<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K


             |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

                         Commission File Number 2-54754

                              GATX Rail Corporation

Incorporated in the                         IRS Employer Identification Number
State of New York                                       36-2827991

                             500 West Monroe Street
                             Chicago, IL 60661-3676
                                 (312) 621-6200


           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                                      None


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 ____

         Registrant had 1,000 shares of common stock outstanding (all owned by
GATX Corporation) as of March 30, 2001.

         GATX Rail Corporation meets the conditions set forth in General
Instruction I (1)(a) and (b) of Form 10-K and, therefore, is filing this form
with the reduced disclosure format.


<PAGE>   2



PART I

Item 1.  Business
GATX Rail Corporation (GRC) is a wholly-owned subsidiary of GATX Corporation and
GATX Terminals Corporation (Terminals) is a wholly-owned subsidiary of GRC and
an indirect wholly-owned subsidiary of GATX Corporation. GRC, through its
operating segment GATX Rail (Rail), is engaged in the leasing and management of
railroad tank cars and specialized freight cars.

During 2000, GATX Corporation redefined its strategic focus and undertook
initiatives to position itself as a specialized finance and leasing company.
Terminals, which specializes in the storage and distribution of bulk petroleum
and chemical products, was targeted for divestiture to help accomplish this
goal. As a result, the financial data for Terminals is presented as discontinued
operations for all periods presented.

In November 2000, GATX reached an agreement to sell substantially all of the
U.S. terminals and pipeline assets, representing the bulk of Terminals'
operations. A portion of this transaction closed in March 2001 and the remainder
is expected to close following regulatory approval. GATX expects to complete the
divestiture of the remaining terminals and pipeline assets in 2001.

Industry Segments

                                      Rail

Rail is headquartered in Chicago, Illinois and is principally engaged in leasing
specialized railcars, primarily tank cars, under full service leases. As of
December 31, 2000, its North American fleet consisted of approximately 91,600
railcars, comprised of 70,000 tank cars and 21,600 specialized freight cars. In
addition to 79,800 railcars in the United States, Rail has 9,100 railcars in its
Canadian fleet and 2,700 railcars in its Mexican fleet. The utilization rate of
Rail's North American railcar fleet as of December 31, 2000 was approximately
93%. Rail's railcars have a depreciable life of 20 to 33 years and an average
age of approximately 16 years.

In addition to the North American fleet, Rail's investments in affiliated
companies result in ownership interests in two European fleets. Rail owns a 46%
interest in KVG Kesselwagen Vermietgesellschaft mbH, a German and Austrian-based
tank car and specialty railcar leasing company, and an 18.8% interest in AAE
Cargo, headquartered in Switzerland. In March 2001, a subsidiary of Rail
purchased Dyrekcja Eksploatacji Cystern (DEC), Poland's national tank car fleet
and fuel distribution company. DEC assets include 11,500 tank cars and a
maintenance network.

Rail's customers use its railcars to ship over 700 different commodities,
primarily chemicals, petroleum, and food products. For 2000, approximately 44%
of railcar leasing revenue was attributable to shipments of chemical products,
31% to food and other products, and 25% to petroleum products. Rail leases
railcars to over 700 customers, including major chemical, oil, food and
agricultural companies. No single customer accounts for more than 3% of total
railcar leasing revenue.

Rail typically leases new railcars to its customers for a term of five years or
longer, whereas renewals or leases of existing cars are typically for periods
ranging from less than a year to seven years with an average lease term of about
three years. Rail purchases most of its new railcars from Trinity Industries,
Inc., a Dallas-based metal products manufacturer. Under its full service leases,
Rail maintains and services its railcars, pays ad valorem taxes, and provides
many ancillary services. Rail also operates a network of major service centers
consisting of four domestic, four Canadian and one Mexican facility. To
supplement these nine major service centers, Rail utilizes a fleet of mobile
trucks and also utilizes independent third-party repair shops. Subsequent to
year-end 2000, Rail closed one of its service centers, located in East Chicago,
IN.

The full-service railcar leasing industry is comprised of Rail, Union Tank Car
Company, General Electric Railcar Services Corporation, and many smaller
companies. As of the end of 2000, Rail had 24% of the


                                       1

<PAGE>   3


271,100 tank cars owned and leased in the United States. Principal competitive
factors include price, service and availability.

                                      Other

External and intercompany financing activities are included in the Other
segment.

Customer Base

GRC and its subsidiaries are not dependent upon a single customer or a few
customers. The loss of any one customer would not have a material adverse effect
on any segment or GRC as a whole.

Employees

GRC and its subsidiaries have approximately 2,100 employees, of whom 40% are
hourly employees covered by union contracts. Employees for continuing operations
were approximately 1,200, of whom 50% are hourly employees covered by union
contracts.

Item 2.  Properties

Information regarding the location and general character of certain properties
of Rail is included in Item 1, Business, of this document. At December 31, 2000,
locations related to Rail are as follows:

HEADQUARTERS
Chicago, Illinois

<TABLE>
<S>                                      <C>                                    <C>
BUSINESS OFFICES:                        MINI SERVICE CENTERS:                  East Chicago, Indiana
Valencia, California                     Macon Georgia                          Norco, Louisiana
Atlanta, Georgia                         Terre Haute, Indiana                   Carteret, New Jersey
Chicago, Illinois                        Geismar, Louisiana                     Las Cruces, New Mexico
Hachensack, New Jersey                   Plaquemine, Louisiana                  Albany, New York
Philadelphia, Pennsylvania               Midland, Michigan                      Masury, Ohio
Pittsburgh, Pennsylvania                 Cincinnati, Ohio                       Galena Park, Texas
Houston, Texas                           Catoosa, Oklahoma                      Nederland, Texas
Mexico City, Mexico                      Copper Hill, Tennessee                 Olympia, Washington
Calgary, Alberta                         Freeport, Texas (2)                    Altamira, Mexico
Toronto, Ontario                         Cd. Valles, Mexico                     Coatcacoalcos, Mexico
Montreal, Quebec                         Coatcacoalcos, Mexico                  Guaymas, Mexico
                                         Guaymas, Mexico                        Edmonton, Alberta
MAJOR SERVICE CENTERS:                   Hibueras, Mexico                       Red Deer, Alberta
Colton, California                       Miramar, Mexico                        Vancouver, British Columbia
Waycross, Georgia                        Monterrey, Mexico                      Montreal, Quebec
East Chicago, Indiana                    Orizaba, Mexico                        Moose Jaw, Saskatchewan
Hearne, Texas                            Tlalnepantla, Mexico
Tierra Blanca, Mexico                                                           AFFILIATES:
Red Deer, Alberta                        MOBILE SERVICE UNITS:                  Vienna, Austria
Sarnia, Ontario                          Mobile, Alabama                        Hamburg, Germany
Montreal, Quebec                         Colton, California                     Zug, Switzerland
Moose Jaw, Saskatchewan                  Lake City, Florida
</TABLE>

                                       2

<PAGE>   4

At December 31, 2000, locations related to the discontinued operations of
Terminals are as follows:

HEADQUARTERS
Chicago, Illinois

<TABLE>
<S>                                  <C>                                        <C>
TERMINAL LOCATIONS:                  TERMINAL AFFILIATES:                       PIPELINE LOCATIONS:
Carson, California                   Lanshan, China                             Calnev Pipeline
Richmond, California                 Kawasaki, Japan                              Adelanto, California
San Pedro, California                Kobe, Japan                                  Barstow, California
Orlando, Florida                     Yokohama, Japan                              Colton, California
Tampa, Florida                       Kertih, Malaysia                             Las Vegas, Nevada
Argo, Illinois                       Jurong Town, Singapore
Carteret, New Jersey                 Wymondham, United Kingdom                  Central Florida Pipeline
Portland, Oregon (2)                                                              Orlando, Florida
Philadelphia, Pennsylvania           DISTILLATE AND BLENDING                      Tampa, Florida
Galena Park, Texas                   DISTRIBUTION AFFILIATE:
Pasadena, Texas                        Houston, Texas                           Manchester Jet Line
Seattle, Washington                                                               Manchester, United Kingdom
Antwerpen/Lillo, Belgium
Altamira, Mexico
Pulau Busing, Singapore
</TABLE>



Item 3.  Legal Proceedings
GRC and its subsidiaries are engaged in various matters of litigation and have a
number of unresolved claims pending, including proceedings under governmental
laws and regulations related to environmental matters. While the amounts claimed
are substantial and the ultimate liability with respect to such litigation and
claims cannot be determined at this time, it is the opinion of management that
amounts, if any, required to be paid by GRC and its subsidiaries in the
discharge of such liability are not likely to be material to GRC's consolidated
results of operations or financial position.

Item 4.  Submission of Matters to a Vote of Security Holders


Not required.


                                       3


<PAGE>   5



PART II

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

GATX Corporation owns all of the outstanding common stock of GRC.

Item 6.  Selected Financial Data

Not required.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

2000 RESULTS OF OPERATIONS COMPARED TO 1999

RESULT OF CONTINUING OPERATIONS
GROSS INCOME for 2000 of $605.2 million exceeded 1999's gross income of $597.3
million by $7.9 million.

Rail's gross income of $575.0 million increased 0.7% over the prior year. Rental
revenue increased $8.1 million or 1.5% over the prior year primarily due to a
larger active North American fleet and was partially offset by lower lease
renewal rates. Several industries serviced by Rail, specifically the chemical
and agricultural sectors, are experiencing adverse market conditions that have
in turn reduced railcar demand. Increased competition and railroad efficiency
have also contributed to lower demand. These factors negatively impacted Rail's
2000 results and are expected to continue to adversely affect car demand and
lease rates during 2001. Other revenue decreased by $3.2 million in 2000
primarily because fewer railcars were sold in 2000 compared to the prior year.

Approximately 85,100 railcars were on lease throughout North America at
year-end, compared to 83,400 a year ago. Utilization ended the year at 93% on a
total fleet of 91,600 railcars, compared to 94% at the end of 1999. Rail added
5,400 railcars during 2000, which was comparable to 1999 additions. The majority
of Rail's car additions in 2000 occurred during the first half of the year, as
market conditions and growing economic uncertainty led to a sharp curtailment of
new car orders and fleet acquisitions during the second half of the year. It is
anticipated that current market conditions will negatively impact railcar
investments in 2001.

Intercompany interest income in the Other segment of $30.2 million for 2000
increased $3.8 million from the prior year period. This interest income was
generated from intercompany loans to GATX.

COSTS AND EXPENSES: Ownership costs increased 9.6% or $25.8 million over 1999.
Rail's ownership costs increased $22.1 million or 8.4% from last year. Although
Rail's fleet increased in 2000, depreciation and interest did not change
appreciably from last year due to Rail's continued use of sale-leaseback
financing. In 2000, $291.1 million of railcars were sold and leased back and the
resultant ownership costs were included in operating lease expense. As a result,
operating lease expense increased $21.5 million to $131.9 million in 2000.
Rail's interest expense of $52.8 million was comparable to the prior year as
lower average debt balances offset increases in interest rates. Interest expense
of $9.4 million in 2000 for the Other segment increased $3.7 million from 1999
due to increased intercompany loan activity.

Operating expenses of $122.0 million decreased $5.1 million from 1999. Rail's
operating costs decreased $6.8 million or 5.3%. Higher repair and maintenance
expense was offset by a number of nonrecurring items that affected both years.
Repair and maintenance expense increased $8.3 million from 1999 in part due to
the increased use of third-party contract shops necessitated by a labor dispute
at Rail's domestic service centers that was subsequently resolved in February
2001.

Selling, general and administrative expenses of $62.5 million were comparable to
the prior year.

Income taxes of $47.3 million in 2000 represents an effective tax rate of 37.5%,
which is equal to 1999's rate.


                                       4

<PAGE>   6



INCOME FROM CONTINUING OPERATIONS was $78.8 million, a decrease of $7.4 million
primarily due to lower results at Rail.

RESULTS OF DISCONTINUED OPERATIONS
In July 2000, GATX Corporation announced its intent to sell Terminals and
reached an agreement in November to sell substantially all of the U.S. terminals
and pipeline assets, representing the bulk of the Terminals' operations. A
portion of this transaction closed in March 2001 and the remainder is expected
to close following regulatory approval. GATX has also completed the sale of
substantially all of Terminals' European operations. GATX expects to complete
the divestiture of the remaining terminal assets in 2001.

Operating results for 2000 were $37.1 million, an increase of $11.0 million from
1999. Terminals recorded strong results, as increased demand for storage and
distribution of chemical and petroleum product supported an increase in
Terminals' capacity and utilization and product throughput.

Terminals owned 25.1% of the common stock of Olympic Pipeline Company (Olympic).
On June 10, 1999, a pipeline rupture and explosion occurred on one of the
pipelines owned by Olympic. Several lawsuits have been filed against Olympic and
its operator. On September 20, 2000, Terminals sold its entire 25.1% ownership
of Olympic's common stock to the Pipelines Business Unit of BP Amoco PLC.

1999 RESULTS OF OPERATIONS COMPARED TO 1998

GROSS INCOME for 1999 of $597.3 million exceeded 1998's gross income of $562.2
million by $35.1 million.

Rail's gross income of $570.9 million increased 6.7% over the 1998 period
primarily due to a larger active North American fleet, a slight increase in
average lease rates, and a gain from the sale of 1,700 grain cars that did not
provide an acceptable level of long-term economic value. Rail added 5,400
railcars during 1999 and at year-end 1999 had 83,400 railcars on lease in North
America. Year-end utilization of 94% on a total fleet of 88,400 railcars was
comparable to 1998. Rail congestion problems resulted in strong car demand in
the chemical markets and contributed to the unusually high demand in 1998.

Intercompany interest income in the Other segment of $26.4 million decreased $.8
million from 1998. This interest income was generated from intercompany loans to
GATX.

Share of affiliates' earnings of $3.8 million in 1999 increased $1.1 million
from 1998. Rail invested $27.8 million in these affiliates' freight and tank car
fleets in 1999.

COSTS AND EXPENSES: Ownership costs increased 7.4 % or $18.6 million over 1998.
Rail's 1999 ownership costs increased 7.9% over 1998 primarily due to an
increase in operating lease expense. Depreciation and interest did not change
appreciably from 1998 due to Rail's continued use of sale-leaseback financing.
In 1999, $143.0 million of new railcars were sold and leased back and the
resultant cost was included in operating lease expense. Interest expense of $5.7
million in 1999 for the Other segment was comparable to 1998.

Operating expenses of $127.1 million decreased $1.2 million from 1998. Rail's
repair and maintenance costs as a percentage of revenues decreased from 1998 as
a result of lower material costs and fewer labor hours incurred.

Selling, general and administrative expenses were $63.4 million and $54.7
million for 1999 and 1998, respectively. This increase is due in part to higher
expenses at Rail to support business development and information systems
initiatives.

Income taxes of $51.8 million in 1999 represents an effective tax rate of 37.5%,
which is comparable to 1998's rate of 37.7%.

                                       5

<PAGE>   7

INCOME FROM CONTINUING OPERATIONS was $86.2 million in 1999, an increase of $5.8
million over 1998 primarily due to higher results at Rail.

RESULTS OF DISCONTINUED OPERATIONS
Operating results for 1999 were $26.1 million, an increase of $6.6 million from
1998, primarily due to stronger market conditions and the impact of nonrecurring
items, including a gain on the sale of rights along the Central Florida
Pipeline.

ANALYSIS OF FINANCIAL CONDITION 2000 COMPARED TO 1999
Balance sheet assets of $2.8 billion increased $55.6 million from 1999. In
addition to the $2.8 billion of assets on the balance sheet, Rail utilizes
approximately $1.4 billion of railcars that were financed with operating leases
and therefore are not included on the balance sheet.

Railcars and service facilities, net of accumulated depreciation, decreased
$34.7 million from 1999. Rail's capital additions in 2000 included $369.3
million to acquire 5,400 railcars throughout North America. Offsetting these
additions were depreciation and $291.1 million of railcars that were sold and
leased back. The $7.4 million decrease in investments in affiliated companies
was primarily caused by the effect of foreign currency translation.

Total debt increased by $13.6 million in 2000 primarily due to an increase in
long-term recourse debt. Shareholder's equity increased $37.1 million reflecting
net income of $115.9 million partially offset by the payment of $51.9 million in
dividends and a $26.9 million decrease in the cumulative foreign currency
translation adjustment. The unrealized translation adjustment resulted from the
U.S. dollar strengthening against foreign currencies.

ANALYSIS OF CASH FLOWS 2000 COMPARED TO 1999
GRC generates a significant amount of cash from its operating activities which
is used to service debt, pay dividends, and fund capital additions. Most of the
capital requirements are considered discretionary and represent additions to the
railcar fleet and joint ventures. As a result, the level of capital spending can
be adjusted as conditions in the economy or GRC's businesses warrant.

Net cash provided by continuing operations increased $7.8 million from 1999. Net
income adjusted for non-cash items generated $204.5 million of cash, an increase
of $3.3 million over 1999, primarily due to increased deferred income taxes.
Changes in working capital and other generated $4.5 million more cash in 2000.

Capital additions totaled $374.8 million, a decrease of $11.8 million from 1999.
Rail's capital additions in 2000 included $369.3 million to acquire 5,400
railcars throughout North America. In 1999, Rail's additions were $386.6
million, including $343.8 million for railcars. In 1999, Rail acquired
additional interests in both of its European rail joint ventures.

Proceeds from other asset sales of $304.4 million in 2000 included the receipt
of $291.1 million from the sale-leaseback of railcars at Rail. Additional asset
sales included Rail's sale of approximately 400 railcars.

Net cash used in the financing activities of continuing operations was $72.5
million in 2000 compared to $52.5 million of cash provided in 1999. GRC finances
its capital additions through cash generated from operating activities, debt
financings, and sale-leasebacks. During 2000, $160.0 million of long-term debt
was issued and $124.0 million was repaid.

LIQUIDITY AND CAPITAL RESOURCES: GRC has a $350.0 million revolving credit
facility that expires in 2003. GRC also has a commercial paper program and
uncommitted money market lines that are used to fund operating needs. Under the
covenants of the commercial paper program and rating agency guidelines, GRC must
keep unused revolving credit capacity at least equal to the amount of commercial
paper outstanding. At December 31, 2000, GRC had $172.0 million of commercial
paper outstanding, resulting in $178.0 million of the credit facility remaining
available.


                                       6

<PAGE>   8

GRC has a $650.0 million shelf registration for pass through certificates and
debt securities of which $476.7 million had been issued. At year-end, GRC had
$124.1 million of commitments to acquire railcars in 2001.

At December 31, 2000, approximately $264.0 million of subsidiary net assets were
restricted, limiting the ability of GRC to transfer assets to the parent
company, GATX, in the form of loans, advances or dividends. The majority of net
asset restrictions relate to GRC's revolving credit agreement.

RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS: GRC, like most other
companies, is exposed to certain market risks, including changes in interest
rates and currency exchange rates. To manage these risks, GRC, pursuant to
preestablished and preauthorized policies, enters into certain derivative
transactions, principally interest rate swaps and currency swaps. These
instruments and other derivatives are entered into for hedging purposes only.
GRC does not hold or issue derivative financial instruments for speculative
purposes.

GRC's interest expense is affected by changes in interest rates as a result of
its use of variable rate debt instruments, including commercial paper and other
floating rate debt. Based on GRC's variable rate debt at December 31, 2000, if
market rates were to increase hypothetically by 10% of GRC's weighted average
floating rate, after-tax interest expense would increase by approximately $1.3
million in 2001.

Changes in certain currency exchange rates would affect GRC's reported earnings.
Based on 2000 reported earnings from continuing operations, a uniform and
hypothetical 10% strengthening in the U.S. dollar versus applicable foreign
currencies would decrease after-tax income from continuing operations in 2001 by
approximately $1.4 million.

The interpretation and analysis of the results from the hypothetical changes to
interest rates and currency exchange rates should not be considered in
isolation; such changes would typically have corresponding, offsetting effects.
For example offsetting effects are present to the extent that floating rate debt
is associated with floating rate assets.

ENVIRONMENTAL MATTERS: Certain operations of GRC and its subsidiaries
(collectively GRC) present potential environmental risks principally through the
transportation or storage of various commodities. Recognizing that some risk to
the environment is intrinsic to its operations, GRC is committed to protecting
the environment as well as complying with applicable environmental protection
laws and regulations. GRC, as well as its competitors, is subject to extensive
regulation under federal, state and local environmental laws which have the
effect of increasing the costs and liabilities associated with the conduct of
its operations. In addition, GRC's foreign operations are subject to
environmental laws in effect in each respective jurisdiction.

GRC's policy is to monitor and actively address environmental concerns in a
responsible manner. GRC has received notices from the U.S. Environmental
Protection Agency (EPA) that it is a potentially responsible party (PRP) for
study and cleanup costs at 13 sites under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund). Under these Acts and comparable state laws, GRC may be required to
share in the cost to clean up various contaminated sites identified by the EPA
and other agencies. GRC has also received notice that it is a PRP at one site to
undertake a Natural Resource Damage Assessment. In all instances, GRC is one of
a number of financially responsible PRPs and has been identified as contributing
only a small percentage of the contamination at each of the sites. Due to
various factors such as the required level of remediation or restoration and
participation in cleanup or restoration efforts by others, GRC's total cleanup
costs at these sites cannot be predicted with certainty; however, GRC's best
estimates for remediation and restoration of these sites have been determined
and are included in its environmental reserves.

Future costs of environmental compliance are indeterminable due to unknowns such
as the magnitude of possible contamination, the timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties including insurers. Also, GRC may
incur additional costs relating to facilities and sites where past operations
followed practices and procedures that were considered acceptable at the time


                                       7

<PAGE>   9

but in the future may require investigation and/or remedial work to ensure
adequate protection to the environment under current or future standards. If
future laws and regulations contain more stringent requirements than presently
anticipated, expenditures may be higher than the estimates, forecasts, and
assessments of potential environmental costs provided below. However, these
costs are expected to be at least equal to the current level of expenditures. In
addition, GRC has provided indemnities for environmental issues to the buyers of
two divested companies and a number of divested terminals facilities for which
GRC believes it has adequate reserves.

GRC's environmental reserve at the end of 2000 was $73.0 million and reflects
GRC's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $9.3 million and $11.7 million in 2000 and 1999,
respectively. Expenditures charged to the reserve amounted to $10.2 million and
$7.6 million in 2000 and 1999, respectively.

In 2000, GRC made capital expenditures of $8.1 million for environmental and
regulatory compliance compared to $8.3 million in 1999. These projects included
marine vapor recovery systems, discharge prevention compliance, wastewater
systems, impervious dikes, tank modifications for emissions control, and tank
car cleaning systems.

In November 2000, GATX Corporation entered into an agreement to sell
substantially all of the U.S. terminals and pipeline assets, representing the
bulk of Terminals' operations. The transaction is structured as a sale of the
capital stock of Terminals. Under the terms of the agreement, various
environmental liabilities associated with the terminals and pipeline assets will
be assumed by the buyer. Excluding the liabilities associated with the sale of
Terminals' operations, GRC's environmental reserve at the end of 2000 was $36.0
million.

FORWARD-LOOKING STATEMENTS: Many economists believe that the U.S. economy is
entering a recessionary environment. Should a recession develop, GRC's
prospective results would not be immune from the effects thereof if there were
significant changes in demand for its services or assets provided. Certain
statements in Management's Discussion and Analysis constitute forward-looking
statements and are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. This information may involve risks and
uncertainties that could cause actual results to differ materially from those
suggested in the forward-looking statements. Although the company believes that
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. These
risks and uncertainties include, but are not limited to, changes in the U.S.
economy, changes in interest rates, and changes in the markets served by GRC and
its customers such as the petroleum, chemical, and rail industries.

Item 7a. Quantitative and Qualitative Disclosures About Market Risks

Information regarding quantitative and qualitative disclosures about market
risks is included in Item 7, Management's Discussion and Analysis of Financial
Condition and Result of Operations, in this document.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted under Item 14 (a)(1) of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

                                       8


<PAGE>   10



PART III

Item 10. Directors and Executive Officers of the Registrant

Not required.

Item 11. Executive Compensation

Not required.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Not required.

Item 13. Certain Relationships and Related Transactions

Not required.


                                       9


<PAGE>   11



PART IV

Item 14. Financial Statement Schedules, Reports on Form 8-K and Exhibits.

<TABLE>
<S>   <C>                                                                         <C>
(a)   1.  Financial Statements

          The Consolidated Financial Statements of GATX Rail Corporation and its
          subsidiaries which are required in Item 8 are listed below:

                                                                                    Page
                                                                                  --------

          Consolidated Statements of Income - Years Ended December 31,
            2000, 1999  and 1998                                                     16
          Consolidated Balance Sheets - December 31, 2000 and 1999                   17
          Consolidated Statements of Cash Flows - Years Ended December 31,
            2000, 1999 and 1998                                                      18
          Consolidated Statements of Changes in Shareholder's Equity -
            December 31, 2000, 1999 and 1998                                         19
          Notes to Consolidated Financial Statements                                 20

      2.  Financial Statement Schedule:

          Schedule II Valuation and Qualifying Accounts                              38

          All other schedules for which provision is made in the applicable
          accounting regulation of the Securities and Exchange Commission are
          not required under the related instructions or are inapplicable, and
          therefore, have been omitted.

(b)       Report on Form 8-K

          Form 8-K filed on March 23, 2001, reporting that GATX Rail Overseas
          Holding Corporation, a wholly-owned subsidiary of GATX Rail
          Corporation and an indirect wholly-owned subsidiary of GATX
          Corporation, acquired Dyrekcja Eksploatacji Cystern, Poland's national
          tank car fleet and fuel distribution company.

          Form 8-K filed on March 2, 2001, reporting the completion of GATX
          Corporation's sale of the majority of GATX Terminals Corporation, a
          wholly-owned subsidiary of GATX Rail Corporation and an indirect
          wholly-owned subsidiary of GATX Corporation, to Kinder Morgan Energy
          Partners L.P. and the sale of substantially all of the European
          operations.

          Form 8-K filed on December 4, 2000, reporting GATX Corporation's
          agreement to sell the majority of GATX Terminals Corporation, a
          wholly-owned subsidiary of GATX Rail Corporation and an indirect
          wholly-owned subsidiary of GATX Corporation, to Kinder Morgan Energy
          Partners L.P.
</TABLE>

                                       10

<PAGE>   12



(c)                           Exhibit Index

<TABLE>
<CAPTION>
   Exhibit
   Number                                       Exhibit Description                                       Page
--------------     ------------------------------------------------------------------------------       ----------
<S>                <C>                                                                                  <C>
3A.                Certificate of Incorporation of GATX Rail Corporation, incorporated by
                   reference to the GATX Rail Corporation Annual Report on Form 10-K for the
                   fiscal year ended December 31, 1991, file number 2-54754.

3B.                By-Laws of GATX Rail Corporation, as amended and restated as of June 15, 1994,
                   incorporated by reference to the GATX Rail Corporation Annual Report on Form
                   10-K for the fiscal year ended December 31, 1994, file number 2-54754.

4A.                Indenture dated October 1, 1987, incorporated by reference to Exhibit 4.1 to
                   the GATX Rail Corporation Registration Statement on Form S-3 filed
                   October 8, 1987, file number 33-17692; Indenture Supplement dated May 15,
                   1988, incorporated by reference to the GATX Rail Quarterly Report on Form
                   10-Q for the quarter ended June 30, 1988, file number 2-54754.  Second
                   Supplemental Indenture dated as of March 15, 1990, incorporated by reference
                   to GATX Rail Corporation Quarterly Report on Form 10-Q for the quarter ended
                   March 30, 1990, file number 2-54754.  Third Supplemental Indenture dated as
                   of June 15, 1990, incorporated by reference to GATX Rail Corporation
                   Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, file
                   number 2-54754. Fourth Supplemental Indenture dated as of  January 15, 1996
                   filed with the SEC on Current Report on Form 8-K on January 26, 1996, file
                   number 2-54754.

4B.                GATX Rail Corporation Notices 5 and 6 dated March 28, 1988 and April 12, 1988
                   defining the rights of holders of GATX Rail's Medium-Term Notes Series A
                   issued during that period, incorporated by reference to the GATX Rail
                   Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1988,
                   file number 2-54754.

4C.                GATX Rail Corporation Notices 3 through 5 dated from April 4, 1989 through
                   May 16, 1989, Notice 7 dated June 19, 1989 and Notice 12 dated July 21, 1989
                   defining the rights of the holders of GATX Rail Corporation's Medium-Term
                   Notes Series C issued during those periods.  Notices 3 through 5 and Notice
                   7 is incorporated by reference to the GATX Rail Corporation Quarterly
                   Reports on Form 10-Q for the quarter ended June 30, 1989 and Notice 12
                   incorporated by reference to the GATX Rail Corporation Quarterly Report on
                   Form 10-Q for the quarter ended September 30, 1989, file number 2-54754.
</TABLE>

                                               11


<PAGE>   13

<TABLE>
<CAPTION>
   Exhibit
   Number                                       Exhibit Description                                       Page
--------------     ------------------------------------------------------------------------------       ----------
<S>                <C>                                                                                  <C>
4D.                GATX Rail Corporation Notice 1 dated February 27, 1992, and Notices 7 and
                   10 dated May 18, 1993 and May 25, 1993 defining the rights of the holders
                   of GATX Rail Corporation's Medium-Term Notes Series D issued during those
                   periods.  Notice 1 is incorporated by reference to the GATX Rail
                   Corporation Quarterly Report on Form 10-Q for the quarter ended March 31,
                   1992, Notices 7 and 10 are incorporated by reference to the GATX Rail
                   Corporation Quarterly Report on Form 10-Q for the quarter ending June 30,
                   1993, file number 2-54754.

4E.                GATX Rail Corporation Notices 1 and 2 dated June 8, 1994 and Notices 3 dated
                   June 17, 1994, and Notices 7 through 11 dated July 18, 1994, defining the
                   rights of the holders of GATX Rail Corporation's Medium-Term Notes Series E
                   issued during those periods.  Notices 1 through 3 are incorporated by
                   reference to the GATX Rail Corporation Quarterly Report on Form 10-Q for the
                   quarter ended June 30, 1994, and Notices 7 through 11 are incorporated
                   herein by reference to the Form 424(b)(5) dated July 18, 1994, file number
                   2-54754.

4F.                GATX Rail Corporation Notices 12 through 14 dated February 24, 1995, Notices
                   15 through 20 dated May 11, 1995, amended May 24, 1995, and Notices 21
                   through 30 dated from November 8, 1995 through November 13, 1995 defining
                   the rights of the holders of GATX Rail Corporation's Medium-Term Notes
                   Series E issued during those periods.  Notices 12 through 14 are
                   incorporated by reference to the Form 424(b)(5) dated February 24, 1995,
                   Notices 15 through 20 are incorporated by reference to the Form 424(b)(5)
                   dated May 11, 1995, and Notices 21 through 30 are incorporated by reference
                   to the Form 424(b)(5) dated from November 8, 1995 through November 13, 1995,
                   file number 2-54754.

4G.                GATX Rail Corporation Notices 1 and 2 both dated May 11, 2000, defining the
                   rights of holders of GATX Rail Corporation Medium-Term Notes Series F issued
                   during the period. Notice 1 is incorporated by reference to the Form
                   424(b)(5) dated May 11, 2000, and Notice 2 is incorporated by reference to
                   the Form 424(b)(5) dated May 11, 2000, file number 2-54754.

4H.                Form of 8-5/8% Note due December 1, 2004 filed with the SEC on Current Report
                   on Form 8-K on December 7, 1994, file number 2-54754.

4I.                Form of 6 3/4% Note due March 1, 2006 filed with the SEC on Current Report on
                   Form 8-K on March 4, 1996, file number 2-54754.

10A.               $350,000,000 Credit Agreement dated as of May 14, 1998 among GATX Rail
                   Corporation, the banks listed therein, The First National Bank of Chicago as
                   Administrative Agent and Morgan Guaranty Trust Company of New York as
                   Documentation Agent, incorporated by reference to GATX Rail Corporation's
                   Quarterly Report on Form 10-Q for the period ended June 30, 1998, file number
                   2-54754.
</TABLE>


                                       12

<PAGE>   14


<TABLE>
<CAPTION>
   Exhibit
   Number                                        Exhibit Description                                       Page
--------------     ------------------------------------------------------------------------------       ----------
<S>                <C>                                                                                  <C>
10B.               Form of 6 3/4% Note due May 1, 2009 filed in connection with and
                   incorporated by reference into, the Registration Statement on Form S-3 (File
                   No. 33-64697) of GATX Rail Corporation, declared effective on December 7,
                   1995. Submitted to the SEC on GATX Rail Corporation's Quarterly Report on Form
                   10-Q for the period ended March 31, 1999, file number 2-54754.

10C.               Stock Purchase Agreement dated February 28, 2001 between GATX Rail Corporation,
                   GATX Terminals Holding Corporation, a wholly-owned subsidiary of GATX Rail
                   Corporation, and Kinder Morgan Energy Partners L.P. to sell substantially all
                   of the domestic operations of GATX Terminals Corporation, submitted to the SEC
                   with the electronic submission of this report on Form 10-K.

12                 Statement regarding computation of ratios of earnings to fixed charges.                 39

23                 Consent of Independent Auditors.                                                        40

                   Any instrument defining the rights of security holders with respect to
                   nonregistered long-term debt not being filed on the basis that the amount of
                   securities authorized does not exceed 10 percent of the total assets of the
                   company and subsidiaries on a consolidated basis will be furnished to the
                   Commission upon request.

</TABLE>

                                       13


<PAGE>   15



                                   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.

                              GATX RAIL CORPORATION
                                  (Registrant)



                              /s/ David M. Edwards
                       ----------------------------------
                                David M. Edwards
                       President, Chief Executive Officer
                                  and Director
                                 March 30, 2001

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



<TABLE>
<S>                                                                               <C>
             /s/ David M. Edwards                                                             /s/ Brian A. Kenney
-----------------------------------------------                                   --------------------------------------------
               David M. Edwards                                                                 Brian A. Kenney
      President, Chief Executive Officer                                                  Vice President and Director
                 and Director                                                                   March 30, 2001
                March 30, 2001



             /s/Joseph E. McNeely                                                            /s/ Ronald J. Ciancio
-----------------------------------------------                                   --------------------------------------------
              Joseph E. McNeely                                                                Ronald J. Ciancio
          Vice President, Financial                                                                Director
          and Information Management                                                            March 30, 2001
                March 30, 2001



             /s/ Deborah A. House                                                             /s/ Ronald H. Zech
-----------------------------------------------                                   --------------------------------------------
               Deborah A. House                                                                 Ronald H. Zech
                  Controller                                                                       Director
                March 30, 2001                                                                  March 30, 2001
</TABLE>


                                       14




<PAGE>   16
REPORT OF INDEPENDENT AUDITORS




Board of Directors
GATX Rail Corporation


We have audited the consolidated financial statements and related schedule of
GATX Rail Corporation (a wholly owned subsidiary of GATX Corporation) and
subsidiaries listed in Item 14 (a)(1) and (2) of the Annual Report on Form 10-K
of GATX Rail Corporation and subsidiaries for the year ended December 31, 2000.
These financial statements and related schedule are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements and related schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
related schedule are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and related schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GATX
Rail Corporation and subsidiaries at December 31, 2000 and 1999, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                                               ERNST & YOUNG LLP




January 23, 2001 (except with respect to Note O, as to which the date is March
23, 2001) Chicago, Illinois


                                       15

<PAGE>   17



                     GATX RAIL CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                  (IN MILLIONS)

<TABLE>
<CAPTION>

                                                          YEAR ENDED DECEMBER 31
                                                      -----------------------------
                                                        2000       1999       1998
                                                       ------     ------     ------
<S>                                                    <C>        <C>        <C>
GROSS INCOME
   Lease and financing services                        $572.0     $567.1     $532.3
   Other income                                          30.2       26.4       27.2
                                                       ------     ------     ------
   REVENUES                                             602.2      593.5      559.5
   Share of affiliates' earnings                          3.0        3.8        2.7
                                                       ------     ------     ------
TOTAL GROSS INCOME                                      605.2      597.3      562.2

OWNERSHIP COSTS
   Depreciation and amortization                        100.5      100.1       97.3
   Interest                                              62.2       58.3       59.2
   Operating lease expense                              131.9      110.4       93.7
                                                       ------     ------     ------
TOTAL OWNERSHIP COSTS                                   294.6      268.8      250.2

OTHER COSTS AND EXPENSES
   Operating expenses                                   122.0      127.1      128.3
   Selling, general and administrative                   62.5       63.4       54.7
                                                       ------     ------     ------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
   TAXES                                                126.1      138.0      129.0

INCOME TAXES                                             47.3       51.8       48.6
                                                       ------     ------     ------

INCOME FROM CONTINUING OPERATIONS                        78.8       86.2       80.4

INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME
   TAXES                                                 37.1       26.1       19.5
                                                       ------     ------     ------

NET INCOME                                             $115.9     $112.3     $ 99.9
                                                       ======     ======     ======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       16


<PAGE>   18



                     GATX RAIL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31
                                                                              ----------------------
                                                                                2000          1999
                                                                              --------      --------
<S>                                                                           <C>           <C>
ASSETS

Cash and cash equivalents                                                     $   58.4      $   39.4
Trade receivables - net                                                           56.4          45.4
Note receivable from GATX Capital Corporation                                     38.1           5.0

Railcars and service facilities                                                2,695.3       2,698.7
   Less - allowance for depreciation                                          (1,317.8)     (1,286.5)
                                                                              --------      --------
                                                                               1,377.5       1,412.2

Due from GATX Corporation                                                        480.7         418.5
Investments in affiliated companies                                               83.9          91.3
Other assets                                                                      89.1         111.0
Net assets of discontinued operations                                            610.8         616.5
                                                                              --------      --------
                                                                              $2,794.9      $2,739.3
                                                                              ========      ========


LIABILITIES, DEFERRED ITEMS AND SHAREHOLDER'S EQUITY

Accounts payable                                                              $   91.6      $  105.3
Accrued expenses                                                                  32.9          41.3
Debt
   Short-term                                                                    237.0         247.6
   Long-term-
     Recourse                                                                  1,095.4       1,060.2
     Nonrecourse                                                                  20.0          21.0
   Capital lease obligations                                                      71.9          81.9
                                                                              --------      --------
                                                                               1,424.3       1,410.7

Deferred income taxes                                                            323.3         299.3

Other deferred items                                                             129.5         126.5
                                                                              --------      --------

   Total Liabilities and Deferred Items                                        2,001.6       1,983.1

Shareholder's Equity
   Common stock - par value $1 per share, 1,000 shares authorized, issued
     and outstanding (owned by GATX Corporation)                                    --            --
   Additional capital                                                            335.0         335.0
   Reinvested earnings                                                           511.0         447.0
   Accumulated other comprehensive loss                                          (52.7)        (25.8)
                                                                              --------      --------
   Total Shareholder's Equity                                                    793.3         756.2
                                                                              --------      --------
                                                                              $2,794.9      $2,739.3
                                                                              ========      ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       17

<PAGE>   19



                     GATX RAIL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                           ------------------------------
                                                            2000        1999        1998
                                                           ------      ------      ------
<S>                                                        <C>         <C>         <C>
OPERATING ACTIVITIES
   Income from continuing operations                       $ 78.8      $ 86.2      $ 80.4
   Adjustments to reconcile income from continuing
        operations to net cash provided by continuing
        operations:
         Depreciation and amortization                      100.5       100.1        97.3
         Deferred income taxes                               25.2        14.9        22.7
   Other, including working capital                         (42.6)      (47.1)      (13.4)
                                                           ------      ------      ------
Net cash provided by continuing operations                  161.9       154.1       187.0

INVESTING ACTIVITIES
   Additions to railcars and service facilities            (373.2)     (358.8)     (384.8)
   Investments in affiliated companies                       (1.6)      (27.8)         --
                                                           ------      ------      ------
   Capital additions                                       (374.8)     (386.6)     (384.8)
   Proceeds from other asset sales                          304.4       206.4       230.9
                                                           ------      ------      ------
Net cash used in investing activities of continuing
    operations                                              (70.4)     (180.2)     (153.9)

FINANCING ACTIVITIES
   Proceeds from issuance of long-term debt                 160.0       145.0       136.0
   Repayment of long-term debt                             (124.0)      (79.8)      (95.6)
   Net (decrease) increase in short-term debt               (10.7)      102.3       (21.4)
   Repayment of capital lease obligations                   (10.0)       (9.4)       (8.5)
   Cash dividends paid to GATX Corporation                  (34.3)      (52.0)      (37.5)
   Net increase in amount due from
      GATX Corporation                                      (53.5)      (53.6)        (.4)
                                                           ------      ------      ------
Net cash (used in) provided by financing activities of
     continuing operations                                  (72.5)       52.5       (27.4)
                                                           ------      ------      ------

NET INCREASE IN CASH AND CASH EQUIVALENTS FROM
    CONTINUING OPERATIONS                                    19.0        26.4         5.7

NET INCREASE IN CASH AND CASH EQUIVALENTS FROM
    DISCONTINUED OPERATIONS                                    .3         4.7         1.5
                                                           ------      ------      ------

NET INCREASE IN CASH AND CASH EQUIVALENTS                  $ 19.3      $ 31.1      $  7.2
                                                           ======      ======      ======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       18

<PAGE>   20



                     GATX RAIL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                         ACCUMULATED
                                                                                            OTHER
                                  COMMON            ADDITIONAL        REINVESTED        COMPREHENSIVE
                                  STOCK              CAPITAL           EARNINGS              LOSS                 TOTAL
                                  ------            ----------        ----------        -------------             -----
<S>                              <C>                 <C>                <C>                <C>                   <C>
BALANCE, JANUARY 1, 1998         $   --              $ 335.0            $ 347.2            $  (17.5)             $ 664.7

Comprehensive income:
   Net income                                                              99.9                                     99.9
   Foreign currency
     translation loss                                                                         (14.7)               (14.7)
                                                                                                                 -------
Comprehensive income                                                                                                85.2

Dividends declared                                                        (47.0)                                   (47.0)
                                  --------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1998        $  --              $ 335.0            $ 400.1           $   (32.2)             $ 702.9

Comprehensive income:
   Net income                                                             112.3                                    112.3
   Foreign currency
     translation gain                                                                           6.4                  6.4
                                                                                                                 -------
Comprehensive income                                                                                               118.7

Dividends declared                                                        (65.4)                                   (65.4)
                                  --------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1999        $  --              $ 335.0            $ 447.0             $ (25.8)             $ 756.2

Comprehensive income:
   Net income                                                             115.9                                    115.9
   Foreign currency
     translation loss                                                                         (26.9)               (26.9)
                                                                                                                 -------
Comprehensive income                                                                                                89.0

Dividends declared                                                        (51.9)                                   (51.9)
                                  --------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2000        $  --              $ 335.0            $ 511.0             $ (52.7)             $ 793.3
                                  =======================================================================================
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                       19

<PAGE>   21



                     GATX RAIL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

GATX Rail Corporation (GRC) is a wholly-owned subsidiary of GATX Corporation
(GATX). Significant accounting policies of GRC and its consolidated subsidiaries
are discussed below.

Consolidation: The consolidated financial statements include the accounts of GRC
and its majority-owned subsidiaries. Investments in 20 to 50 percent-owned
companies and joint ventures are accounted for under the equity method and are
shown as investments in affiliated companies, with pretax operating results
shown as share of affiliates' earnings.

Cash Equivalents: GRC considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Railcars and service facilities: Railcars and service facilities are stated
principally at cost. Assets acquired under capital leases are included in
operating lease assets and the related obligations are recorded as liabilities.
Provisions for depreciation include the amortization of the cost of capital
leases and are computed by the straight-line method, which results in equal
annual depreciation charges over the estimated useful lives of the assets. The
estimated useful lives of depreciable assets are as follows:

<TABLE>
<S>                                                         <C>
     Railcars                                               20 - 33 years
     Buildings and leasehold improvements                   20 - 40 years
     Machinery and related equipment                         3 - 5  years
</TABLE>

Goodwill: GRC has classified the cost in excess of the fair value of net assets
acquired as goodwill. Goodwill, which is included in other assets, is being
amortized on a straight-line basis over 40 years. GRC continually evaluates the
existence of goodwill impairment on the basis of whether the goodwill is
recoverable from projected undiscounted net cash flows of the related business.
Goodwill, net of accumulated amortization of $3.0 million and $2.6 million, was
$14.8 million and $15.2 million as of December 31, 2000 and 1999, respectively.
Amortization expense was $.5 million, $.5 million and $.4 million for 2000, 1999
and 1998, respectively.

Income Taxes: United States income taxes have not been provided on the
undistributed earnings of foreign subsidiaries and affiliates that GRC intends
to permanently reinvest in these foreign operations. The cumulative amount of
such earnings was $88.4 million at December 31, 2000.

Other Deferred Items: Other deferred items include the accrual for
postretirement benefits other than pensions; environmental, general liability
and workers' compensation reserves; and other deferred credits.

Off-Balance Sheet Financial Instruments: GRC uses off-balance sheet financial
instruments such as interest rate and currency swaps, forwards and similar
contracts to set interest and exchange rates on existing or anticipated
transactions. The fair values of GRC's off-balance sheet financial instruments
(swaps and forwards) are based on current market prices, settlement values or
fees currently charged to enter into similar agreements. The fair values of the
hedge contracts are not recognized in the financial statements. Net amounts paid
or received on such contracts are recognized over the term of the contract as an
adjustment to interest expense or the basis of the hedged financial instrument.


                                       20

<PAGE>   22


                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Environmental Liabilities: Expenditures that relate to current or future
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are charged to environmental reserves.
Reserves are recorded in accordance with accounting guidelines to cover work at
identified sites when GRC's liability for environmental cleanup is both probable
and a reasonable estimate of associated costs can be made; adjustments to
initial estimates are recorded as necessary.

Revenue Recognition: The majority of GRC's gross income is derived from the
rentals of railcars and other services.

Foreign Currency Translation: The assets and liabilities of GRC operations
located outside the United States are translated at exchange rates in effect at
year end, and income statements are translated at the average exchange rates for
the year. Adjustments resulting from the translation of foreign currency
financial statements are deferred and recorded as a separate component of
accumulated other comprehensive loss in the shareholder's equity section of the
balance sheet. The cumulative foreign currency translation adjustment was
$(52.7) million and $(25.8) million at the end of 2000 and 1999, respectively.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.

Reclassifications: Certain amounts in the 1999 and 1998 financial statements
have been reclassified to conform to the 2000 presentation.

New Accounting Pronouncements: Effective January 1, 2001 GRC will adopt SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts. The statement requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the qualified nature of the hedge,
changes in fair value of the derivative will either be offset against the change
in fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in accumulated other comprehensive loss until the hedged
item is recognized in earnings. The change in fair value of the ineffective
portion of a hedge will be immediately recognized in earnings.


                                       21

<PAGE>   23



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GRC uses interest rate and currency swap agreements, and forward sale
agreements, as hedges to manage its exposure to interest rate and currency
exchange rate risk on existing and anticipated transactions. To qualify for
hedge accounting under current accounting guidance, the derivative instrument
must be identified with and reduce the risk arising from a specific transaction.
Interest income or expense on interest rate swaps is accrued and recorded as an
adjustment to the interest income or expense related to the hedged item.
Realized and unrealized gains on currency swaps are deferred and included in the
measurement of the hedged investment over the term of the contract. Fair value
changes arising from forward sale agreements are deferred in the investment
section of the balance sheet and recognized in other comprehensive income in
stockholders' equity in conjunction with the designated hedged item. The
application of SFAS No. 133 as amended, to derivative instruments, is not
expected to have a material impact on GRC Consolidated financial statements.

NOTE B -- ACCOUNTING FOR LEASES

The following information pertains to GRC as a lessor:

Operating leases: Railcar assets included in operating lease assets and
facilities are classified as operating leases. Rental income from operating
leases is reported on a straight-line basis over the term of the lease.

Minimum future receipts: Minimum future rental receipts from noncancelable
operating leases by year at December 31, 2000 were (in millions):

<TABLE>
<S>                                         <C>
                   2001                     $  459.0
                   2002                        356.0
                   2003                        246.1
                   2004                        158.0
                   2005                         91.5
                   Years thereafter            183.4
                                            --------
                                            $1,494.0
                                            ========
</TABLE>

The following information pertains to GRC as a lessee:

Capital leases: GRC leases certain railcars under capital lease agreements.
Operating lease assets and facilities includes cost and related allowances for
depreciation of $149.5 million and $106.9 million, respectively, at December 31,
2000 and $150.0 million and $100.8 million, respectively, at December 31, 1999
for these railcars. The cost of these assets is amortized on the straight-line
basis with the charge included in depreciation expense.

Operating leases: GRC has financed railcars through sale-leasebacks that are
accounted for as operating leases. In addition, GRC leases certain other assets
and office facilities. Total rental expense for the years ended December 31,
2000, 1999 and 1998 was $131.9 million, $110.4 million and $93.7 million,
respectively. For one of its operating leases GRC has provided a guarantee to
the lessor that the residual value will be the projected fair market value of
the assets.


                                       22

<PAGE>   24



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- ACCOUNTING FOR LEASES (CONTINUED)

Minimum future rental payments: Future minimum rental payments due under
noncancelable leases at December 31, 2000 were (in millions):

<TABLE>
<CAPTION>
                                                                                             NONRECOURSE
                                                         CAPITAL           OPERATING          OPERATING
                                                         LEASES             LEASES              LEASES
                                                         -------           ---------         -----------

<S>                                                      <C>              <C>                  <C>
        2001                                             $  16.5          $     92.6           $  39.9
        2002                                                16.0               101.0              37.4
        2003                                                15.0                97.1              40.0
        2004                                                12.9               101.1              39.9
        2005                                                 9.7               112.7              41.5
        Years thereafter                                    27.1             1,171.7             559.6
                                                         -------            --------            ------
                                                         $  97.2            $1,676.2            $758.3
                                                                            ========            ======

        Less -- amount representing interest               (25.3)
                                                         -------

        Present value of future minimum
          Capital lease payments                         $  71.9
                                                         =======
</TABLE>

The above capital lease amounts and certain operating leases do not include the
cost of licenses, taxes, insurance, and maintenance that GRC is required to pay.
Subsequent to the initial lease term, the majority of railcar operating leases
allow GRC to renew the lease at a fixed rate or purchase the railcar at fair
market value. Interest expense on the above capital lease obligations was $6.4
million in 2000, $7.5 million in 1999, and $8.5 million in 1998.

The amounts shown as nonrecourse operating leases reflect rental payments of
three bankruptcy remote, special-purpose corporations which are wholly-owned by
GRC. These rentals are consolidated for accounting purposes, but are not
guaranteed by nor are obligations of GRC.

NOTE C -- ADVANCES TO PARENT

Interest income on advances to GATX, which is included in gross income on the
income statement, was $30.2 million in 2000, $26.4 million in 1999, and $27.2
million in 1998. These advances have no fixed maturity date. Interest income on
advances to GATX was based on an interest rate that is adjusted annually in
accordance with an estimate of short-term borrowing rates.


                                       23

<PAGE>   25



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D -- INVESTMENTS IN AFFILIATED COMPANIES

GRC has investments in 25 to 50 percent-owned companies and joint ventures that
are accounted for using the equity method. These foreign investments are in
businesses similar to those of GRC's operations.

For all affiliated companies held at the end of the year, operating results, as
if GRC held 100 percent interest, were (in millions):


<TABLE>
<CAPTION>
                                                                     Year Ended December 31
                                                       ----------------------------------------------------
                                                          2000                1999               1998
                                                       ------------       -------------     ---------------
<S>                                                        <C>                <C>                <C>
              Gross income                                 $111.3             $110.2             $87.6
              Pretax income                                  13.4               15.1              11.4
</TABLE>

For all affiliated companies held at the end of the year, summarized balance
sheet data, as if GRC held 100 percent interest, were (in millions):

<TABLE>
<CAPTION>
                                                                 December 31
                                                       --------------------------------
                                                          2000                1999
                                                       ------------       -------------
<S>                                                        <C>                <C>
              Total assets                                 $733.8             $553.4
              Long-term liabilities                         594.5              367.8
              Other liabilities                              18.3               58.0
                                                           ------             ------

              Shareholders' equity                         $121.0             $127.6
                                                           ======             ======
</TABLE>


                                       24



<PAGE>   26



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE E -- FOREIGN OPERATIONS

GRC has a number of investments in subsidiaries and affiliated companies that
are located in or derive revenues from foreign countries. Foreign entities
contribute entirely to share of affiliates' earnings. The foreign identifiable
assets represent investments in affiliated companies as well as fully
consolidated assets for Canadian and Mexican railcar operations.

<TABLE>
<CAPTION>
In Millions/Year Ended or at December  31             2000            1999            1998
---------------------------------------------       --------        --------        --------

<S>                                                  <C>             <C>             <C>
Revenue
---------------------------------------------
Canada                                               $   81.9        $   78.5        $   69.0
Other Foreign                                            18.9            14.2             7.8
United States                                           501.4           500.8           482.7
                                                     --------        --------        --------
                                                     $  602.2        $  593.5        $  559.5
                                                     ========        ========        ========

Share of Affiliates' Earnings
---------------------------------------------
Other Foreign                                        $    3.0        $    3.8        $    2.7
                                                     --------        --------        --------
                                                     $    3.0        $    3.8        $    2.7
                                                     ========        ========        ========

Identifiable Assets for Continuing Operations
---------------------------------------------
Canada                                               $  289.1        $  288.8        $  270.4
Other Foreign                                           178.3           178.8            81.8
United States                                         1,716.7         1,655.2         1,586.5
                                                     --------        --------        --------
                                                     $2,184.1        $2,122.8        $1,938.7
                                                     ========        ========        ========
</TABLE>


Foreign cash flows generated are used to meet local operating needs and for
reinvestment. The translation of the foreign balance sheets into U.S. dollars
results in an unrealized foreign currency translation adjustment, a component of
accumulated other comprehensive loss.


                                       25


<PAGE>   27



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F -- SHORT-TERM DEBT AND LINES OF CREDIT

Short-term debt (in millions) and weighted average interest rates as of year-end
were:

<TABLE>
<CAPTION>
                                                                            December 31
                                         -----------------------------------------------------------------------------
                                                       2000                                            1999
                                         ------------------------------                  -----------------------------
                                          Amount                  Rate                    Amount                 Rate
                                         --------                 -----                  --------                -----
<S>                                      <C>                      <C>                    <C>                     <C>
Commercial paper                         $  172.0                 7.72%                  $  132.6                6.69%
Other short-term borrowings                  65.0                 7.56%                     115.0                6.53%
                                         --------                                        --------

                                         $  237.0                                        $  247.6
                                         ========                                        ========
</TABLE>

Under a revolving credit agreement with a group of banks, GRC may borrow up to
$350.0 million. The revolving credit agreement contains various restrictive
covenants that include, among other things, minimum net worth, restrictions on
additional indebtedness, and requirements to maintain certain financial ratios
for GRC. Under the agreement, GRC met these requirements at December 31, 2000.
While at year-end no borrowings were outstanding, availability under the credit
line was reduced by $172.0 million of commercial paper outstanding. GRC also had
borrowings of $65.0 million under unsecured money market lines at December 31,
2000.

Interest expense on short-term debt was $17.6 million in 2000, $12.8 million in
1999, and $12.9 million in 1998. The portion of interest expense allocated to
discontinued operations was $3.7 million, $1.4 million, and $1.2 million for
2000, 1999 and 1998, respectively.

NOTE G -- LONG-TERM DEBT

Long-term debt (in millions) and the range of interest rates as of year-end
were:

<TABLE>
<CAPTION>
                                                                                                        December 31
                                            Interest                Final                     -------------------------------
                                              Rates               Maturity                      2000                  1999
                                         --------------          -----------                  ---------             ---------
<S>                                      <C>                     <C>                          <C>                   <C>
Fixed Rate:
    Term notes                           6.68% - 10.45%          2001 - 2011                  $   818.8             $   882.2
    Nonrecourse obligations              8.35%                   2003                              20.0                  21.0
                                                                                               --------              --------
                                                                                                  838.8                 903.2

Variable Rate:
    Term notes                           5.72% - 7.26%           2001 - 2003                      276.6                 178.0
                                                                                               --------              --------
                                                                                               $1,115.4              $1,081.2
                                                                                               ========              ========
</TABLE>

                                       26

<PAGE>   28



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE G -- LONG-TERM DEBT (CONTINUED)

Maturities of GRC's long-term debt as of December 31, 2000 for the next five
years were (in millions):

<TABLE>
<CAPTION>
               Year              Maturities
               ----              ----------
<S>                               <C>
               2001               $ 248.5
               2002                 155.5
               2003                 256.6
               2004                 100.0
               2005                  67.5
</TABLE>

Interest expense incurred on long-term debt, net of capitalized interest, was
$92.6 million in 2000, $88.5 million in 1999, and $91.4 million in 1998.
Interest expense capitalized as part of the cost of construction of major assets
was $.1 million in 2000. $.8 million in 1999, and $1.3 million in 1998. The
portion of interest expense allocated to discontinued operations was $50.7
million, $49.1 million, and $52.4 million for 2000, 1999 and 1998, respectively.

NOTE H -- OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

In the ordinary course of business, GRC utilizes off-balance sheet financial
instruments to manage financial market risk, including interest rate and foreign
exchange risk.

At December 31, 2000, GRC had the following off-balance sheet financial
instruments (in millions):

<TABLE>
<CAPTION>
                                   Notional        Pay           Receive
Interest Rate Swaps                 Amount      Rate/Index      Rate/Index    Maturity
---------------------------------  --------   -------------     ----------   -----------
<S>                                 <C>       <C>                 <C>        <C>
GRC pays fixed, receives floating   $374.8    4.93% - 7.54%       LIBOR      2001- 2011
GRC pays floating, receives fixed   $150.0    6.06% - 6.80%       LIBOR      2001


<CAPTION>
Currency Swaps and Forwards                      Receive         Deliver      Maturity
---------------------------------             ------------      ----------    ---------
<S>                                               <C>            <C>            <C>
Canadian dollar swap                              $115.0         C$156.2        2011
Duetschemark forwards                             $ 46.8          84.3DM        2002
</TABLE>


                                       27

<PAGE>   29



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H -- OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)

Following is a summary of GRC's interest rate hedge activity (in millions):

<TABLE>
<CAPTION>
                                         Pay               Pay
Interest Rate Swaps                     Fixed            Floating
------------------------------          ------           --------
<S>                                     <C>                <C>
Balance at January 1, 1999              $745.9             $530.0
Additions                                 75.8                 --
Maturities                              (253.2)                --
                                        ------             ------
Balance December 31, 1999                568.5              530.0
Additions                                206.7              150.0
Maturities                              (400.4)            (530.0)
                                        ------             ------
Balance at December 31, 2000            $374.8             $150.0
                                        ======             ======
</TABLE>

GRC uses interest rate swaps and forward starting interest rate swaps to convert
floating rate debt to fixed rate debt and to manage the floating/fixed rate mix
of the debt portfolio. GRC also uses forward starting interest rates swaps and
treasury derivatives to manage interest rate risk associated with the
anticipated issuance of debt.

Historically, GRC had a program that utilized interest rate swaps to match the
cash flow characteristics of its debt portfolio and its railcar leases. The
interest rate swaps effectively converted GRC's long-term fixed rate debt to
debt with maturities of three months to five years, matching the terms of the
railcar leases. During 2000, GRC terminated this program and implemented a new
program that utilizes interest rate swaps to achieve a target level of floating
interest rate exposure in its debt portfolio to reduce income volatility over
the long-term.

The net amount payable or receivable from the interest rate swap agreements is
accrued as an adjustment to interest expense. The fair value of interest rate
swap agreements is determined based on the differences between the contractual
rate of interest and the rates currently quoted for agreements of similar terms
and maturities. The fair value of the interest rate swaps was $(1.2) million at
December 31, 2000 and $3.3 million at December 31, 1999.

GRC has entered into currency swaps and forwards to hedge $115.0 million of debt
obligations of its Canadian subsidiary and $46.8 million in debt obligations
associated with a German joint venture. The fair value of the aggregate of
currency swap and forward agreements was $23.7 million at December 31, 2000 and
$5.7 million at December 31, 1999.

In the event that a counterparty fails to meet the terms of the interest rate
swap agreement or a foreign exchange contract, GRC's exposure is limited to the
interest rate or currency differential. GRC manages the credit risk of
counterparties by dealing only with institutions that the company considers
financially sound and by avoiding concentrations of risk with a single
counterparty. GRC considers the risk of nonperformance to be remote.


                                       28

<PAGE>   30



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value of
financial instruments:

The carrying amount of cash and cash equivalents, trade receivables, accounts
payable, and short-term debt approximates fair value because of the short
maturity of those instruments. Also, the carrying amount of variable rate
long-term debt approximates fair value.

The fair value of fixed rate long-term debt was estimated by performing a
discounted cash flow calculation using the term and market interest rate for
each note based on GRC's current incremental borrowing rates for similar
borrowing arrangements. Portions of fixed rate long-term debt have effectively
been converted to floating rate debt by utilizing interest rate swaps (GRC pays
floating rate interest, receives fixed rate interest) as described in Note H. In
such instances, the increase (decrease) in the fair value of the fixed rate
long-term debt would be offset in part by the increase (decrease) in the fair
value of the interest rate swap.

The following table sets forth the carrying amounts and fair values of the
company's fixed rate debt (in millions):

<TABLE>
<CAPTION>
                                                                         December 31
                                              ----------------------------------------------------------------
                                                        2000                                     1999
                                              -------------------------                -----------------------
                                              Carrying           Fair                  Carrying          Fair
                                               Amount            Value                  Amount           Value
                                              --------          -------                --------         ------
<S>                                           <C>               <C>                     <C>             <C>
Long-term debt - fixed                        $ 838.8           $ 831.4                 $903.2          $894.9
                                              =======           =======                 ======          ======
</TABLE>

NOTE J -- PENSION AND OTHER POSTRETIREMENT BENEFITS

GRC and its subsidiaries contributed to several pension plans sponsored by GATX
that cover substantially all employees. Benefits payable under the plans are
based on years of service and/or final average salary. The funding policy for
all plans is based on an actuarially determined cost method allowable under
Internal Revenue Service regulations. Contributions to these plans were zero,
$.1 million, and $2.8 million in 2000, 1999, and 1998, respectively.

Costs pertaining to the GATX plans are allocated to GRC on the basis of payroll
costs with respect to normal cost and on the basis of actuarial determinations
for prior service cost. Net periodic pension cost for continuing operations for
2000, 1999, and 1998 was $.5 million, $.5 million and $.7 million, respectively.
Plan benefit obligations, plan assets, and the components of net periodic cost
for individual subsidiaries of GATX have not been determined.

In addition to the pension plans, GRC's other postretirement plans provide
health care, life insurance and other benefits for certain retired employees who
meet established criteria. Most domestic employees are eligible for health care
and life insurance benefits if they retire from GRC with immediate pension
benefits under the GATX pension plan. The plans are either contributory or
non-contributory, depending on various factors.


                                       29

<PAGE>   31



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J -- PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)

The following tables set forth pension obligations and plan assets as of
December 31 and other postretirement obligations for continuing operations as of
December 31 (in millions):

<TABLE>
<CAPTION>
                                                               2000            1999
                                                              -------         -------
<S>                                                           <C>             <C>
Change in benefit obligation:
  Benefit obligation at beginning of period                   $  32.9         $  34.4
  Service cost                                                     .2              .1
  Interest cost                                                   2.1             2.3
  Actual loss                                                    (1.9)             --
  Benefits paid                                                  (3.3)           (3.9)
                                                              -------         -------
  Benefit obligation at end of period                         $  30.0         $  32.9
                                                              =======         =======

Change in fair value plan assets:
  Plan assets at beginning of period                          $    --         $    --
  Company contributions                                           3.3             3.9
  Benefits paid                                                  (3.3)           (3.9)
                                                              -------         -------
  Plan assets at end of period                                $    --         $    --
                                                              =======         =======

Reconciliation of accrued and total amount recognized:
  Funded status of the plan                                   $ (30.0)        $ (32.9)
  Unrecognized net gain                                         (11.2)           (9.5)
                                                              -------         -------
  Accrued cost                                                $ (41.2)        $ (42.4)
                                                              =======         =======

  Accrued benefit liability recognized                        $ (41.2)        $ (42.4)
                                                              =======         =======

<CAPTION>
                                                               2000            1999            1998
                                                              -------         -------         -------
<S>                                                           <C>             <C>             <C>
Total costs:
  Service cost                                                $    .2         $    .1         $    .1
  Interest cost                                                   2.1             2.3             2.5
  Amortization of unrecognized net gain                           (.4)            (.3)            (.5)
                                                              -------         -------         -------
  Net periodic cost                                           $   1.9         $   2.1         $   2.1
                                                              =======         =======         =======
</TABLE>


                                       30

<PAGE>   32



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J -- PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)

Assumptions as of December 31:

<TABLE>
<CAPTION>
                                                     2000           1999
                                                     ----           ----
<S>                                                  <C>            <C>
Discount rate                                        7.50%          7.00%
Rate of compensation increases                       5.00%          5.00%
</TABLE>

The assumed health care cost trend rate was 5.0% for participants over the age
of 65 and 6.0% for participants under the age of 65 for 2000 and thereafter. The
health care cost trend rate has a significant effect on the other postretirement
benefit cost and obligation. A 1% increase in the trend rate would increase the
cost by $.2 million and the obligation by $2.8 million. A 1% decrease in the
trend rate would decrease the cost by $.2 million and the obligation by $2.5
million.

NOTE K -- INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Significant components of GRC's deferred tax liabilities and assets were (in
millions):


<TABLE>
<CAPTION>
                                                              2000           1999
                                                             -------        -------
<S>                                                          <C>            <C>
Deferred Tax Liabilities:
   Book/tax basis differences due to depreciation            $ 247.2        $ 244.6
   Other                                                       129.1          104.4
                                                             -------        -------
      Total deferred tax liabilities                           376.3          349.0

Deferred Tax Assets:
   Accruals not currently deductible for tax purposes            7.5           10.3
   Postretirement benefits other than pensions                  14.2           15.4
   Lease accounting                                             27.1           20.8
   Other                                                         4.2            3.2
                                                             -------        -------
      Total deferred tax assets                                 53.0           49.7
                                                             -------        -------

        Net deferred tax liabilities                         $ 323.3        $ 299.3
                                                             =======        =======
</TABLE>

                                       31

<PAGE>   33



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- INCOME TAXES (CONTINUED)

The results of operations of GRC and its United States subsidiaries are included
in the consolidated federal income tax return of GATX. Current provisions for
federal income taxes represent amounts payable to GATX resulting from inclusion
of GRC's operations in the consolidated federal income tax return. Amounts shown
as currently payable for federal income taxes represent taxes payable due to the
alternative minimum tax.

Income taxes from continuing operations consisted of (in millions):

<TABLE>
<CAPTION>
                                    Year Ended December 31
                               ------------------------------
                               2000         1999         1998
                               ----         ----         ----
<S>                           <C>           <C>          <C>
Current-
    Domestic:
       Federal                $ 8.8         $27.9        $19.1
       State and local          3.5           2.1          1.6
                              -----         -----        -----
                               12.3          30.0         20.7
    Foreign                     9.8           6.9          5.2
                              -----         -----        -----
                               22.1          36.9         25.9
Deferred-
    Domestic:
       Federal                 25.8          12.0         18.1
       State and local         (1.0)           .7          1.3
                              -----         -----        -----
                               24.8          12.7         19.4
    Foreign                      .4           2.2          3.3
                              -----         -----        -----
                               25.2          14.9         22.7
                              -----         -----        -----

Income tax expense            $47.3         $51.8        $48.6
                              =====         =====        =====

Income taxes paid             $16.2         $35.2        $19.6
                              =====         =====        =====
</TABLE>

The reasons for the differences between GRC's effective income tax rate and the
federal statutory income tax rate were:

<TABLE>
<CAPTION>
                                             Year Ended December 31
                                         -------------------------------
                                         2000          1999         1998
                                         ----          ----         ----
<S>                                      <C>           <C>          <C>
Federal statutory income tax rate        35.0%         35.0%        35.0%
Add (deduct) effect of:
      State income taxes                  1.6            .7           .9
      Foreign income                      1.3           1.3          1.4
      Other                               (.4)           .5           .4
                                         ----          ----         ----

                                         37.5%         37.5%        37.7%
                                         ====          ====         ====
</TABLE>


                                       32

<PAGE>   34



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK

GRC's revenues are derived from a range of industries and companies. However,
approximately 41.9% of total revenues are generated from the transportation of
product from the chemical industry; for similar services, 24.0% of revenues are
derived from the petroleum industry and 17.8% from the food industry.

Under its customer lease agreements, GRC retains legal ownership of the asset
except where such assets have been financed by sale-leasebacks. GRC performs
credit evaluations prior to approval of a lease contract. Subsequently, the
creditworthiness of the customer is monitored on an ongoing basis. GRC maintains
an allowance for possible losses to provide for potential losses that could
arise should customers become unable to discharge their obligations to GRC.

At December 31, 2000, GRC had firm commitments to acquire railcars totaling
$124.1 million.

GRC issued $181.6 million of guarantees at December 31, 2000. Guarantees are
commitments issued to guarantee performance of an affiliate to a third party.
Exposure to GRC for certain supplier and loan payment guarantees is mitigated
by, among other things, a third party cross guaranty.

GRC is also a party to letters of credit and bonds totaling $10.7 million at
December 31, 2000 and $11.8 million at December 31, 1999. In GRC's past
experience, virtually no claims have been made against these financial
instruments. Management does not expect any material losses to result from these
off-balance sheet instruments because performance is not expected to be
required, and, therefore, is of the opinion that the fair value of these
instruments is zero.

GRC and its subsidiaries are engaged in various matters of litigation and have a
number of unresolved claims pending, including proceedings under governmental
laws and regulations related to environmental matters. While the amounts claimed
are substantial the ultimate liability with respect to such litigation and
claims cannot be determined at this time. Management believes that damages, if
any, required to be paid by GRC and its subsidiaries in the discharge of such
liabilities are not likely to be material to GRC's consolidated results of
operations or financial position.

NOTE M -- DISCONTINUED OPERATIONS

In July 2000, GRC announced its intent to sell GATX Terminals Corporation
(Terminals) and reached an agreement in November to sell substantially all of
the U.S. terminals and pipeline assets, representing the bulk of Terminals'
operations. A portion of this transaction closed in March 2001 and the remainder
is expected to close following regulatory approval. GRC expects to complete the
divestiture of the remaining terminals in 2001.

GRC's financial statements have been restated to reflect Terminals as a
discontinued operation for all periods presented. Corporate allocations to
discontinued operations were for services provided. Operating results include
interest expense on debt to be assumed by the buyer and an allocation of the
interest expense on GRC's general credit facilities based on actual historical
financing requirements.


                                       33

<PAGE>   35



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- DISCONTINUED OPERATIONS (CONTINUED)

Operating results of the discontinued Terminals operation are presented below
(in millions):

<TABLE>
<CAPTION>
                                                  Year Ended December 31
                                          -------------------------------------
                                            2000           1999           1998
                                          -------        -------        -------
<S>                                       <C>            <C>            <C>
Gross income                              $ 331.3        $ 293.9        $ 311.2
Net income, net of income taxes of
$22.6, $19.1, and $13.4                      37.1           26.1           19.5
</TABLE>

Assets and liabilities of the discontinued operations are summarized below (in
millions):

<TABLE>
<CAPTION>
                                                       December 31
                                                 ----------------------
                                                   2000           1999
                                                 -------        -------
<S>                                              <C>            <C>
Accounts receivable, net                         $  35.1        $  31.8
Tank storage terminals and pipelines, net          852.4          733.0
Investments in affiliated companies                 71.1          195.9
Other assets                                        61.6           37.2

Accounts payable and accrued expenses               64.0           77.9
Long-term debt                                     147.7          144.7
Deferred items                                     197.7          158.8
                                                 -------        -------

Net assets of discontinued operations            $ 610.8        $ 616.5
                                                 =======        =======
</TABLE>


NOTE N -- FINANCIAL DATA OF BUSINESS SEGMENTS

GRC is engaged in the following businesses:

GATX Rail and its domestic and foreign subsidiaries and affiliates (Rail) lease
and manage tank cars and other specialized railcars.

Other represents external and intercompany financing activities.


                                       34


<PAGE>   36



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE N -- FINANCIAL DATA OF BUSINESS SEGMENTS (CONTINUED)

The financial data presented on this and the following page conform to SFAS No.
131 -- Disclosures about Segments of an Enterprise and Related Information, and
depict the profitability, financial position and cash flow for each of GRC's
business segments. Segment profitability is presented to reflect operating
results inclusive of allocated support expenses from the parent company and
interest costs based upon the debt levels shown below.


<TABLE>
<CAPTION>

IN MILLIONS                                             GATX RAIL               OTHER                TOTAL
---------------------------------------------------     ---------              --------             --------

<S>                                                       <C>                  <C>                  <C>
2000

PROFITABILITY
Revenues                                                  $  572.0             $   30.2             $  602.2
Share of affiliates' earnings                                  3.0                   --                  3.0
                                                          --------             --------             --------

Gross income                                                 575.0                 30.2                605.2

Interest expense                                             (52.8)                (9.4)               (62.2)
Depreciation and amortization                               (100.5)                  --               (100.5)
Income from continuing operations before taxes               105.9                 20.2                126.1
Income from continuing operations                             65.7                 13.1                 78.8


FINANCIAL POSITION
Investments in affiliated companies                           83.9                   --                 83.9
Identifiable assets                                        1,669.6              1,125.3              2,794.9

ITEMS AFFECTING CASH FLOW
Net cash provided by operating activities                    151.8                 10.1                161.9
Capital additions                                            374.8                   --                374.8
</TABLE>


                                       35

<PAGE>   37



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE N -- FINANCIAL DATA OF BUSINESS SEGMENTS (CONTINUED)


<TABLE>
<CAPTION>

IN MILLIONS                                              GATX RAIL             OTHER                TOTAL
-------------------------------------------------        ---------            --------             --------
<S>                                                       <C>                  <C>                  <C>
1999

PROFITABILITY
Revenues                                                  $  567.1             $   26.4             $  593.5
Share of affiliates' earnings                                  3.8                   --                  3.8
                                                          --------             --------             --------

Gross income                                                 570.9                 26.4                597.3

Interest expense                                             (52.6)                (5.7)               (58.3)
Depreciation and amortization                               (100.1)                  --               (100.1)
Income from continuing operations before taxes               117.5                 20.5                138.0
Income from continuing operations                             72.9                 13.3                 86.2

FINANCIAL POSITION
Investments in affiliated companies                           91.3                   --                 91.3
Identifiable assets                                        1,693.8              1,045.5              2,739.3

ITEMS AFFECTING CASH FLOW
Net cash provided by operating activities                    141.4                 12.7                154.1
Capital additions                                            386.6                   --                386.6


1998

PROFITABILITY
Revenues                                                  $  532.3             $   27.2             $  559.5
Share of affiliates' earnings                                  2.7                   --                  2.7
                                                          --------             --------             --------

Gross income                                                 535.0                 27.2                562.2

Interest expense                                             (52.9)                (6.3)               (59.2)
Depreciation and amortization                                (97.3)                  --                (97.3)
Income from continuing operations before taxes               108.5                 20.5                129.0
Income from continuing operations                             67.1                 13.3                 80.4

FINANCIAL POSITION
Investments in affiliated companies                           62.2                   --                 62.2
Identifiable assets                                        1,539.9                980.3              2,520.2

ITEMS AFFECTING CASH FLOW
Net cash provided by operating activities                    166.1                 20.9                187.0
Capital additions                                            384.8                   --                384.8
</TABLE>


                                       36



<PAGE>   38



                     GATX RAIL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE O -- SUBSEQUENT EVENTS

On March 1, 2001, GATX completed the sale of the majority of Terminals' domestic
operations to Kinder Morgan Energy Partners, L.P. The sale included Terminals'
domestic terminaling operations and the Central Florida Pipeline Company. The
sale of Calnev Pipeline Company to Kinder Morgan Energy Partners, L.P.is
expected to close following regulatory approval. Approximately $800 million of
the purchase price was realized in conjunction with this portion of the
transaction, including approximately $620 million in cash plus the assumption of
debt and other liabilities. The remainder of the purchase price will be realized
upon closing of the Calnev Pipeline Company sale.

GATX has also completed the sale of substantially all of Terminals' European
operations, including the sale of GATX Terminals Antwerpen N.V., a wholly-owned
terminal operation based in Antwerp, to Oiltanking GmbH, and the sale of its 50%
interest in Terminales Portuarias, S.A. to its partner, Petrofrance Chemie S.A.

In the fourth quarter of 2000, employees at Rail's four major U.S. service
centers rejected the terms of a company-proposed labor contract. As a result of
this situation, the amount of work at Rail's service centers declined and the
use of third-party contract shops increased. On February 26, 2001, employees at
Rail's domestic service centers approved a new labor contract. Subsequent to
December 31, 2000, Rail decided to shut down the service center located in East
Chicago, Indiana. The three remaining service centers were not affected by this
decision.

In March 2001, a subsidiary of Rail purchased Dyrekcja Eksploatacji Cystern
(DEC), Poland's national tank car fleet and fuel distribution company. DEC
assets include 11,500 tank cars and a maintenance network.


                                       37

<PAGE>   39



                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                     GATX RAIL CORPORATION AND SUBSIDIARIES
                                  (IN MILLIONS)


<TABLE>
<CAPTION>

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

COL. A                                       COL. B          COL. C            COL. D              COL. E            COL. F

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

                                                                       Additions
                                                          -----------------------------------
DESCRIPTION                                Balance at      Charged to        Charged to                             Balance
                                            Beginning       Costs and      Other Accounts-       Deductions        at End of
                                            of Period       Expenses          Describe            Describe           Period

---------------------------------------- ---------------- -------------- -------------------- ----------------- -----------------
<S>                                           <C>              <C>               <C>                 <C>                <C>
Year ended December 31, 2000:
   Allowance for possible losses
      in collection of trade
      receivables - Note A                    $  2.5           $ 1.6             $   .6  (B)         $  (.1) (C)        $ 4.6

Year ended December 31, 1999:
   Allowance for possible losses
      in collection of trade
      receivables - Note A                    $  3.1           $  --             $   --  (B)         $  (.6) (C)        $ 2.5

Year ended December 31, 1998:
   Allowance for possible losses
      in collection of trade
      receivables - Note A                    $  3.9           $  --             $  (.7) (B)         $  (.1) (C)        $ 3.1
</TABLE>


Note A -- Deducted from asset accounts.
Note B -- Transfer from other accounts.
Note C -- Uncollectible accounts charged off.


                                       38