<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, 1997

                                       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)

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


623 Market Street
Knoxville, Tennessee                                    37902
--------------------------------------------          -------------------------
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code: 423-970-7200
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.  [ ]

Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 31, 1997, was approximately $1,446,741,684 (86,051,550
shares at closing price on the NYSE of $16.8125). For this purpose all shares
beneficially held by executive officers and the Board of Directors of the
Registrant are shares owned by "affiliates," a status which each of the officers
and directors individually disclaims.

Shares of common stock, $.10 par value, outstanding on August 31, 1997, were
118,689,342.

Exhibit index appears on pages 15-16.

                      DOCUMENTS INCORPORATED BY REFERENCE


Part of                             Documents from which portions are 
Form 10-K                           incorporated by reference
---------                           -------------------------------------
Part II (except for Item 5)      
                                    Annual Report to Shareholders for 
                                    fiscal year ended June 30, 1997

Part III                            Proxy Statement relating to Company's
                                    Annual Meeting of Shareholders on 
                                    November 12, 1997




                                       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 17
manufacturing plants produce homes which are marketed in 28 states through 975
retailers, of which 245 are Company-owned sales centers and 67 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. 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,
                                                       1997    1996     1995
                                                       ----    ----     ----
     <S>                                               <C>     <C>      <C> 
     SALES BY COMPANY-OWNED RETAIL CENTERS
      AND COMMUNITIES...............................    52%     52%      53%
     SALES TO INDEPENDENT RETAILERS.................    28%     30%      29%
     FINANCIAL SERVICES AND OTHER...................    20%     18%      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
2,150 square feet.

The Company markets homes under a variety of model names. Homes include as
standard equipment 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 17 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 one in Bonham 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 34,000 homes per year.
During the fiscal year ended June 30, 1997, the Company produced 25,830 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, 1997, and June 30, 1996, amounted to
approximately $12,308,000 and $12,343,000, respectively.

The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $40,500,000 and
$30,800,000 on June 30, 1997, and 1996, respectively. Based on the Company's
production rate, approximately four weeks would be required to fill backlog
orders at June 30, 1997.

SALES OF HOMES MANUFACTURED BY THE COMPANY

The following table sets forth manufacturing sales data for 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, 
                                                               1997    1996       1995
                                                               ----    ----       ----
<S>                                                           <C>     <C>        <C>   
NUMBER OF HOMES SOLD TO INDEPENDENT RETAILERS...............  14,375  14,068     11,025
NUMBER OF HOMES SHIPPED TO COMPANY-OWNED RETAIL CENTERS ....  11,455  10,613      7,917
                                                              ------  ------     ------
TOTAL.......................................................  25,830  24,681     18,942
                                                              ======  ======     ======
NUMBER OF PLANTS OPERATING..................................      17      17         16
NUMBER OF INDEPENDENT RETAILERS.............................     663     580        421
NUMBER OF COMPANY-OWNED COMMUNITIES.........................      67      64         55
NUMBER OF COMPANY-OWNED RETAIL CENTERS......................     245     216        192
</TABLE>

COMPANY RETAIL OPERATIONS

As of June 30, 1997, the Company sold homes through 245 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.

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



                                       3


<PAGE>   4



<TABLE>
<CAPTION>
                                                         YEAR ENDED JUNE 30,
                                                     1997       1996       1995
                                                     ----       ----       ----
     <S>                                           <C>        <C>        <C>  
     NUMBER OF COMPANY-OWNED CENTERS.............      245        216        192
     NUMBER OF NEW HOMES SOLD (INCLUDING HOMES
       BUILT BY THE COMPANY AND BY OTHER
       MANUFACTURERS)............................   13,425     12,750     11,352
     AVERAGE RETAIL PRICE OF NEW HOMES SOLD......  $34,209    $33,043    $30,565
     NUMBER OF PREVIOUSLY-OWNED HOMES SOLD.......    3,621      3,039      2,746
</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 home owners'
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 purchaser's site. Electrical, water, and gas connections are
performed by licensed technicians.

INDEPENDENT RETAILERS

In the years ended June 30, 1997, and 1996, 56% and 57%, respectively, of homes
manufactured by the Company were sold to its independent retailers. As of June
30, 1997, the Company had 663 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, Vanderbilt Mortgage and Finance, Inc. (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 relations with independent retailers are good, and has experienced
relatively little turnover among independent retailers in the past five 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 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.

                                       4


<PAGE>   5


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 the Company's 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,
                                                   1997     1996     1995
                                                   ----     ----     ----
     <S>                                           <C>      <C>      <C> 
     VMF........................................    77%      76%      72%
     CONVENTIONAL LENDERS.......................     3%       5%       5%
     CUSTOMER ARRANGED OR CASH..................    20%      19%      23%
                                                   ----     ----     ----
     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 retailers not owned by the Company. 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 history,
residence history, 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 retailer 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 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 five 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.


                                       5


<PAGE>   6


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 ten fiscal years, VMF was the most significant source of
financing for purchasers of homes sold by the Company's retail locations. In
fiscal 1988, VMF originated 5,692 contracts and in fiscal 1997, VMF originated
21,691 contracts. At June 30, 1997, VMF was servicing approximately 102,000
contracts with an aggregate dollar amount of $2,044 million of which VMF has
ownership interest or contingent liability on approximately 87,000 contracts
with an aggregate dollar amount of $1,910 million. 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,
                                      1997          1996          1995
                                      ----          ----          ----
<S>                                <C>            <C>           <C>     
PRINCIPAL BALANCE OF CONTRACTS
 ORIGINATED (IN THOUSANDS)........ $646,624       $476,467      $345,260
NUMBER OF CONTRACTS ORIGINATED....   21,691         16,910        13,857
AVERAGE CONTRACT SIZE ............ $ 29,811       $ 28,177      $ 24,916
AVERAGE INTEREST RATE ............    11.10%         10.72%        12.24%
</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,
                                          1997          1996           1995
                                          ----          ----           ----
<S>                                     <C>            <C>           <C>   
TOTAL NUMBER OF CONTRACTS BEING
    SERVICED.........................   87,126         74,154        66,960
    ORIGINATED BY VMF................   76,403         64,298        55,923
    ACQUIRED FROM OTHER
     INSTITUTIONS....................   10,723          9,856        11,037
</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 1997, the Company completed
four public offerings of asset-backed securities totaling $756 million. In
excess of $1.9 billion of securities has been issued and sold since 1991.

SECURITIZATIONS. VMF maintains long-term committed credit facilities and other
arrangements or relationships with institutional investors. It acts as a
permanent lender on certain conventional loans in that it holds these loans as
long-term receivables, pledging them as collateral for borrowings. VMF also
permanently funds conventional loans by pooling them for sale to institutional
investors. Proceeds of both sources of funding are principally used to repay
short-term borrowings. VMF retains servicing in both cases.

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 $1,000,000 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, 1997, VMF
originated installment sales contracts eligible for financing under the GNMA
program having aggregate principal balances of $20 million. As of June 30, 1997,
VMF was servicing 268 GNMA pools totaling $182 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,



                                       6
<PAGE>   7

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 $33 million as of June 30, 1997.
See Note 6 to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders.

The interest rates on 99% of the long-term credit facilities or the pass-through
certificates representing ownership of the pools are fixed or have adjustable
rates with ceilings, while the remaining 1% have variable rates which provide
for no minimum or maximum rate of interest. VMF attempts to match liabilities
and assets as to both term and rate. This reduces loss exposure from interest
rate fluctuations. VMF uses a number of techniques to achieve this result,
principally by pricing its fixed rate receivables at or above the maximum rate
allowed under such arrangements. When loans are funded under arrangements which
do not have a maximum rate, the Company attempts to price these loans at or
above forecasted interest rates. The Company minimizes the use of credit
facilities which do not carry a maximum rate.

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.
Generally, the Company's and VMF's existing borrowing arrangements do not
provide for interest rate hedging.

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 1992 and 1994, VMF became the servicer of 15,409 and 20,180
manufactured housing installment sales contracts with approximate principal
balances of $199 million and $285 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, 1997, VMF was
servicing approximately 14,769 of these installment sales contracts with an
approximate principal balance of $134 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,
                                                      1997     1996     1995     
                                                      ----     ----     ----     
<S>                                                   <C>      <C>      <C>  
TOTAL DELINQUENCIES AS PERCENTAGE OF
CONTRACTS OUTSTANDING:
  ALL CONTRACTS................................       2.08%    2.04%    2.03%
  CONTRACTS ORIGINATED BY VMF..................       1.99     1.88     1.67
  CONTRACTS ACQUIRED FROM OTHER INSTITUTIONS...       2.68     3.04     4.04
</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,

                                                   1997       1996      1995
                                                   ----       ----      ----
 <S>                                               <C>        <C>       <C> 
 NET LOSSES AS PERCENTAGE OF
 AVERAGE LOANS OUTSTANDING:
  ALL CONTRACTS................................     0.2%       0.3%      0.2%
  CONTRACTS ORIGINATED BY VMF..................     0.0%       0.0%      0.0%
  CONTRACTS ACQUIRED FROM OTHER INSTITUTIONS...     1.8%       1.4%      1.4%

 NUMBER OF CONTRACTS IN REPOSSESSION:
  TOTAL........................................     755        709       540
  CONTRACTS ORIGINATED BY VMF..................     703        635       422
  CONTRACTS ACQUIRED FROM OTHER INSTITUTIONS...      52         74       118

 TOTAL NUMBER OF CONTRACTS IN REPOSSESSION AS
 PERCENTAGE OF TOTAL CONTRACTS.................    0.87%      0.96%     0.81%
</TABLE>

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. See Note 6 to
the Consolidated Financial Statements in the Company's Annual Report to
Shareholders. 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.

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, 1997, the Company
acted as the agent on physical damage, family protection, and home buyer
protection policies on approximately 71%, 56%, and 74%, 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 1997 the Communities group acquired 964 sites in 4 communities and
developed 48 sites at existing communities, bringing total sites owned to 17,797
at June 30, 1997, a 6% increase from the prior 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:




                                       8
<PAGE>   9

<TABLE>
<CAPTION>
                                              JUNE 30,
                                     1997       1996         1995
                                    ------     ------       ------
     <S>                            <C>        <C>          <C>   
     HOME SITES OWNED               17,797     16,780       15,541

     OCCUPANCY RATE                     70%        64%          68%
</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 specification.

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.

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 and
retail 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 fields
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, 1997, the Company employed 5,991 persons. Of these, 1,571 were
employed in retail sales, 3,590 in manufacturing, 361 in financial services, 413
in communities and 56 in executive and administrative positions. The Company
does not have any collective bargaining agreements and considers its employee
relations to be good.

SECTION 16 COMPLIANCE

For the fiscal year ended June 30, 1997, all Forms 3, 4 and 5, as required by
the Securities and Exchange Commission Rules under Section 16 of the Securities
Exchange Act of 1934, were filed on time.

ITEM 2. PROPERTIES.

The Company's Financial Services operations and executive offices are located in
Knoxville, Tennessee in several wholly-owned one-story buildings made up of
modular units (built by the Bean Station single-section plant) which total
approximately 38,000 square feet of office space and approximately 16,000 square
feet in an office building owned previously 50% by the Company and 50% by a
related party. On June 30, 1997, the Company converted its ownership in the
office building into a leasehold interest in preparation for its relocation to
new Corporate facilities in fiscal year 1998. See "Item 13. Certain
Relationships and Related Transactions." 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
  Owned by company                                              Owned by company

<S>                                 <C>                       <C>                                 <C>
         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            Leased      
                  Ardmore                    100,000                    Halls, Tennessee                63,000
                  Rutledge                    87,000
</TABLE>



                                       10
<PAGE>   11



<TABLE>
<CAPTION>
   COMMUNITIES                            APPROXIMATE      COMMUNITIES                          APPROXIMATE 
                                             ACRES                                                    ACRES
     Owned by company                                      Owned by company
   <S>                                    <C>              <C>                                  <C>
        Arizona                                                Tennessee                                  
                  Glendale                     14                       Farragut                         23     
                  Mirage                       35                       Knoxville (3)                   147     
                  Phoenix                      47                       LaVergne                         76     
        Florida                                                         Millington                       29     
                  Gainesville (2)             132                       Morristown                       12     
                  Jacksonville (4)            254                       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)                     115     
        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     
                  Florence                     50              Virginia                                         
                                                                        Evington                         70     
</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 245 retail centers, 109
are owned and 136 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, 1995 to June 30, 1997,
the range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.

<TABLE>
<CAPTION>
                                 FISCAL                   FISCAL
                                  1997                     1996
                                  ----                     ----
     QUARTER ENDED          HIGH        LOW         HIGH           LOW

     <S>                   <C>        <C>          <C>           <C>   
     SEPTEMBER             $17.90     $13.80       $15.60        $10.56
     DECEMBER               17.20      12.60        18.64         14.96
     MARCH                  15.38      13.00        17.70         14.70
     JUNE                   15.25      12.63        16.90         14.30
</TABLE>

(b) As of August 31, 1997, there were 9,152 holders of record (approximately
54,000 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 its 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 1997 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           63        CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE 
                                     OFFICER

JOSEPH H. STEGMAYER        46        VICE CHAIRMAN OF THE BOARD AND CHAIRMAN OF
                                     THE EXECUTIVE COMMITTEE (a)

KEVIN T. CLAYTON           34        PRESIDENT AND PRESIDENT - FINANCIAL 
                                     SERVICES (b)

DAVID M. BOOTH             44        EXECUTIVE VICE PRESIDENT AND PRESIDENT - 
                                     RETAIL GROUP

JOHN J. KALEC              47        SENIOR VICE PRESIDENT, CHIEF FINANCIAL 
                                     OFFICER AND SECRETARY (PRINCIPAL 
                                     ACCOUNTING OFFICER) (c)

RICHARD D. STRACHAN        55        VICE PRESIDENT AND PRESIDENT - 
                                     MANUFACTURING GROUP (d)

PAUL W. BOYD               39        TREASURER (e)
</TABLE>


(a) Mr. Stegmayer joined the Company in July 1993 as President and Chief
Operating Officer. From 1982 to July 1993, he served as Vice President, Chief
Financial Officer, Treasurer and Director of Worthington Industries, Inc. In
August 1997, he was elected Vice Chairman of the Company.

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

(c) Mr. Kalec joined the Company in September 1996 as Vice President and Chief
Financial Officer. From 1973 to 1996, he served in various senior level finance
and accounting positions with Philips Electronics, including Managing Director
Finance and Accounting for Philips Components, B.V. in the Netherlands, 1992-96;
and Senior Vice President and Chief Financial Officer for U.S. Philips Consumer
Electronics, 1985-1992. In August 1997, he was named Senior Vice President,
Chief Financial Officer and Secretary.

(d) 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.

(e) 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.

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.







                                       13
<PAGE>   14

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 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:

     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 1997 Annual Report to
                 Shareholders for the year ended June 30, 1997.

                 Report of Independent Accountants.

                 Consolidated Balance Sheets - June 30, 1997 and 1996.

                 Consolidated Statements of Income - years ended June 30, 1997,
                 1996 and 1995.

                 Consolidated Statements of Shareholders' Equity - years ended
                 June 30, 1997, 1996 and 1995.

                 Consolidated Statements of Cash Flows - years ended June 30,
                 1997, 1996 and 1995.

                 Notes to the Consolidated Financial Statements.

     3.  Exhibits:

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

                 (b) Bylaws. (B)

                 (c) Amendment to Bylaws. (A)

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

                 (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) Form of shareholders' agreement between Clayton
                 Homes, Inc. and Progressive Partners. (B)

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

                 (c) Clayton Homes, Inc. 1983 Stock Option Plan. (B)

                 (d) Clayton Homes, Inc. 1985 Stock Option Plan. (F)

                 (e) 1991 Employee Stock Incentive Plan. (G)

                 (f) Directors' Equity Plan. (G)

                 (g) Directors' Equity Plan. (H)

                 (h) Directors' Equity Plan. (I)

                 (i) Clayton Homes, Inc. Employee Savings Plan and 
                 Partnership. (C)

                 (j) Description of Clayton Homes, Inc. bonus arrangement for
                 key executives. (I)



                                       15
<PAGE>   16

           13.  Annual Report to Shareholders for year ended June
                30, 1997. (D)

           21.  List of Subsidiaries of the Registrant.

           23.  Consent of independent accountants.

           27.  Financial Data Schedule (for SEC use only)

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

(A)  Filed with the Company's Form 10-K for the year ended June 30, 1992, and
     incorporated by reference thereto.

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

(C)  Filed with Registration Statement on Form S-1(SEC File No. 2-92565) and
     incorporated by reference thereto.

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

(E)  Filed as Exhibits to Registration Statement on Form S-1(SEC File No.
     33-2665) and incorporated by reference thereto.

(F)  Filed with the Company's Proxy Statement for the Annual Meeting of
     Shareholders held November 4, 1985, and incorporated by reference thereto.

(G)  Filed with the Company's Proxy Statement for the Annual Meeting of
     Shareholders held November 12, 1991, and incorporated by reference
     thereto.

(H)  Filed with the Company's Proxy Statement for the Annual Meeting of
     Shareholders held November 11, 1992, and incorporated by reference
     thereto.

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

-------------------------------
(b)  Reports on Form 8-K.
     No reports were filed in the Registrant's last quarter.














                                       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 23, 1997

                                         CLAYTON HOMES, INC.

                                         By: s/Joseph H. Stegmayer
                                         -------------------------
                                         Joseph H. Stegmayer
                                         Vice Chairman of the Board and
                                         Chairman of the Executive Committee

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 23, 1997        Chairman of the Board and
-----------------------                               James L. Clayton 
Chief Executive Officer                               (Principal Executive Officer)


/s/Joseph H. Stegmayer      September 23, 1997        Vice Chairman of the Board and
------------------------                              Chairman of the Executive
Joseph H. Stegmayer                                   Committee


/s/John J. Kalec            September 23, 1997        Senior Vice President and Chief
------------------------                              Financial Officer and Secretary
John J. Kalec                                         (Principal Financial Officer)


/s/B. Joe Clayton           September 23, 1997        Director
------------------------
B. Joe Clayton


/s/James D. Cockman         September 23, 1997        Director
------------------------
James D. Cockman


/s/Wallace C. Doud          September 23, 1997        Director
------------------------
Wallace C. Doud


/s/Dan W. Evins             September 23, 1997        Director
------------------------
Dan W. Evins


/s/Wilma H. Jordan          September 23, 1997        Director
------------------------
Wilma H. Jordan


/s/C. Warren Neel           September 23, 1997        Director
------------------------
C. Warren Neel
</TABLE>








                                       17