabilities. Since the
Company's homes are a form of low-cost housing, they compete with other forms of
such housing including apartments and conventionally-built and prefabricated
homes. Some of the Company's competitors are larger and have significant
financial resources while other competitors are quite small in relation to the
size of the Company. The capital requirements for entry into both the
manufacturing and retail levels are relatively small, with retail and inventory
financing generally available to a prospective retailer. The Company is not able
to estimate the total number of competitors in its marketing area.


EMPLOYEES

As of June 30, 1998, the Company employed 6,703 persons. Of these, 1,818 were
employed in retail sales, 3,929 in manufacturing, 492 in financial services, 392
in communities and 72 in executive and administrative positions. The Company
does not have any collective bargaining agreements and considers its employee
relations to be good.

ITEM 2. PROPERTIES.

The Company's Financial Services operations and executive offices are located in
Knoxville, Tennessee in a wholly-owned two-story building with 135,000 square
feet of space. The following table sets forth the properties which the Company
uses for its manufacturing operations and locations of its manufactured housing
communities. All of the buildings used for manufacturing operations are
constructed of fabricated metal on a concrete slab.

LOCATION OF PROPERTY


<TABLE>
<CAPTION>
MANUFACTURING OPERATIONS    APPROXIMATE      MANUFACTURING OPERATIONS            APPROXIMATE 
                            SQUARE FEET                                          SQUARE FEET 
<S>                         <C>              <C>                                 <C>
  Owned by company                             Owned by company                              
                                                                                             
    Georgia                                      Tennessee (continued)                       
             Waycross         100,000                     Bean Station #1           114,000  
    North Carolina                                        Bean Station #2           137,000  
             Henderson        112,000                     Andersonville             128,000  
             Oxford            92,000                     White Pine                137,000  
             Richfield        194,000            Texas                                       
    Tennessee                                             Waco #1                   148,000  
             Maynardville     110,000                     Waco #2                    99,000  
             Savannah #1      104,000                     Bonham                    117,000  
             Savannah #2      109,000                     Sulphur Springs           113,000  
             Ardmore          100,000          Leased                                        
             Rutledge          87,000            Halls, Tennessee                    63,000  
                                             
</TABLE>




                                       10


<PAGE>   11


<TABLE>
<CAPTION>
COMMUNITIES                        APPROXIMATE       COMMUNITIES                        APPROXIMATE
                                      ACRES                                                ACRES   
<S>                                <C>               <C>                                <C>
  Owned by company                                     Owned by company                            
                                                                                                   
    Arizona                                              Tennessee                                 
             Glendale                   14                        Farragut                   23    
             Mirage                     35                        Knoxville (3)             147    
             Phoenix                    47                        LaVergne                   76    
    Florida                                                       Millington                 29    
             Gainesville (2)           132                        Morristown                 12    
             Jacksonville (5)          334                        Maryville (2)              67    
             Kissimmee                  41                        Powell                     23    
             Mulberry (2)               91                        Rockford                   13    
             Princeton                  37                        Smyrna                     26    
             Tallahassee                39                        Tullahoma                  18    
    Georgia                                              Texas                                     
             Douglasville (2)           97                        Arlington                  43    
    Iowa                                                          Dallas (2)                 84    
             Carter Lake                41                        Denton (3)                201    
    Michigan                                                      Fort Worth (4)            142    
             Kalamazoo                 126                        Flower Mound               18    
    Missouri                                                      Greenville                 25    
             Independence               90                        Houston (3)               142    
    North Carolina                                                Humble                     55    
             Greensboro                 83                        Little Elm                 48    
    Oklahoma                                                      Mesquite                   27    
             Edmond                     37                        Pearland                   30    
             Midwest City               25                        San Angelo                 90    
             Norman                     44                        San Antonio (4)           206    
             Oklahoma City (2)         116                        Schertz                    71    
    South Carolina                                                Wylie (2)                 179    
             Columbia                   97               Virginia                                  
             Florence (2)               97                        Evington                   70    
                                                                  Blacksburg                 38    
                                                     
</TABLE>


The Company-owned retail centers are generally one to four acre sites with a
manufactured office unit serving as the sales office. The balance of a retail
center site is devoted to the display of homes. Of the 273 retail centers, 131
are owned and 142 occupy leased property. The Company does not believe that any
of the property owned or leased for an individual retail center is material to
its overall business.

All of the properties described above are well maintained, adequately insured
and suitable for the purposes for which they are being used by the Company. The
Company believes that its properties are adequate for its near-term needs.

ITEM 3.  LEGAL PROCEEDINGS.

No material legal proceedings are pending other than routine litigation
incidental to the business of the Company. The Company believes that such
proceedings will not have any material adverse effect on it or its operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

No matters were submitted to shareholders during the last quarter of the fiscal
year.





                                       11
<PAGE>   12


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 
         MATTERS.

(a) The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth, for the period from July 1, 1997 to June 30, 1998,
the range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.

<TABLE>
<CAPTION>
                                                 Fiscal                     Fiscal
                                                  1998                       1997
                                                  ----                       ----   
               Quarter Ended                High         Low           High          Low
<S>                                         <C>         <C>           <C>          <C>
                  September                 $18.75      $14.25        $17.90       $13.80
                  December                   19.44       15.75         17.20        12.60
                  March                      21.31       16.25         15.38        13.00
                  June                       22.38       17.06         15.25        12.63
</TABLE>

(b) As of August 31, 1998, there were 12,023 holders of record (approximately
64,000 beneficial holders) of the Company's Common Stock.

(c) It is the policy of the Board of Directors of the Company to reinvest
substantially all earnings in the business. The Board of Directors initiated the
payment of cash dividends at the November 9, 1994 shareholders meeting of $.02
per share per quarter. Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Board of Directors. Additionally, certain of the Company's
financing agreements have various covenants that restrict payments which may be
made for dividends and other stock transactions.

The following portions of the Company's 1998 Annual Report to Shareholders are
incorporated herein by reference (page number references are to Annual Report):

ITEM 6.  SELECTED FINANCIAL DATA.
Eleven Year Review on page 12.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of 
Operations on pages 13-15.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 - Quarterly Results (unaudited) on page 15.
 - Report of Independent Accountants on page 16.
 - Consolidated Balance Sheets on page 16.
 - Consolidated Statements of Income on page 17.
 - Consolidated Statements of Shareholders' Equity on page 17.
 - Consolidated Statements of Cash Flows on page 18.
 - Notes to the Consolidated Financial Statements on pages 19-24.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.
Not applicable.






                                       12
<PAGE>   13


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
Name                       Age      Position
<S>                        <C>      <C>
James L. Clayton            64      Chairman of the Board and Chief Executive Officer

Kevin T. Clayton            35      President, Chief Operating Officer and President, Financial Services (a)

David M. Booth              45      Executive Vice President and President, Retail Group

Richard D. Strachan         56      Vice President and President, Manufacturing Group (b)

Paul W. Boyd                40      Treasurer (c)

Amber W. Krupacs            34      Vice President, Finance and Secretary (d)

Greg A. Hamilton            40      Vice President and Controller (e)
</TABLE>


(a) Mr. K. T. Clayton has been President of Financial Services since 1995. Prior
to that time, he served in various management positions with the Company. In
August 1997, he was named President and Chief Operating Officer of the Company.

(b) Prior to joining the Company in 1994, Mr. Strachan was President and Chief
Operating Officer of the Visador Company from 1989 to 1994. He was named Vice
President of the Company and President of the Manufacturing Group in August
1997.

(c) Mr. Boyd joined the Company in April 1996 as Director of Finance. From 1994
to 1995, he served as Senior Vice President of Victoria Bankshares, Inc. From
1989 to 1994, he served as Senior Vice President and Chief Financial Officer of
FNB Financial Corporation, a Tennessee bank holding company. In August 1997, he
was named Treasurer of the Company.

(d) Ms. Krupacs joined the Company in December 1993 as Tax Manager. From 1987 to
1993, she served in various positions with Coopers & Lybrand LLP, including Tax
Manager. In August 1998, she was named Vice President, Finance and Secretary of
the Company.

(e) Mr. Hamilton joined the Company in February 1997 as Corporate Controller.
From 1984 to 1997, he served in various finance and accounting positions with
Philips Consumer Electronics Company including Director of Finance and Business
Planning, 1995-1997; Sales and Marketing Controller, 1994-1995; and Controller,
Professional/Commercial Sales and Purchased Product Marketing, 1993-1994. In
August 1998, he was named Vice President and Controller of the Company.

All other officers have been in their positions for at least five years.

The Company's executive officers serve at the pleasure of the Board of
Directors.

All other required information is incorporated by reference to the Company's
Proxy Statement under the heading ELECTION OF DIRECTORS.

ITEM 11.  EXECUTIVE COMPENSATION.
Incorporated by reference to the Company's Proxy Statement under the heading
COMPENSATION OF MANAGEMENT TABLE.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Company's Proxy Statement under the headings
ELECTION OF DIRECTORS and 




                                       13
<PAGE>   14


PRINCIPAL SHAREHOLDER THEREOF; SECURITY OWNERSHIP OF MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Company's Proxy Statement.






                                       14
<PAGE>   15


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

  (a) The following documents are filed as part of this report:

<TABLE>
<S>                        <C>
         1.  Financial Statements: (Included in Annual Report - Exhibit 13).

                           The following Consolidated Financial Statements of Clayton Homes, Inc. and its 
                           subsidiaries included in Part II, Item 8 are incorporated by reference to the
                           1998 Annual Report to Shareholders for the year ended June 30, 1998.

                           Report of Independent Accountants.

                           Consolidated Balance Sheets - June 30, 1998 and 1997.

                           Consolidated Statements of Income - years ended June 30, 1998, 1997 and 1996.

                           Consolidated Statements of Shareholders' Equity - years ended June 30, 1998, 1997
                           and 1996.

                           Consolidated Statements of Cash Flows - years ended June 30, 1998, 1997 and 1996.

                           Notes to the Consolidated Financial Statements.

         3.  Exhibits:

                     3.     (a) Restated charter as amended. (E)

                            (b) Bylaws. (G)

                     4.     (a) Specimen stock certificates. (G)

                            (b) The Company agrees to furnish to the Commission, upon request, instruments 
                                relating to the long term debt of the Company or its subsidiaries.

                    10.     (a) Lease Agreement, dated June 29, 1972, as amended, between Clayton Homes, 
                                Inc. and Dean Planters Warehouse, Inc. (A) (subsequently assigned to CLF, 
                                a limited partnership which includes a related party).

                           *(b) Clayton Homes, Inc. 1983 and 1985 Stock Option Plan. (C)

                           *(c) 1991 Employees Stock Incentive Plan. (C)

                           *(d) Clayton Homes, Inc. 1997 Employees Stock Incentive Plan. (F)

                           *(e) Director's Equity Plan. (G)

                           *(f) Director's Equity Plan. (G)

                           *(g) Director's Equity Plan. (C)

                           *(h) Director's Equity Plan. (D)

                           *(i) 1996 Outside Directors Equity Plan. (E)

                           *(j) Description of Clayton Homes, Inc. bonus arrangement for key executives. (C)
</TABLE>


                                       15


<PAGE>   16
<TABLE>
<S>                        <C>
                  13.      Annual Report to Shareholders for year ended June 30, 1998. (B)

                  21.      List of Subsidiaries of the Registrant.

                  23.      Consent of independent accountants.

                  27.      Financial Data Schedule (for SEC use only).
</TABLE>
----------------------------------------------------------------

(A) Filed as Exhibits to Registration Statement on Form S-1(SEC File No.
    2-83705) and incorporated by reference thereto.

(B) For the information of the Commission only, except to the extent of portions
    specifically incorporated by reference.

(C) Filed with the Company's Proxy Statement for the Annual Meeting of
    Shareholders held November 10, 1993, and incorporated by reference thereto.

(D) Filed with the Company's Proxy Statement for the Annual Meeting of
    Shareholders held November 9, 1994, and incorporated by reference thereto.

(E) Filed with the Company's Proxy Statement for the Annual Meeting of
    Shareholders held November 14, 1996, and incorporated by reference thereto.

(F) Filed with the Company's Proxy Statement for the Annual Meeting of
    Shareholders held November 12, 1997, and incorporated by reference thereto.

(G) Filed in electronic format only. The Company will provide full written
    copies of the exhibits to any eligible shareholder who may request them.
    Request for copies should be mailed to Clayton Homes, Inc., Attn. Investor
    Relations, Box 15169, Knoxville, TN 37901.

 *  Management and Director's Compensation plans.

--------------------------------------------------------------------------------
(b)  Reports on Form 8-K.
     Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. Senior Subordinate 
     Pass-Through Certificates Series 1998.  Filed May 26, 1998.











                                       16




<PAGE>   17


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Knoxville,
State of Tennessee, on September 21, 1998

                                         CLAYTON HOMES, INC.

                                         By: /s/ Kevin T. Clayton
                                         -------------------------------------
                                         Kevin T. Clayton
                                         President, Chief Operating Officer
                                         and President, Financial Services

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


<TABLE>
<S>                                      <C>                            <C>
/s/ James L. Clayton                     September 21, 1998             Chairman of the Board and
------------------------------------                                    Chief Executive Officer 
James L. Clayton                                                        (Principal Executive Officer)
                                                                        

/s/ Kevin T. Clayton                     September 21, 1998             President, Chief Operating Officer
------------------------------------                                    and President, Financial Services
Kevin T. Clayton                                                   


/s/ Amber W. Krupacs                     September 21, 1998             Vice President, Finance
------------------------------------                                    and Secretary 
Amber W. Krupacs                                                   


/s/ Greg A. Hamilton                     September 21, 1998             Vice President
------------------------------------                                    and Controller 
Greg A. Hamilton                                                        


/s/ B. Joe Clayton                       September 21, 1998             Director
------------------------------------
B. Joe Clayton


/s/ James D. Cockman                     September 21, 1998             Director
------------------------------------
James D. Cockman


/s/ Dan W. Evins                         September 21, 1998             Director
------------------------------------
Dan W. Evins


/s/ Wilma H. Jordan                      September 21, 1998             Director
------------------------------------
Wilma H. Jordan


/s/ Thomas N. McAdams                    September 21, 1998             Director
------------------------------------
Thomas N. McAdams


/s/ C. Warren Neel                       September 21, 1998             Director
------------------------------------
C. Warren Neel
</TABLE>



                                       17