<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[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

                   For the transition period from      to
                                                  ----    ----
                         Commission file number 1-14031

                          CORRECTIONAL PROPERTIES TRUST
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                       <C>
MARYLAND                                                  65-0823232
(State or Other Jurisdiction                              (I.R.S. Employer
of Incorporation or Organization)                         Identification No.)

3300 PGA BOULEVARD, SUITE 750
PALM BEACH GARDENS, FLORIDA                               33410
(Address of Principal Executive Offices)                  (Zip Code)
</TABLE>

                                 (561) 630-6336
               (Registrant telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                  Name of each exchange
         Title of each class                       on which registered
<S>                                           <C>
Common Shares of Beneficial Interest,
$.001 par value per share                     New York Stock Exchange
-------------------------------------         ---------------------------------
</TABLE>

           Securities registered pursuant to Section 12(g) of the Act:

                                      none
-------------------------------------------------------------------------------
                                (Title of Class)

         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 [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         As of March 26, 2001, the aggregate market value of the voting shares
held by non-affiliates of the registrant was approximately $84,210,959 based on
the closing price on that date of $12.25 per share. As of that date, there were
7,130,000 of the registrant's Common Shares outstanding.


<PAGE>   2

                       DOCUMENTS INCORPORATED BY REFERENCE

The information required by Items 10, 11, 12 and 13 of Part III of this Form
10-K is incorporated by reference to the definitive Proxy Statement of the
Company relating to the 2001 Annual Meeting of Shareholders.

Certain exhibits listed in Part IV of this Annual Report on Form 10-K are
incorporated by reference from prior filings made by the registrant under the
Securities Exchange Act of 1934, as amended.


<PAGE>   3

                          CORRECTIONAL PROPERTIES TRUST
                           ANNUAL REPORT ON FORM 10-K

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                            NUMBER
                                                                                                            ------
<S>            <C>                                                                                          <C>
                                            PART I
Item 1.        Business....................................................................................     1
Item 2.        Properties..................................................................................    22
Item 3.        Legal Proceedings...........................................................................    22
Item 4.        Submission of Matters to a Vote of Security Holders.........................................    22

                                            PART II

Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters.......................    23
Item 6.        Selected Financial Data.....................................................................    24
Item 7.        Management's Discussion and Analysis of Financial Condition and Results
               of Operations...............................................................................    25
Item 7A.       Quantitative and Qualitative Disclosures About Market Risk .................................    29
Item 8.        Financial Statements and Supplementary Data.................................................    29
Item 9.        Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosure........................................................................    29

                                           PART III

Item 10.       Directors and Executive Officers of the Registrant..........................................    44
Item 11.       Executive Compensation......................................................................    44
Item 12.       Security Ownership of Certain Beneficial Owners and Management..............................    44
Item 13.       Certain Relationships and Related Transactions..............................................    44

                                            PART IV

Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................    45
</TABLE>


<PAGE>   4

                                     PART I

FORWARD-LOOKING STATEMENTS:

         This report contains forward-looking statements that are based on
current expectations, estimates and projections about the business marketplace
in which Correctional Properties Trust (the "Company") operates. This report
also includes management's beliefs and assumptions. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

         Future Factors include, without limitation, increasing competition,
including new entrants in the marketplace; the mix of tenants as it relates to
other private operators and governmental entities; governmental and public
policy changes; reliance on a single tenant for a significant portion of
revenue; interest rate risk; continued availability of financing; rental rates
sufficient to make acquisitions feasible; continued ability to pay a dividend;
and financial instruments and financial resources in the amounts, at the times
and on the terms required to support the Company's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic
economic conditions including interest rate fluctuations and other future
factors. The Company discusses such risks in the Company's various reports filed
with the Securities and Exchange Commission.


                                       ii
<PAGE>   5

ITEM 1.  BUSINESS.

GENERAL

         Correctional Properties Trust (the "Company") was formed in February
1998 as a Maryland real estate investment trust (a "REIT") to capitalize on the
growing trend toward privatization in the corrections industry. The principal
business strategy of the Company is to acquire correctional and detention
facilities from both private prison operators and governmental entities and to
lease such facilities to experienced correctional and detention facility
operators under long-term, non-cancelable, triple-net leases (leases where the
tenant is required to pay all operating expenses, taxes, insurance, structural
and non-structural repairs and other costs). The Company is the only
publicly-traded REIT which focuses exclusively on the acquisition and ownership
of correctional and detention facilities.

         On April 28, 1998, the Company completed its initial public offering
(the "IPO") of 6,200,000 common shares of beneficial interest, par value $.001
per share (the "Common Shares"). On May 13, 1998, pursuant to the underwriters'
exercise of their over-allotment option, the Company sold an additional 930,000
Common Shares, resulting in a total of 7,130,000 Common Shares outstanding. The
Company's IPO generated gross proceeds of $142.6 million and aggregate net
proceeds, after deducting the underwriting discounts and commissions and
offering expenses, of approximately $130.7 million.

         Management believes that the privatized corrections industry has the
potential for substantial growth in the United States due to increases in the
inmate population, decreases in the availability of public funding for new
correctional and detention facilities and a growing acceptance of the trend
toward privatization in the corrections industry. According to the United States
Bureau of Justice Statistics ("Bureau of Justice Statistics"), the inmate
population in federal, state and local facilities in the United States has grown
from 501,886 in 1980 to 2,026,596 at December 31, 1999. In addition, according
to the Bureau of Justice Statistics, as of December 31, 1999, state prison
systems reported operating at between approximately 1% to 17% overcapacity and
the federal corrections system reported operating at approximately 32%
overcapacity. The privatized corrections industry has capitalized on these
favorable supply/demand fundamentals, resulting in a substantial increase in the
number of privatized beds.

         The Company owns and leases eleven correctional properties in eight
states with an aggregate design capacity of 6,130 beds as of December 31, 2000.

         The location and mailing address of the Company's principal executive
offices is Gardens Plaza, Suite 750, 3300 PGA Boulevard, Palm Beach Gardens,
Florida 33410. The Company's telephone number is (561) 630-6336.

THE FORMATION TRANSACTIONS

         In connection with the consummation of the IPO, the Company and
Wackenhut Corrections Corporation ("Wackenhut Corrections" or "WCC") engaged in
a series of transactions (the "Formation Transactions") which were designed to
consolidate ownership in the Company of eight correctional and detention
facilities operated by Wackenhut Corrections (the "Initial Facilities"), to
provide a vehicle for possible future acquisitions of other facilities which
Wackenhut Corrections owns or has a right to acquire (in addition to other
facilities the Company may acquire) and to enable the Company to qualify as a
REIT for federal income tax purposes. These transactions included the following:

         Issuance of Common Shares and Redemption of Founder's Shares. The
Company sold 7,130,000 Common Shares in the IPO, resulting in net proceeds to
the Company of approximately $130.7 million after deduction of the underwriting
discounts and commissions and offering expenses. All of the net proceeds to the
Company from the IPO were contributed by the Company directly to CPT Operating
Partnership L.P., a Delaware limited partnership (the "Operating Partnership")
to fund the Company's investment in the Operating Partnership, in exchange for a
combined 100% interest in the Operating Partnership. The Company owns a 98%
limited partnership interest and a 1% general partnership interest in the
Operating Partnership. CPT Limited Partner, Inc. ("CPT LP") owns a 1% limited
partnership interest in the Operating Partnership. The Company also redeemed at
cost the 1,000 founder's shares which were issued in connection with the
formation of the Company.

         Purchase Agreement. The Company entered into and closed upon an
Agreement of Sale and Purchase (the "Purchase Agreement") with Wackenhut
Corrections, pursuant to which the Company acquired, directly or as assignee of
Wackenhut


                                       1
<PAGE>   6

Corrections contract rights, the Initial Facilities having an aggregate design
capacity of 3,154 beds for an aggregate cash purchase price of approximately
$113.0 million.

         Option Agreements. The Company entered into Option Agreements with
Wackenhut Corrections, pursuant to which Wackenhut Corrections granted the
Company the option to acquire three additional correctional facilities (the
"Option Facilities") having an aggregate design capacity of 2,256 beds at any
time prior to the earlier of (i) four years from receipt of a certificate of
occupancy for the subject facility, or (ii) six months after such facility
achieves an occupancy level of 75% of the number of beds authorized under the
certificate of occupancy for the facility (the "Option Facility Option Period").
The purchase price (the "Option Facility Purchase Price") of an Option Facility
will equal 105% (or such lower percentage as may be agreed to by Wackenhut
Corrections) of the aggregate costs related to the acquisition, development,
design, construction, equipment and start-up of such Option Facility (which in
the case of goods or services provided by Wackenhut Corrections will not exceed
the costs which would be paid therefor if purchased from a third party in an
arm's length transaction) (the "Total Facility Cost"). As of January 31, 2001,
the Company's option has expired with respect to one of the Option Facilities
without the Company exercising such option.

         Leases. Concurrent with the Company's acquisition of the Initial
Facilities, the Company leased such facilities to Wackenhut Corrections and or
its affiliate -- See "Structure of the Company" -- (and Wackenhut Corrections
will continue to operate such facilities) pursuant to leases for an initial term
of 10 years. Subject to certain limited exceptions, the term of each of the
leases may be extended by Wackenhut Corrections for three additional five-year
terms at a fair market rental rate as mutually agreed upon by the Company and
Wackenhut Corrections or, in the absence of such an agreement, as determined by
binding arbitration. In addition, the term of any of the leases will be
automatically extended upon expiration thereof on the same terms (including the
then applicable base rent and Base Rent Escalation (as hereinafter defined) as
reflected in the applicable lease if there is at such time an unexpired sublease
with respect to such facility. If acquired, the Option Facilities will be leased
by the Company to Wackenhut Corrections under the same terms (although possibly
at different rates) as the Initial Facilities. Under the terms of the leases,
Wackenhut Corrections has a 30-day right of first refusal on the proposed sale
by the Company of any of the Initial Facilities and, if acquired, the Option
Facilities.

         Right to Purchase Agreement. The Company entered into a Right to
Purchase Agreement with Wackenhut Corrections, pursuant to which the Company has
the right, during the 15 years following the consummation of the IPO (so long as
there are any leases in force between the Company and Wackenhut Corrections), to
acquire and lease back to Wackenhut Corrections any correctional or detention
facilities which Wackenhut Corrections acquires or has the right to acquire (the
"Future Facilities"), subject to certain limited exceptions where the sale or
transfer of ownership of a facility is restricted under a facility operating
agreement or governmentally assisted financing arrangement. Under the terms of
the Right to Purchase Agreement, the Company may purchase a particular Future
Facility at any time until the earlier of (i)(a) in the case of a newly
developed Future Facility, four years from the receipt of a certificate of
occupancy for such Future Facility or (b) in the case of an already operating
Future Facility, four years from the date such Future Facility is acquired by
Wackenhut Corrections or the party from which Wackenhut Corrections has the
right to acquire such Future Facility or (ii) six months after the Future
Facility attains an occupancy level of 75% of the number of beds authorized
under the certificate of occupancy for such Future Facility, subject to certain
limited exceptions. The purchase price for each Future Facility (the "Future
Facility Purchase Price") will equal 105% (or such lower percentage as may be
agreed to by Wackenhut Corrections) of the Total Facility Cost of such Future
Facility, which may differ from the fair market value of such facility at such
time. In the case of any Future Facility acquired during the first five years
following the consummation of the IPO, the initial annual rental rate will be
the greater of (i) the fair market rental rate as mutually agreed upon by the
Company and Wackenhut Corrections, and in the absence of such an agreement, as
determined by binding arbitration, or (ii) 9.5% of the applicable Future
Facility Purchase Price. In the case of any Future Facility acquired thereafter,
the initial annual rental rate will be the fair market rental rate as mutually
agreed upon by the Company and Wackenhut Corrections or, in the absence of such
an agreement, as determined by binding arbitration. Under the terms of any lease
between the Company and Wackenhut Corrections relating to a Future Facility,
Wackenhut Corrections has a thirty-day right of first refusal on the proposed
sale by the Company of any such Future Facility.


                                       2
<PAGE>   7

BUSINESS AND GROWTH STRATEGIES

         The Company's general business objectives are to maximize both current
returns to shareholders through increases in revenue and net income, and
long-term total returns to shareholders through appreciation in the value of the
Common Shares. As a REIT, the Company's specific business objective is to
maximize funds from operations and cash available for distribution to
shareholders. The Company strives to achieve these objectives by (i) pursuing
investment opportunities with private prison operators and governmental entities
for the acquisition of correctional and detention facilities, (ii) working with
tenants to identify opportunities to expand existing and newly acquired
facilities and (iii) structuring facility leases to include rent escalation
provisions which provide for annual increases in rent.

         Acquisition Opportunities. The Company believes that, because of the
increasing demand for additional prison beds and the lack of public funds
available to finance new facilities, opportunities exist to acquire or develop
correctional and detention facilities from or on behalf of private prison owners
and operators and various government entities.

         In addition to the possible acquisition of the Option Facilities, the
Company may acquire from both private prison owners and operators and
governmental entities additional correctional and detention facilities that meet
its investment guidelines, as described herein. The Company has the right to
acquire and lease back to Wackenhut Corrections each of the Future Facilities
during the applicable Future Facility option period. However, notwithstanding
Wackenhut Corrections' significant presence in the correctional and detention
industry, less than 8% of all adult prison beds in the United States are
privately managed. Management believes that as Wackenhut Corrections and the
private prison management industry continue to grow, opportunities may exist to
acquire additional private correctional facilities from Wackenhut Corrections on
attractive terms.

         The Company believes that opportunities may exist to acquire or develop
correctional facilities from or on behalf of other private prison owners and
operators and various governmental entities. Historically, government entities
have used various methods of construction financing to develop new correctional
and detention facilities, including but not limited to the following: (i)
one-time general revenue appropriations by the government agency for the cost of
the new facility, (ii) general obligation bonds that are secured by either a
limited or unlimited tax levied by the issuing government entity or (iii) lease
revenue bonds secured by an annual lease payment that is subject to annual or
bi-annual legislative appropriation of funds. Many jurisdictions are operating
their correctional and detention facilities at well above their rated
capacities, and as a result are under a federal court order to alleviate prison
overcrowding within a certain time period. These jurisdictions are often not in
a position to appropriate funds or obtain financing to construct a new
correctional or detention facility because of other fiscal demands or
requirements for public approval. Accordingly, the Company believes that, in an
attempt to address fiscal pressures of matching revenue collections with
projected expenses, such government entities may consider private ownership with
respect to the development of new correctional and detention facilities and
sale-leaseback transactions or other financing alternatives with respect to
existing correctional and detention facilities. Management believes that such
situations may enable the Company to acquire and develop correctional or
detention facilities from and on behalf of governmental agencies at all levels,
including those which might not be the subject of a private management contract.

         Expansion Opportunities. The Company believes that there may be
opportunities for expansion of its existing correctional facilities which could
result in increased cash flows and property values. The Company may use its
capital to provide expansion space as requested by its tenants and expects that
any such expansion of its facilities would result in correspondingly higher
rental payments. Alternatively, a tenant may provide the capital for expansion,
which should result in enhanced property values.

         Rent Escalations. All of the Company's leases provide for a source of
cash flow with opportunities for future growth in revenues. The base rent for
the first year for each facility purchased before December 31, 1999 is equal to
9.5% of the facility purchase price. Thereafter, minimum rent escalates by a
fixed three percent at the first two annual anniversaries of the IPO and by an
amount equal to CPI at each successive annual anniversary for the remaining term
of each lease, subject to a maximum increase of four percent per annum
throughout the term of the leases (the "Base Rent Escalation"). However, there
can be no assurance that such contractual escalations will be realized based on
the CPI index or other factors.


                                       3
<PAGE>   8

THE OPERATING PARTNERSHIP

         Formation of The Operating Partnership. Upon completion of the IPO, the
Company acquired a 100% interest in the Operating Partnership. The Company holds
a 1% general partnership interest and a 98% limited partnership interest in the
Operating Partnership. Through CPT LP (a wholly owned subsidiary) , the Company
owns a 1% limited partnership interest in the Operating Partnership. Following
the completion of the IPO and the Formation Transactions, substantially all of
the Company's assets are held by, and its operations conducted through, the
Operating Partnership, which leases them to Wackenhut Corrections. The Company
is the sole general partner of the Operating Partnership and has the exclusive
power under the Partnership Agreement to manage and conduct the business of the
Operating Partnership. The Board of Trustees manages the affairs of the Company
by directing the affairs of the Operating Partnership. The Company's direct and,
through CPT LP, indirect percentage interest in the Operating Partnership, is
100%. The Operating Partnership makes regular quarterly cash distributions to
its partners, including the Company and CPT LP, in proportion to their
percentage interests in the Operating Partnership. The Company, in turn, pays
cash distributions to its shareholders in an amount per Common Share equal to
the amount distributed by the Operating Partnership.

         The Operating Partnership was organized to facilitate the
tax-advantaged acquisition of additional correctional and detention facilities
from private owners. In the event the Company undertakes such an acquisition, it
is contemplated that the owner of such a facility would become a Limited Partner
in the Operating Partnership and would be issued units of limited partnership
interests in the Operating Partnership, representing an equal undivided
fractional share of each item of the Operating Partnership's income, gain, and
loss and in distribution of the Operating Partnership's assets (the "Units," and
the holder thereof, a "Unitholder") therein as the consideration, in whole or in
part, for the Unitholder's transfer of the facility to the Operating
Partnership. It is also contemplated that the Unitholder would be given the
right after a period of time to exchange Units in the Operating Partnership for
cash based upon their fair market value or, at the Company's option, for Common
Shares on a one-for-one basis. It is also contemplated that substantially all
the Company's assets may be owned indirectly through the Operating Partnership
so that one Unit in the Operating Partnership would generally correspond
economically to one Common Share. In order to accomplish such objective, and
while the Company has no present plan to issue Units to a private prison owner,
the current structure using the Operating Partnership is being utilized, rather
than the Company taking title to the Initial Facilities, in order to avoid in
the future a re-transfer of the Initial Facilities to such a partnership, and
the incurrence at that time of associated transfer and other costs, which would
likely be necessary or advisable in order to offer a private owner a
tax-advantaged acquisition vehicle. Currently, the Company and CPT LP are the
only partners in the Operating Partnership and possess the power unilaterally to
amend and restate the Partnership Agreement (as hereinafter defined). The
Company does not intend to use the Operating Partnership (or any partnership
which is owned by the Operating Partnership) (the "Subsidiary Partnership") as a
vehicle for tax-advantaged acquisitions unless it receives an opinion of tax
counsel to the Company that such use would not result in the disqualification of
the Company as a REIT, including an opinion that the Operating Partnership (or
any Subsidiary Partnership) would not be treated for federal income tax purposes
as an association taxable as a corporation or a publicly-traded partnership.

         Operating Partnership Agreement. The Operating Partnership is organized
as a Delaware limited partnership pursuant to the terms of the partnership
agreement which includes the Company, as general partner, and both the Company
and CPT LP as the initial limited partners (the "Partnership Agreement").
Pursuant to the Partnership Agreement, the Company, as the sole general partner
of the Operating Partnership (the "General Partner"), has full, exclusive and
complete responsibility and discretion in the management and control of the
Operating Partnership, and the Company and CPT LP, in their capacity as the
Limited Partners, have no authority to transact business for, or participate in
the management activities or decisions of, the Operating Partnership. Generally,
any amendment to the Partnership Agreement may be made by the General Partner,
including, without limitation, amendments that (i) add to the obligations of the
General Partner, (ii) reflect the admission, substitution or withdrawal of
partners, (iii) reflect the issuance of additional partnership interests issued
by the Operating Partnership, (iv) reflect a change that does not adversely
affect Limited Partners and (v) are necessary to satisfy legal requirements. The
consent of each adversely affected partner is required for any amendment that
would require any partner to make additional capital contributions or restore
any negative balance in its capital account, or which amendment would convert a
limited partnership interest into a general partnership interest, affect a
Limited Partner's liability or right to receive distributions or that would
dissolve the Operating Partnership prior to December 31, 2048 (other than as a
result of certain mergers or consolidations). The Partnership Agreement requires
that the Operating Partnership be operated in a manner that will enable the
Company to satisfy the requirements for being classified as a REIT.


                                       4
<PAGE>   9

STRUCTURE OF THE COMPANY

         The following diagram sets forth the structure of the Company:

<TABLE>
<CAPTION>
                     CORRECTIONAL PROPERTIES TRUST
                            (THE "COMPANY")
                                                              100%
            98%                   1%
          LIMITED               GENERAL                      CPT
          PARTNER               PARTNER               LIMITED PARTNER INC.                WACKENHUT CORRECTIONS CORPORATION
                                                           ("CPT LP")                        ("WACKENHUT CORRECTIONS")(2)
          <S>        <C>                              <C>                    <C>        <C>
                                                                             RENTS
                                                                    1%
                                                                  LIMITED               LEASES
                                                                  PARTNER
                                                                                            SUBLEASES                   RENTS
                                  CPT                                           RENTS                 WCC RE HOLDINGS LLC
                      OPERATING PARTNERSHIP L.P.                                                   (SUCCESSOR BY MERGER TO
                                                                               LEASES               WCC RE HOLDINGS, INC.)
                                                                                                   ("WCCRE LLC")(1),(3),(4)
</TABLE>

(1)      Following the consummation of the IPO, WCC RE Holdings, Inc., a
         wholly-owned subsidiary of Wackenhut Corrections, was merged with and
         into WCC RE Holdings LLC ("WCCRE LLC"), which was formed as a
         wholly-owned subsidiary of Wackenhut Corrections, with WCCRE LLC being
         the surviving entity.

(2)      The Operating Partnership leases the Queens Facility, the Aurora
         Facility, the Hobbs Facility, the Karnes Facility, the Lawton Facility
         and the Jena Facility to Wackenhut Corrections.

(3)      The Operating Partnership leases the following facilities to WCCRE LLC,
         each of which were in turn subleased to Wackenhut Corrections: the
         Broward Facility, the Central Valley Facility, the Golden State
         Facility, the Desert View Facility and the McFarland Facility.

(4)      The provisions of certain existing facility operating agreements
         between Wackenhut Corrections and the respective contracting
         governmental entities afford the governmental entity the right to
         assume a lease of such facility (or designate another facility operator
         to assume the lease of such facility) at a fixed rental rate in the
         event of the early termination of the facility operating agreement upon
         the occurrence of certain events. In such instances, Wackenhut
         Corrections has entered into a sublease for the subject facility with
         WCCRE LLC, with WCCRE LLC as the sublessor and Wackenhut Corrections as
         the sublessee. The contracting governmental entity has the right to
         assume the rights of Wackenhut Corrections under such sublease on early
         termination of the operating agreement for the relevant facility.
         However, even if a government entity elects to exercise its right to
         assume a sublease relating to a facility, Wackenhut Corrections is
         nevertheless liable to the Company under the master lease relating to
         such facility. See "Subleases."


                                       5
<PAGE>   10

THE OWNED FACILITIES, THE OPTION FACILITIES AND THE FUTURE FACILITIES.

THE OWNED FACILITIES

         The eleven facilities owned by the Company at December 31, 2000 (the
eight Initial Facilities acquired by the Company in connection with the IPO, the
Lea County Correctional Facility and the Lawton Correctional Facility purchased
in January 1999 and the Jena Juvenile Correctional Facility purchased in January
2000, together the eleven "Owned Facilities") acquired by the Company were
purchased for an aggregate cash purchase price of approximately $222 million.
The Company has leased the Owned Facilities to Wackenhut Corrections or its
subsidiary (and Wackenhut Corrections will continue to operate such Owned
Facilities) pursuant to the leases, which have initial terms of 10 years.
Throughout the terms of these leases, the base annual rents escalate by the Base
Rent Escalation. The eleven Owned Facilities are located in eight states and
have an aggregate design capacity of 6,130 beds. The following table sets forth
certain information with respect to the Owned Facilities as of December 31,
2000:

<TABLE>
<CAPTION>
                                                                                       DESIGN            EXPIRATION
                                                                                      CAPACITY               OF      OPERATING
                                                                                         AND     FACILITY   FACILITY   AGREEMENT
                                                      TYPE OF   CONTRACTING SECURITY  OCCUPANCY  OPENING   OPERATING   RENEWAL
FACILITY AND LOCATION                                FACILITY     ENTITY    LEVEL(1)   RATE(2)    DATE     AGREEMENT   OPTIONS
---------------------                                --------   ----------- --------  --------   ------    ---------   -------
<S>                                                  <C>        <C>         <C>       <C>        <C>       <C>         <C>
Aurora INS Processing
  Center.........................................    INS            INS(3)    Minimum/  300/94%   May       May         Four
  (the "Aurora...................................    Processing               Medium              1997      2003        One-
  Facility").....................................    Center                                                             Year
  Aurora, CO

McFarland Community
  Correctional Facility..........................    Pre-Release    CDOC(4)   Minimum/  224/96%   February  June          --
  (the "McFarland................................    Center                   Medium              1988      2002
  Facility")
  McFarland, CA

Queens Private
  Correctional
  Facility.......................................    INS            INS(5)    Minimum/  200/93%   March     March       Four
  (the "Queens...................................    Detention                Medium              1997      2002        One-
  Facility").....................................    Facility                                                           Year
  New York, NY

Central Valley Community
  Correctional Facility..........................    Adult          CDOC      Minimum/  550/94%   December  December      --
  (the "Central Valley...........................    Correctional             Medium              1997      2007
  Facility").....................................    Facility
  McFarland, CA

Golden State Community
  Correctional Facility..........................    Adult          CDOC      Minimum/  550/95%   December  December      --
  (the "Golden State.............................    Correctional             Medium              1997      2007
  Facility").....................................    Facility
  McFarland, CA
</TABLE>


                                       6
<PAGE>   11

<TABLE>
<CAPTION>
                                                                                      DESIGN               EXPIRATION
                                                                                     CAPACITY                 OF      OPERATING
                                                                                       AND      FACILITY   FACILITY   AGREEMENT
                                                    TYPE OF    CONTRACTING SECURITY  OCCUPANCY   OPENING   OPERATING   RENEWAL
FACILITY AND LOCATION                              FACILITY      ENTITY    LEVEL(1)   RATE(2)     DATE     AGREEMENT   OPTIONS
---------------------                              --------    ----------- --------  ---------  --------   ---------  ---------
<S>                                                <C>         <C>         <C>       <C>        <C>        <C>        <C>
Desert View Community
  Correctional Facility..........................  Adult         CDOC      Minimum/   550/95%   December   December          --
  (the "Desert View..............................  Correctional             Medium              1997       2007
  Facility" and..................................  Facility
  together with the
  Golden State
  Facility and the
  Central Valley
  Facility, the
  "California
  Facilities")
  Adelanto, CA

Broward County Work
  Release Center.................................  Work Release  Broward   Non-      300/69%(6) February  February    Unlimited
  (the "Broward County...........................  Center        County    Secured              1998      2003        Two-
  Facility").....................................                and                                                  Year
  Broward County, FL.............................                BSO(6)

Karnes County
  Correctional
  Center.........................................  Adult         Karnes    Multi-     480/97%   January     2026      Varies
  (the "Karnes...................................  Correctional  County    Security             1996
  Facility").....................................  Facility
  Karnes County, TX

Lawton Correctional
  Facility (the "Lawton
  Facility").....................................  Prison        ODOC(7)   Medium    1,500/103% December    June      Three
                                                                                                 1999      2001       One-
                                                                                                                      Year
Lea County Correctional
  Facility (the "Hobbs
  Facility")
  Hobbs, NM......................................  State         Lea       Multi-    1,200/90%  May         June      Annual
                                                   Prison        County    Security  --------   1998        2001
Jena Juvenile Justice Center
  (the "Jena
  Facility")
  Jena, LA.......................................  Juvenile      N/A       Multi-      276/0%   June        N/A       N/A
                                                   Correctional            Security  -------   1999
                                                   Facility
Total............................................                                      6,130
                                                                                     =======
</TABLE>


                                       7
<PAGE>   12

(1)      Each facility is identified according to the level of security
         maintained as follows: non-secured facilities are facilities which are
         access controlled residential facilities; minimum security facilities
         are facilities having open-housing within an appropriate designated and
         patrolled institutional perimeter; medium security facilities are
         facilities having either cells, rooms or dormitories, a secure
         perimeter, and some form of external patrol; maximum security
         facilities are facilities having single occupancy cells, a secure
         perimeter and external patrol or devices; and multi-security facilities
         are facilities with various components of the previously described
         security levels.

(2)      Design capacity measures the number of beds, and accordingly the number
         of inmates each facility is designed to accommodate. Occupancy rate
         measures the percentage of the number of beds which a facility is
         designed to accommodate which are occupied at any given time or for
         which payment has been guaranteed by the contracting governmental
         entity. The facility operating agreement with respect to any facility
         may provide for occupancy less than the facility design capacity. While
         the design capacity of each of the Central Valley Community
         Correctional Facility, the Golden State Community Correctional Facility
         and the Desert View Community Correctional Facility is 550, the
         facility operating agreement for each such facility provides for the
         use and occupancy of only 500 beds per facility. The occupancy rates
         presented are as of December 31, 2000. The Company believes design
         capacity and occupancy rate are appropriate measures for evaluating
         prison operations because the revenues generated by each facility are
         generally based on a per diem or monthly rate per inmate housed at the
         facility paid by the corresponding contracting governmental entities.
         The ability of Wackenhut Corrections or another private prison operator
         to satisfy its financial obligations under its leases with the Company
         is based in part on the revenues generated by their facilities, which
         in turn depends on the design capacity and occupancy rate of each
         facility.

(3)      The United States Immigration and Naturalization Service.

(4)      The State of California Department of Corrections.

(5)      The facility operating agreement for the Queens Private Correctional
         Facility includes a minimum guarantee of 150 beds (75% occupancy)

(6)      The Broward County Sheriff's Office. While the actual occupancy rate
         was 69% as of December 31, 2000, the Broward County Sheriff's office
         has guaranteed payment under the operating agreement based on a 100%
         occupancy rate.

(7)      State of Oklahoma Department of Corrections.

         Adult Correctional Facilities. Adult correctional facilities are used
to house adult inmates on a permanent basis for the duration of their sentences.
The adult correctional facilities acquired by the Company include the Karnes
Facility, the Central Valley Facility, the Golden State Facility, the Desert
View Facility, the Hobbs Facility, and the Lawton Facility.

         The Karnes Facility is a medium security correctional facility located
in Karnes City, Texas with a design capacity of 480 beds. The facility is
situated on approximately 12 acres and contains approximately 77,000 square
feet. Wackenhut Corrections owns an adjacent parcel of unimproved land
containing approximately 30 acres acquired at a total cost of $60,000. Wackenhut
Corrections began operating this facility in January 1998 under an interim
operating agreement with Karnes County and has subsequently negotiated a
long-term operating agreement with Karnes County that expires in 2026.

         The Central Valley Facility and the Golden State Facility are medium
security facilities located on adjacent properties in McFarland, California. The
Central Valley Facility is situated on approximately 19 acres, and the Golden
State Facility is situated on approximately 33 acres. Each facility contains an
approximately 95,901 square foot structure with a design capacity of 550 beds.
Construction of each of the Central Valley Facility and Golden State Facility
was completed in December 1997. Wackenhut Corrections has contracted with the
CDOC to operate each such Facility, which contracts expire in December 2007.

         The Desert View Facility is located in Adelanto, California and is a
medium security facility. The facility is situated on approximately 16 acres and
contains approximately 95,901 square feet with a design capacity of 550 beds.
Construction of the facility was completed in December 1997. Wackenhut
Corrections has contracted with the CDOC to operate this facility, which
contract expires in December 2007.


                                       8
<PAGE>   13

         The Hobbs Facility is a new high-security facility located on
approximately 80 acres and contains approximately 360,000 square feet with a
design capacity of 1200 beds. Construction was completed in May 1998. Wackenhut
Corrections has contracted with Lea County to operate the facility, which
contract expires in June 2001.

         The 1200-bed Hobbs Facility was purchased by the Company in two parts.
The first 600 beds were acquired in October 1998 while the remaining 600 beds
(the "Hobbs Expansion") were bought by the Company in January 1999.

         The Lawton Facility is located in Lawton, Oklahoma and is used as a
medium security prison. The facility is situated on 160 acres. The approximately
406,000 square foot structure contains a design capacity for 1,500 beds.
Oklahoma state law requires that the operating agreement contain a provision
granting the Oklahoma Department of Corrections the option at the beginning of
each fiscal year to purchase the facility at a predetermined price, which must
be negotiated and included in a schedule or formula to be contained in the
operating agreement. Wackenhut Corrections has agreed in the lease for the
Lawton Facility to pay any shortfall to the Company in the event the purchase
option is exercised by the State of Oklahoma and the purchase price paid by the
State of Oklahoma is less than the net book value of the Lawton Facility as
shown on the Company's books and records at the time the purchase option is
exercised.

         Pre-Release Center. A pre-release center is a minimum to medium
security facility for inmates nearing parole, offering inmates basic education
and pre-employment training as well as alcohol and drug abuse treatment and
counseling. The pre-release center acquired by the Company is the McFarland
Facility.

         The McFarland Facility is located in McFarland, California. The
facility is situated on approximately 5 acres, and contains approximately 35,000
square feet. The facility currently has a design capacity of 224 beds. Wackenhut
Corrections has contracted with the CDOC to operate the facility, which contract
expires in June 2002.

         Detention Facilities. Detention facilities are used to house
undocumented aliens for the INS and are classified as minimum to medium security
facilities. The detention facilities acquired by the Company include the Aurora
Facility and the Queens Facility.

         The Queens Facility is located on approximately 1.34 acres in New York,
New York. The facility has a design capacity of 200 beds and contains
approximately 61,400 square feet. Wackenhut Corrections began operating the
facility in June 1997, and is presently operating the facility under a
management contract with the INS which expires in March 2002.

         The Aurora Facility is located on approximately 46 acres in Aurora,
Colorado. Originally designed to accommodate 150 beds, the facility was expanded
in 1992 to contain a design capacity of 300 beds. The approximately 66,000
square foot medium security facility is operated under a management agreement
entered into between the INS and Wackenhut Corrections which expires in May
2003.

         Work Release Centers. A work release center is an access-controlled
community residential center which houses court-ordered residents who work in
the community and participate in programs and residential services at the
center. The work release center acquired by the Company is the Broward Facility.

         The Broward Facility is located in Pompano Beach, Florida and is used
to house residents participating in the Broward County Work Release Program. The
facility is located on approximately ten acres and is designed to accommodate
300 beds. The approximately 86,500 square foot structure is operated under a
management agreement between Broward County, the Sheriff of Broward County and
Wackenhut Corrections, which expires in February 2003, but which provides for
options in favor of the Sheriff of Broward County to extend the management
contract for successive two year terms.

         Juvenile Correctional Facilities. Juvenile correctional facilities
are used to house juvenile offenders under standards which differ from those
used to house adult offenders. On January 7, 2000, the Company exercised its
option to purchase the Jena Facility for approximately $15,300,000. The Jena
Facility is located in Jena, Louisiana and was used to house juvenile inmates.
The facility is situated on approximately 100 acres, consists of an
approximately 62,400 square foot structure and has a capacity for 276 beds. At
the same time as the Company acquired the Jena Facility, the Company entered
into a lease with WCC for such facility at an initial cap rate of 11% with 4%
annual escalators for an initial term of ten years, with three additional
renewal options for terms of five years each in length. The lease provides for
fixed rental payments to the


                                       9
<PAGE>   14

Company without regard for occupancy. The Jena Facility was operated by
Wackenhut Corrections under an operating agreement with the State of Louisiana,
which has been terminated. Wackenhut Corrections does not presently have an
operating contract with a client for the Jena Facility. However, Wackenhut
Corrections is obligated under the terms of the lease to continue to make rental
payments to the Company.

         As a result of the termination of Wackenhut Correction's operating
contract, the Jena Facility no longer is included in the Company's pledge pool
Borrowing Base described in the Bank Credit Facility.

         With the exceptions of the Aurora INS Processing Center, the McFarland
Community Correctional Facility and the Jena Facility, all of the Company's
facilities are deemed "significant" because they each account for 10% or more of
the Company's total assets as of December 31, 2000. For federal income tax
purposes, the Company's tax basis in each facility is generally the purchase
price by the Company. The real property associated with these properties (other
than land) generally will be depreciated for federal income tax purposes over 40
years using the straight line method, which equates to a rate of 2.5%. Other
assets associated with the facilities may be depreciated by the Company using
applicable useful lifes.

         THE OPTION FACILITIES. Two of the three option facilities, the Lawton
Facility and the Jena Facility, were acquired by the Company. The remaining
Option Facility as of December 31, 2000 had an aggregate design capacity of 480
beds. The following table sets forth certain information with respect to this
facility as of December 31, 2000. The option with respect to this facility
expired on January 31, 2001.

<TABLE>
<CAPTION>
                                                                                                   DESIGN
                                                TYPE OF          CONTRACTING     SECURITY           (BED)
           FACILITY AND LOCATION               FACILITY            ENTITY          LEVEL          CAPACITY
           ---------------------            -------------        -----------     --------         --------
<S>                                         <C>                  <C>             <C>              <C>
Michigan Youth Correctional
   Facility (the "Michigan
   Facility")..........................     Juvenile              MDOC(1)         Maximum              480
   Lake County, MI.....................     Correctional
                                            Facility
                                                                                                      ----
Total..................................                                                                480
                                                                                                      ====
</TABLE>

(1)      State of Michigan Department of Management and Budget for the
         Department of Corrections.

THE FUTURE FACILITIES. The terms of the Right to Purchase Agreement between the
Company and Wackenhut Corrections include the exclusive option to purchase
facilities from Wackenhut Corrections for six months after the Future Facility
attains an occupancy level of 75% of the number of beds authorized under the
Certificate of Occupancy. The following facilities have attained 75% occupancy
level and notice of such has been provided to the Company. The following table
sets forth certain information with respect to these Future Facilities,
including the date upon which the exclusive option to purchase expires, under
the six-month occupancy provision.


                                       10
<PAGE>   15

<TABLE>
<CAPTION>
                                                                        DATE EXCLUSIVE                 DESIGN
              FACILITY AND LOCATION                                     OPTION EXPIRES             (BED) CAPACITY
              ---------------------                                     --------------             --------------
     <S>                                                                <C>                        <C>
     Guadalupe County Correctional Facility,                                1/31/01                     600
     Santa Rosa, N.M.

     Val Verde County Detention Center,                                     8/20/01                     600
     Del Rio, TX

     Michigan Youth Correctional Facility,                                  1/31/01                     480
      Lake County, MI

     Western Regional Detention Facility,                                   7/24/01                     900
     San Diego, CA
</TABLE>

LEASES AND SUBLEASES

         Simultaneous with the Company's acquisition of the Owned Facilities
(and any Option Facilities and Future Facilities which are acquired by the
Company), the Company leases such facilities either directly to Wackenhut
Corrections or to WCCRE LLC, which in turn subleases such facilities to
Wackenhut Corrections. The sublease structure is used in those instances where
Wackenhut Corrections is required by a contracting governmental entity in
connection with the award of a facility operating agreement to afford the
governmental entity the right to assume a lease of such facility (or designate
another facility operator to assume the lease of such facility) at a fixed
rental rate in the event of the early termination of the operating agreement
upon the occurrence of certain events. Generally, in those instances where a
sublease is created for the contracting governmental entity (or its designated
replacement operator) to assume, the term of the sublease is commensurate with
the term of the operating agreement originally entered into between Wackenhut
Corrections and the governmental entity thereby affording the governmental
entity the ability to plan and effectuate an orderly relocation of its inmates
to another facility in the event of early termination of its operating agreement
with Wackenhut Corrections. However, regardless of whether the sublease
structure is created for an individual facility, Wackenhut Corrections, at all
times, remains primarily liable to the Company under the leases.

         Because the leases are triple-net leases, which impose significant
burdens upon the tenant and provide for an escalating annual base rent, the
leases do not satisfy the requirements of such governmental entities or allow
Wackenhut Corrections the flexibility to tailor the lease provisions to the
terms of a particular Request for Proposals ("RFP"). Therefore, in such
instances Wackenhut Corrections requests that the Company enter into the lease
with WCCRE LLC., which in turn enters into a more basic fixed rental rate
sublease with Wackenhut Corrections, which sublease meets the requirements of
the contracting governmental entity, and permits the contracting governmental
entity to assume such sublease in the event of early termination of the
operating agreement for the relevant facility. The provisions of all subleases
are subject to the Company's review and approval. The Company has leased the
following Owned Facilities to WCCRE LLC, each of which in turn are subleased to
Wackenhut Corrections: the Broward Facility, the Central Valley Facility, the
Golden State Facility, the Desert View Facility and the McFarland Facility. The
Company has leased the following Owned Facilities, directly to Wackenhut
Corrections: the Queens Facility, the Aurora Facility, the Hobbs Facility, the
Lawton Facility and the Karnes Facility.

         Leases

         The Company leases each of its facilities (including all Owned
Facilities and, if acquired, Option Facilities and Future Facilities) to
Wackenhut Corrections or to WCCRE LLC. Each such facility is the subject of a
separate lease that incorporates the provisions of a master lease (the "Master
Lease") between the Company and Wackenhut Corrections. The lease of each such
facility includes the land, the buildings and structures and other improvements
thereon, easements, rights and similar appurtenances to such land and
improvements, and permanently affixed equipment, machinery, and other specified
fixtures relating to the operation of the facility. The lease of each such
facility provides for an initial term of 10 years (the "Fixed Term") and may be
extended by Wackenhut Corrections for three additional five-year terms beyond
the Fixed Term (the "Extended Terms") at a fair market rental rate as mutually
agreed upon by the Company and Wackenhut Corrections or, in the absence of


                                       11
<PAGE>   16

such an agreement, as determined by binding arbitration. In addition, an
individual lease will be automatically extended on the same terms (including the
then applicable base rent and Base Rent Escalation) as reflected in the
applicable lease if there is at such time an unexpired sublease with respect to
such facility. The Fixed Term and Extended Terms under each lease shall be
subject to earlier termination upon the occurrence of certain contingencies
described in the lease. Any additional Future Facilities will be leased upon
terms and conditions substantially similar to the above-described leases except
that the rental rate in the case of any Future Facility acquired during the
first five years following the IPO will be the greater of (i) the fair market
rental rate as mutually agreed upon by the Company and Wackenhut Corrections or,
in the absence of such agreement, by binding arbitration or (ii) 9.5% of the
applicable Future Facility Purchase Price. In the case of any Future Facility
acquired thereafter, the initial annual rental rate will be the fair market
rental rate as mutually agreed upon by the Company and Wackenhut Corrections or
in the absence of such an agreement, as determined by binding arbitration.

         Use of the Facilities. Each lease permits Wackenhut Corrections to
operate the leased property solely as a correctional or detention facility,
unless otherwise mutually agreed upon by the Company and Wackenhut Corrections.
Wackenhut Corrections has the responsibility under each lease to obtain and
maintain all licenses, certificates and permits in order to use and operate the
respective facility and to provide the Company with evidence of compliance with
this obligation.

         Amounts Payable Under the Leases; Net Provisions. During the Fixed Term
and the Extended Terms, Wackenhut Corrections is required to pay annual base
rent ("Annual Base Rent") in monthly installments. The initial Annual Base Rent
for each Owned Facility has been determined by calculating a figure which would
yield 9.5% on the purchase price of such Owned Facility. The initial Annual Base
Rent, the 1999 cash rent and the 2000 cash rent for the Aurora Facility are
$743,734, $758,608 and $781,367, for the McFarland Facility are $666,921,
$680,259 and $700,667, for the Queens Facility are $1,399,547, $1,427,538 and
$1,470,364, for the Central Valley Facility are $1,671,145, $1,704,567 and
$1,755,704, for the Golden State Facility are $1,667,776, $1,701,132 and
$1,752,165, for the Desert View Facility are $1,602,149, $1,634,192 and
$1,683,218, for the Broward Facility are $1,437,229, $1,465,973 and $1,509,953,
for the Karnes Facility are $1,550,400, $1,581,408 and $1,628,850, for the Hobbs
Facility are $4,444,894, $4,432,553 and $4,797,216, and for the Lawton Facility
are $4,347,165, $4,178,108 and $4,477,580. The initial Annual Base Rent for the
Jena Facility is $1,684,350. Annual Base Rent for each leased property will be
increased each year by the Base Rent Escalation, or in the case of the Jena
Facility by 4% per annum.

         Each lease of a leased property is what is commonly known as a
triple-net lease or absolute net lease, under which Wackenhut Corrections is
required to pay Annual Base Rent and any additional charges related to the
leased property, including every fine, penalty, interest expense and cost which
may be added for nonpayment or late payment thereof, all taxes, assessments and
levies, excises, fees, and all other government charges with respect to each
leased property, and all charges for utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in each leased property.

         Maintenance, Modification and Capital Additions. Under each lease as of
December 31, 2000, Wackenhut Corrections is required, at its sole cost and
expense, to maintain each leased property in good order, repair and appearance
and will make structural and non-structural, interior and exterior, foreseen and
unforeseen, and ordinary and extraordinary repairs which may be necessary and
appropriate to keep such leased property in good order and repair. The Company
is not required to build or rebuild any improvements to any property leased to
Wackenhut Corrections, or to make any repairs, replacements, alterations,
restorations or renewals to any leased property.

         Wackenhut Corrections, at its sole cost and expense, may make
alterations, additions, changes and/or improvements to each leased property,
provided that with respect to an improvement which has a cost of more than
$500,000 or which, when aggregated with the cost of all such improvements for
any individual leased property in the same lease year, would cause the total
cost of all such improvements to exceed $1,000,000 (each such threshold amount
increasing 4% per year, cumulatively) the value and primary intended use of such
leased property (determined in the Company's reasonable judgment) is not
impaired and the prior written consent of the Company is obtained. All
machinery, equipment, furniture, furnishings, and other personal property
(except certain excluded proprietary property) installed at the expense of
Wackenhut Corrections on any leased property, is required to remain the property
of Wackenhut Corrections until the expiration or earlier termination of the
lease, at which time the Company will have an option to purchase such property
at appraised fair market value, as determined pursuant to terms of the master
lease, upon such expiration or termination. However, the Company's option in
certain cases may be subject to a contracting governmental entity's superior
right to acquire all or a portion of such removable personal property under the
terms of its operating contract with Wackenhut Corrections.


                                       12
<PAGE>   17

         Each lease provides that, at the request of Wackenhut Corrections, the
Company may construct one or more new buildings or other improvements to a
particular leased property which are not normal or recurring to the maintenance
of such leased property (a "Capital Addition"). A Capital Addition to a leased
property may necessitate an amendment to an existing lease or new lease
agreement setting forth any changes in the premises, rent, or other similar
terms of the lease as a result of the Capital Addition. In certain situations, a
Capital Addition to a leased property may be made directly by Wackenhut
Corrections and financed by third parties with the prior written consent of the
Company. In the case of a Capital Addition not undertaken or financed by the
Company, the Company has an option to acquire and lease back to Wackenhut
Corrections such Capital Addition for a period of one year following the date
Wackenhut Corrections first receives inmates or detainees in such Capital
Addition. The purchase price of such Capital Addition is required to be 105% (or
such lower percentage as may be agreed to by Wackenhut Corrections) of the Total
Facility Cost of such Capital Addition. Fair market rental rates for a Capital
Addition acquired or undertaken by the Company is required to be as mutually
agreed upon by the Company and Wackenhut Corrections, and in the absence of such
an agreement, as determined by binding arbitration.

         Insurance. Each lease provides that Wackenhut Corrections is required
to maintain insurance on each leased property under Wackenhut Corrections'
insurance policies providing for the following coverages: (i) fire, vandalism,
earthquake and malicious mischief, extended coverage perils, and all physical
loss perils, (ii) comprehensive general public liability (including personal
injury and property damage), (iii) loss of rental value or business interruption
and (iv) workers' compensation. Under each lease, the Company has the right to
periodically review Wackenhut Corrections' insurance coverage and provide input
with respect thereto. Wackenhut Corrections also certifies to the Company on a
quarterly basis, among other things, that the insurance coverage required under
each lease to be maintained by Wackenhut Corrections on each Owned Facility is
being maintained by Wackenhut Corrections. The Company is required to be named
on such policies as an additional insured or loss payee, as the case may be.

         Environmental Matters. Each lease provides that Wackenhut Corrections
makes various representations and warranties relating to environmental matters
with respect to each leased property. Each lease also requires Wackenhut
Corrections to indemnify and hold harmless the Company and any holder of a
mortgage, deed of trust or other security agreement on a leased property (a
"Company Mortgagee") from and against all liabilities, costs and expenses
imposed upon or asserted against the Company or the leased property on account
of, among other things, any federal, state or local law, ordinance, regulation,
order or decree relating to the protection of human health or the environment in
respect of the leased property. The leases provide, however, that Wackenhut
Corrections shall not be liable with respect to matters or events that arise
after the commencement date of the applicable lease as a result of the gross
negligence or intentional misconduct of the Company.

         Assignment and Subletting. The leases provide that with certain
exceptions for service agreements for portions of the leased property in favor
of various licensees providing incidental services customarily associated with
or incidental to the operations of the leased property, Wackenhut Corrections
may not, without the prior written consent of the Company, assign, sublease,
mortgage, pledge, hypothecate, encumber or otherwise transfer (except to an
affiliate of Wackenhut Corrections) any lease or any interest therein, or all or
any part of the leased property. The leases further state that except as
provided in connection with governmental subleases meeting certain requirements
such consent may be granted or withheld by the Company in its sole discretion.
An assignment of a lease will be deemed to include any change of control (a
"Change of Control") of Wackenhut Corrections, as if such Change of Control were
an assignment of the lease. A "Change of Control" of Wackenhut Corrections
means, for purposes of the leases, the sale by Wackenhut Corrections of a
controlling interest in Wackenhut Corrections, or the sale or other transfer of
all or substantially all of the assets of Wackenhut Corrections. A Change of
Control also means any transaction pursuant to which Wackenhut Corrections is
merged with or consolidated into another entity, and Wackenhut Corrections is
not the surviving entity. The leases further provide that no assignment or
sublease will in any way impair the continuing primary liability of Wackenhut
Corrections under the leases. The Company will not unreasonably withhold its
consent to subleases in favor of governmental entities which are required in
connection with an award of an operating contract to Wackenhut Corrections,
provided that, among other requirements, (i) any such subleases are inferior and
subordinate to the Company's interest in the facility and (ii) the term of the
sublease does not extend beyond the term of the lease between the Company and
Wackenhut Corrections.

         In addition, if requested by Wackenhut Corrections in order to respond
to a RFP for an operating agreement, the Company may agree to provide
nondisturbance agreements in favor of governmental entities pursuant to which
the Company will agree to recognize and leave the rights of any such
governmental sub-tenant undisturbed in the event of a termination of the


                                       13
<PAGE>   18

lease, but only upon a determination by the Company that the provisions of any
such governmental subleases are acceptable in the Company's sole and absolute
discretion.

         Damage to, or Condemnation of, a Leased Property. In the event of any
damage or destruction to any facility, Wackenhut Corrections has the obligation
to fully repair or restore the same at Wackenhut Corrections' expense, with the
Annual Base Rent proportionately abated during the time of restoration, but only
to the extent of any rental interruption insurance proceeds actually received by
the Company. If any facility is damaged to such an extent that 50% of the inmate
beds at the leased facility are rendered unusable, and if Wackenhut Corrections
has fully complied with the insurance obligations with respect to such facility
(including maintaining insurance against loss of rents), Wackenhut Corrections
may terminate the lease of that facility upon turning over all insurance
proceeds and payment of any deductible or uninsured loss with respect to such
facility to the Company. Additionally, if the facility is damaged within the
last 24 months of the lease term and cannot be restored within six months of the
date of the damage, either the Company or Wackenhut Corrections may terminate
the lease. However, if Wackenhut Corrections exercises an option to extend the
lease term, the Company may not terminate upon such casualty damage or
destruction.

         In the event of a condemnation or taking of any leased property neither
party shall be obligated to compensate the other for any damage or loss suffered
as a consequence of such a taking. In the event of a partial taking, Wackenhut
Corrections is obligated to repair the portion not taken, if the same does not
render the leased property unsuitable for Wackenhut Corrections' then use and
occupancy, but only to the extent of the condemnation award. Each lease has an
apportionment clause which provides generally that the total condemnation award
shall be payable to the Company and to Wackenhut Corrections based upon their
respective interests.

         Indemnification Generally. Under each lease, Wackenhut Corrections
indemnifies, and is obligated to save harmless, the Company from and against any
and all demands, claims, causes of action, fines, penalties, damages (including
consequential damages), losses, liabilities (including strict liability),
judgments, and expenses (including, without limitation, reasonable attorneys'
fees, court costs, and related expenses) incurred in connection with or arising
from: (i) the use, condition, operation or occupancy of each leased property;
(ii) any activity, work, or thing done, or permitted or suffered by Wackenhut
Corrections in or about the leased property; (iii) any acts, omissions, or
negligence of Wackenhut Corrections or any person claiming under Wackenhut
Corrections, or the contractors, agents, employees, invitees, or visitors of
Wackenhut Corrections or any such person; (iv) any claim of any person
incarcerated, held or detained in the leased property, including claims alleging
breach or violation of such person's civil or legal rights; (v) any breach,
violation, or nonperformance by Wackenhut Corrections or the employees, agents,
contractors, invitees, or visitors of Wackenhut Corrections, of any term,
covenant, or provision of any lease or any law, ordinance, or governmental
requirement of any kind; (vi) any injury or damage to the person, property or
business of Wackenhut Corrections, its employees, agents, contractors, invitees,
visitors, or any other person entering upon the leased property under the
express or implied invitation of Wackenhut Corrections; (vii) any accident,
injury to or death of persons or loss of damage to any item of property
occurring at the leased property; and (viii) any improvements to the leased
property in order to comply with the requirements of the Americans with
Disabilities Act of 1990, as amended (the "ADA").

         Under each lease, the Company indemnifies, and is obligated to save
harmless, Wackenhut Corrections from and against all liabilities, costs and
expenses (including reasonable attorneys' fees) imposed upon or asserted against
Wackenhut Corrections as a result of the Company's gross negligence or
intentional misconduct.

         Events of Default. An event of default will be deemed to have occurred
under the Master Lease and any individual Lease if Wackenhut Corrections fails
to perform any covenant and does not diligently undertake to cure the same after
30 days' notice from the Company; if the interest of Wackenhut Corrections in
any leased property is levied upon or attached and is not discharged in a
specified period of time; or if any representation or warranty of Wackenhut
Corrections is incorrect. An event of default will be deemed to have occurred
under the Master Lease and all of the leases, if, among other things, Wackenhut
Corrections fails to pay any rent within 15 days after notice of non-payment
from Company; if any bankruptcy proceedings are instituted by or against
Wackenhut Corrections and, if against Wackenhut Corrections, such bankruptcy
proceedings are not dismissed within 90 days; if any material part of the
property of Wackenhut Corrections is levied upon or attached in any proceeding
and not discharged within a specified period of time; if Wackenhut Corrections
defaults in any payment of any obligations for borrowed money having a principal
balance in excess of $25.0 million; or if Wackenhut Corrections is the subject
of a non-appealable final judgment in an amount greater than $10.0 million,
which is not covered by insurance or discharged by Wackenhut Corrections within
a specified period of time.


                                       14
<PAGE>   19
         In the event of any event of default referable to a specific leased
property, the Company may evict Wackenhut Corrections from such leased property
and either terminate the lease or re-let the leased property. However, the
Company will have certain duties to mitigate its losses in the exercise of such
remedies. In either event, Wackenhut Corrections shall remain responsible for
the rental value of such leased property for the remaining period of the term in
excess of rents received by the Company from any successor occupant.
Alternatively, at the Company's option, the Company will be entitled to recover
all unpaid Rent then due plus the present value of the Rent for the unexpired
term at the time of the award, subject to the Company's obligation to deliver
and pay-over to Wackenhut Corrections any net rentals or proceeds actually
received from the lease, sale or other disposition of the leased property
thereafter, up to the amount paid by Wackenhut Corrections. In addition, the
Company may exercise any other rights that it may have under law. In the event
the Company evicts Wackenhut Corrections from a leased property, the Master
Lease will remain in full force and effect for all other leased properties. With
respect to Wackenhut Correction's failure to timely pay Rent and with respect to
certain nonmonetary events of default under the master lease, the Company shall
have all of the foregoing rights, remedies and obligations with respect to all
of the leased facilities.

         The leases will be governed by and construed in accordance with Florida
law (but not including Florida's conflict of laws rules) except for certain
procedural laws which must be governed by the laws of the location of each
leased property. Because the facilities are located in various states, the
leases may be subject to restrictions imposed by applicable local law. Neither
the Master Lease nor any of the other agreements entered into by Wackenhut
Corrections in connection with the Formation Transactions prohibits or otherwise
restricts the Company's ability to lease properties to parties (domestic or
foreign) other than Wackenhut Corrections.

         Subleases

         The provisions of certain existing operating agreements awarded to
Wackenhut Corrections for the Owned Facilities afford the governmental entity a
right to assume an existing sublease of the subject facility created between
WCCRE LLC and Wackenhut Corrections (or to designate another facility operator
to assume such sublease) at a fixed rental rate in the event of early
termination of the operating agreement upon the occurrence of certain events.
The rental payments and other material terms of these existing subleases differ
from comparable provisions of the leases, and there is no requirement that the
governmental entity or its designee comply with the provisions of the leases. In
such cases, Wackenhut Corrections will, nevertheless, remain primarily liable to
the Company under the leases.

         Concurrently with the conveyance of certain of the Owned Facilities,
the Company has agreed, and in connection with the conveyance of certain of the
Option and Future Facilities and the execution of the leases with respect
thereto, the Company will agree, to recognize and leave undisturbed such rights
of the governmental entities. Such subleases are presently in effect with
respect to the Broward Facility, the McFarland Facility, the Central Valley
Facility, the Desert View Facility, and the Golden State Facility. Wackenhut
Corrections has agreed that the term of the individual leases between Wackenhut
Corrections and the Company for these facilities will be automatically extended,
if necessary, in order to insure that the lease between the Company and
Wackenhut Corrections will be commensurate with the term of any such subleases.
Some of the material differences between the terms and provisions of the
existing subleases and the leases are discussed below.

         The Broward Facility Sublease. WCCRE LLC has entered into a sublease
(the "Broward Sublease") with Wackenhut Corrections for the use of the Broward
Facility. In connection with the IPO, the Company entered into a lease with
WCCRE LLC pursuant to which it will recognize and agree to leave undisturbed the
Broward Sublease. While the Broward Sublease is a triple-net lease, the annual
rent payable under the Broward Sublease is below the annual rent payable under
the relevant lease and the provisions of the sublease are generally not as
favorable to the lessor as the comparable provisions of the relevant lease. If
the operating agreement between Wackenhut Corrections and Broward County is
terminated for a reason other than a default by Wackenhut Corrections during the
initial five-year term expiring in February 2003, the Broward County Sheriff is
required under the operating agreement to assume the obligations of Wackenhut
Corrections under the Broward Sublease through February, 2003, and in the event
of such assumption, may exercise the three consecutive five year renewal options
contained in the Broward Sublease. Wackenhut Corrections will nevertheless
remain obligated to the Company for performance under the lease for the entire
term of the Broward Sublease. If Wackenhut Corrections defaults on its
obligations under the lease, the Company will be required to permit the Broward
County Sheriff to occupy the Broward Facility under the terms of the Broward
Sublease at a rental rate and upon terms which are not as favorable to the
Company as those of the lease.


                                       15
<PAGE>   20

         The California Facilities Subleases. WCCRE LLC has entered into a
series of subleases (collectively the "California Subleases") with Wackenhut
Corrections for the use of the California Facilities. In connection with the
IPO, the Company entered into a series of leases with WCCRE LLC pursuant to
which it will recognize and agree to leave undisturbed the California Subleases.
Except for the base rent, the terms and provisions of each of the California
Subleases are identical. With the exception of the sublease of the McFarland
Facility which expired January 1999, the term of each of the California
Subleases is 120 months expiring December 16, 2007 and is coterminous with a ten
year facility operating agreement entered into between Wackenhut Corrections and
the State of California for each such facility. Each of the California Subleases
provides for certain "termination rights" in favor of the State of California
under which the State of California has the option, in the event of early
termination of the operating agreement between the State of California and
Wackenhut Corrections, to cause Wackenhut Corrections' interest under each of
the California Subleases to be assigned to the State of California or to a
replacement operator approved by the State. The California Subleases may not be
modified without the prior written approval of the State of California. While
the California Subleases are triple-net leases, the provisions of such subleases
are generally not as favorable to the lessor as the comparable provisions of the
relevant leases. If Wackenhut Corrections defaults on its obligations under the
leases, the Company will be required to permit the contracting government entity
to occupy the California Facilities under the provisions of the sublease. The
annual base rent under the sublease is not subject to adjustment for cost of
living increases or any other reason. As a result, the annual rent payable under
the California Subleases may, during some portion of the term of the applicable
master leases, fall below the annual rent payable under such leases. Wackenhut
Corrections will nevertheless remain obligated to the Company for performance
under such leases for the entire term of the California Subleases.

         The Jena Facility. In March 1997, Wackenhut Corrections acquired, by
assignment, all of the right, title and interest of the LaSalle Parish Hospital
District No. 2 (the "Hospital District") under a Cooperative Endeavor Agreement
dated January 30, 1995 (the "Louisiana Operating Agreement") entered into
between the LDOC and the Hospital District. The Louisiana Operating Agreement
contemplates the construction of a 276-bed juvenile correctional facility
through the issuance of bonds secured by a mortgage on the Jena Facility (the
"Mortgage Debt"). The contemplated Mortgage Debt for the facility was not
obtained and Wackenhut Corrections, upon its acquisition of the interest of the
Hospital District under the Louisiana Operating Agreement, privately financed
the cost of construction of the facility. On January 7, 2000 the Company
acquired the Jena Facility from Wackenhut Corrections. The Louisiana Operating
Agreement, was terminated as of July 1, 2000. Wackenhut Corrections does not
presently have an operating contract with a client for the Jena Facility.
However, Wackenhut Corrections continues to make rental payments to the Company
and maintain the facility.

RELATIONSHIP WITH WACKENHUT CORRECTIONS CORPORATION

         Wackenhut Corrections is a leading developer and manager of privatized
correctional and detention facilities in the United States and abroad. Wackenhut
Corrections was founded in 1984 as a division of The Wackenhut Corporation, a
leading provider of professional security services, to capitalize on emerging
opportunities in the private correctional services market. According to the
industry reports, Wackenhut Corrections is the second largest provider of
privatized correctional and detention services in the United States and the
largest provider of such services abroad, based upon the number of beds under
management. As of December 31, 2000, Wackenhut Corrections had 55 correctional
and detention facilities under contract or award, with an aggregate design
capacity of 39,522 beds (with many of such facilities being leased by Wackenhut
Corrections from the contracting government entity).

         Wackenhut Corrections offers governmental entities a comprehensive
range of correctional and detention facility management services, ranging from
individual consulting projects to the integrated design, development and
management of such facilities. In addition to providing the fundamental
residential services relating to the security of facilities and the detention
and care of inmates, Wackenhut Corrections has built a reputation as an
effective provider of a wide array of in-facility rehabilitative and educational
programs, such as chemical dependency counseling and treatment, basic education
and job and life skills training. Additionally, Wackenhut Corrections is
continuously seeking to expand into complementary services such as work release
programs, youth detention services and prisoner transport services. Wackenhut
Corrections believes that its experience in delivering a full range of
high-quality correctional and detention facility management services on a
cost-effective basis to government agencies provides such agencies strong
incentives to choose Wackenhut Corrections when awarding new contracts or
renewing existing contracts.

         Wackenhut Corrections, or a subsidiary thereof, is the lessee of, and
will continue to operate, each of the Owned Facilities and, if acquired, the
remaining Option Facilities. Wackenhut Corrections may sell additional
correctional and detention




                                       16
<PAGE>   21

facilities to the Company in the future and to enter into long-term,
non-cancelable, triple-net leases with the Company with respect to those
facilities.

THE BANK CREDIT FACILITY

         On October 2, 1998, the Company obtained from Bank of America, as
successor by merger to NationsBank, N.A., a $100 million bank credit facility
(the "Bank Credit Facility"). The Bank Credit Facility may be used to finance
the acquisition of correctional and detention facilities, the expansion of
existing facilities and for working capital requirements. The Bank Credit
Facility has a term of five years, is secured by the Company's facilities, and
permits aggregate borrowings of up to 50% of the lesser of the aggregate of the
historical cost of the Company's facilities or the aggregate of the appraised
value of such facilities (the "Total Value"). Under the terms of the Bank Credit
Facility, the Company is restricted from paying dividends in excess of the
lesser of 95% of net income (subject to certain adjustments) in any calendar
year or 100% of funds available for distribution in any calendar quarter.
Borrowings under the Bank Credit Facility bear interest at a variable rate equal
to: (w) LIBOR plus 125 basis points if the Company's total outstanding
indebtedness is less than 25% of the Total Value; (x) LIBOR plus 150 basis
points if the Company's total outstanding indebtedness is greater than 25% but
less than or equal to 35% of the Total Value; (y) LIBOR plus 175 basis points if
the Company's total outstanding indebtedness is greater than 35% but less than
or equal to 40% of the Total Value, and (z) LIBOR plus 200 basis points if the
Company's total outstanding indebtedness is greater than 40% of the Total Value
but less than or equal to 50% of the Total Value; in each case, calculated based
on interest periods of one, two, three or six months at the option of the
Company. Economic conditions could result in higher interest rates, which could
increase debt service requirements on borrowings under the Bank Credit Facility
and which could, in turn, reduce the amount of cash available for distribution.
Upon the closing of the Bank Credit Facility, the Company paid fees of
approximately $2.2 million. As of December 31, 2000, the amount of outstanding
indebtedness under the Bank Credit Facility was $81.4 million.

         On July 24, 2000, the Operating Partnership closed a $45 million
notional amount cash flow interest rate swap (the "Interest Rate Swap"). The
swap agreement provides that floating rate LIBOR payments on $45 million of
indebtedness will be exchanged for fixed payments at a rate of 7.035%. In
addition, the Operating Partnership will be obligated for the EuroDollar Rate
Margin described in the Credit Facility based upon a ratio of outstanding
borrowings to pledge pool Borrowing Base. The effect of the Interest Rate Swap
is that the interest rate on approximately 55.3% of the Company's borrowings
under the Credit Facility is fixed at 9.035% as of December 31, 2000.

         The Company acquired the Mountain View Correctional Facility, on March
16, 2001, using the proceeds under its Bank Credit Agreement, which has been
amended to a total capacity of $110,000,000. The amendments completed on March
16, 2001 included increasing the interest rate grid applicable to all borrowings
by 50 basis points, as well as payment of additional bank fees of approximately
$625,000, and certain covenant changes. In addition, the Company committed to
entering into interest rate obligations which would effectively fix the interest
rate on an additional $30,000,000 of the Company's outstanding debt, on or
before June 15, 2001.

COMPETITION

         The facilities are, and any additional correctional and detention
facilities acquired by the Company will be, subject to competition for inmates
from private prison managers and possibly governmental entities. In addition,
operating revenues of the Company's correctional and detention facilities will
be affected by a number of factors, including the demand for inmate beds and
general economic conditions. The Company is subject to competition for the
acquisition of correctional and detention facilities with other purchasers of
correctional and detention facilities.

GOVERNMENT REGULATION

         Corrections Industry Regulations. The corrections industry is subject
to federal, state and local regulations in the United States which are
administered by a variety of regulatory authorities. Generally, prospective
providers of corrections services must be able to detail their readiness to, and
must comply with, a variety of applicable state and local regulations, including
education, health care and safety regulations. Correctional and detention
management contracts frequently include extensive reporting requirements and
require supervision and on-site monitoring by representatives of contracting
governmental agencies. State law also typically requires corrections officers to
meet certain training standards. In addition, many state and local governments
are required to enter into a competitive bidding procedure before awarding
contracts for products or services. The



                                       17
<PAGE>   22

laws of certain jurisdictions may also require the Company to award subcontracts
on a competitive basis or to subcontract with businesses owned by women or
members of minority groups.

         Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of such substances, or the
failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell such real estate or to borrow funds if the
borrower is using such real estate as collateral. Neither the Company, Wackenhut
Corrections nor any of their affiliates has been notified by any government
authority of any material non-compliance, liability or other claim in connection
with any of the Owned Facilities or Option Facilities and neither the Company,
Wackenhut Corrections nor any of their affiliates is aware of any other
environmental condition with respect to any of the Facilities that is likely to
be material to the Company. Phase I environmental assessments have been obtained
for all of the Owned Facilities and Option Facilities. No assurance can be given
that such investigation would reveal all potential environmental liabilities,
that no prior or adjacent owner created any material environmental condition not
known to the Company or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability or limitation on use of
properties. The leases provide that Wackenhut Corrections will indemnify the
Company for certain potential environmental liabilities at the Company's
facilities. See "Item 1. Business-Leases-Environmental Matters."

         Americans With Disabilities act. The facilities are subject to the ADA.
The ADA has separate compliance requirements for "public accommodations" and
"commercial facilities" but generally requires that public facilities, such as
correctional facilities, be made accessible to people with disabilities. These
requirements became effective in 1992. Compliance with the ADA requirements
could require removal of access barriers and other capital improvements at the
facilities. Noncompliance could result in imposition of fines or an award of
damages to private litigants. Receipt of a satisfactory ADA compliance report is
required prior to the Company's acquisition of each facility. Nonetheless, under
the Master Lease, Wackenhut Corrections is required to make any necessary
modifications or improvements to comply with the ADA and to indemnify the
Company from any liabilities in connection therewith.

TAX CONSIDERATIONS AND TAX STATUS OF THE COMPANY

         The Company has elected to be taxed as a REIT under sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998. If the Company
qualifies for taxation as a REIT, with certain exceptions, the Company will not
be subject to federal income tax at the corporate level on its taxable income. A
REIT is subject to a number of organizational and operational requirements,
including a requirement that it distribute at least 95% of its annual real
estate investment trust taxable income. Although the Company believes it
operates in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal or tax considerations may cause the Company to fail to
qualify as a REIT or may cause the Board of Trustees to revoke the REIT election
if the Board of Trustees and the holders of two-thirds of all outstanding shares
of beneficial interest of the Company determine that such factors make it no
longer beneficial to qualify as a REIT.

POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES

         The following is a discussion of the Company's investment objectives
and policies, financing policies and policies with respect to certain other
activities. These policies are determined by the Board of Trustees and may be
amended or revised from time to time at the discretion of the Board of Trustees
without a vote of the Company's shareholders.

         Investment Policies. The Company focuses its investments on the
acquisition or development of facilities directly from, or on behalf of,
Wackenhut Corrections or its affiliates or other private prison managers or
government entities in the United States. Additionally, the Company may, but has
no present plans to, pursue other opportunities in facilities unrelated to the
correctional and detention industry. The Company may also invest in other
facilities or excess land to the extent necessary to acquire a facility. The
Company applies the following general guidelines in evaluating potential
investments in correctional and detention facilities: (i) completion of the
construction of the facility, (ii) execution of a government contract for the
operation of the facility, and (iii) documentation of adequate inmate occupancy
levels. Although these investment guidelines are not



                                       18
<PAGE>   23

compulsory but merely advisory, management of the Company has no present intent
to acquire any facility until construction is completed.

         Subject to the general investment guidelines referenced above, the
Company considers a variety of specific factors in evaluating potential
investments in correctional or detention facilities, including: (i) the
reputation and creditworthiness of the current owner, manager or developer of
the facility, (ii) the proposed terms for purchasing the facility, (iii) the
proposed terms for leasing the facility, including rental payments and lease
term, (iv) the quality of construction of the facility, (v) the quality of
operations at an existing facility or the quality of other operations of a
prison manager for a new facility, (vi) the relationship between the prison
manager and the contracting government entity, and (vii) the status of existing
facilities as facilities accredited by the American Correctional Association
(the "ACA"). The ACA is a multi-disciplinary organization of professionals
representing all levels and facets of the corrections and criminal justice
industry, including federal, state and military correctional facilities in
prisons, county jails and detention centers, probation and parole agencies, and
community corrections/half-way houses. Comprised of 70 chapters and affiliated
organizations, as well as individual members numbering more than 20,000, the ACA
serves as the umbrella organization for all areas of corrections, and provides a
broad base of expertise in this industry.

         The Company may purchase or lease properties for long-term investment,
expand and improve the facilities presently owned or sell such properties, in
whole or in part, when circumstances warrant. The Company may also participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over the equity interest of
the Company.

         While the Company emphasizes equity real estate investments, it may, in
its discretion, invest in mortgages, equity or debt securities of other REITs or
partnerships and other real estate interests. Mortgage investments may include
participating in convertible mortgages.

         There are no limitations on the percentage of the Company's assets that
may be invested in any one property, venture or type of security. The Board of
Trustees may establish limitations as it deems appropriate from time to time,
including limitations necessary to maintain the Company's qualification as a
REIT. No limitations have been set on the number of properties in which the
Company will seek to invest or on the concentration of investments in any one
geographic region.

         Disposition Policies; Wackenhut Corrections' Right of First Refusal.
The Company has no current intention to dispose of any of the Facilities,
although it reserves the right to do so if the Board of Trustees determines that
such action would be in the best interests of the Company. Wackenhut Corrections
has a right of first refusal with respect to any sale of Facilities acquired
from Wackenhut Corrections. See "The Formation Transactions" and "Leases" for a
more detailed discussion of the terms and conditions of Wackenhut Corrections'
right of first refusal.

         Financing Policies. The Company presently intends to maintain its Debt
Policy (measured at the time a borrowing occurs), which requires a ratio of
total consolidated indebtedness to the sum of total equity and total
consolidated indebtedness of 50% or less. The Board of Trustees may, however,
from time to time reevaluate this policy and decrease or increase such ratio
accordingly. The Company determines its financing policies in light of then
current economic conditions, relative costs of debt and equity capital, market
values of properties, growth and acquisition opportunities and other factors.
The Company has established the Bank Credit Facility which may be used to
finance the acquisition of additional correctional and detention facilities
(including the Option Facilities and the Future Facilities), the expansion of
existing facilities and for working capital requirements. Also, on July 24,
2000, the Operating Partnership entered into the Interest Rate Swap. If the
Board of Trustees determines that additional funding is desirable, the Company
may raise such funds through additional equity offerings, debt financing or
retention of cash flow (subject to provisions in the Code concerning taxability
of undistributed REIT income and REIT qualification), or a combination of these
methods.

         On March 16, 2000, the Bank Credit Facility was first amended to
provide, among other things, that Consolidated Total Indebtedness could not
exceed more than 50% of the sum of Consolidated Total Liabilities and
Consolidated Shareholders' Equity. Previously, the Bank Credit Facility had
provided that Consolidated Total Indebtedness could not exceed the lesser of (i)
50% of the sum of Consolidated Total Liabilities and Market Equity
Capitalization or (ii) 50% of the sum of Consolidated Total Liabilities and
Consolidated Shareholders' Equity.


                                       19
<PAGE>   24

         Indebtedness incurred by the Company may be in the form of publicly or
privately placed debt instruments or financings from banks, institutional
investors or other lenders, any of which indebtedness may be unsecured or may be
secured by mortgages or other interests in the facilities owned by the Company.
There are no limits on the number or amounts of mortgages or other interests
which may be placed on any one facilities. In addition, such indebtedness may be
with or without recourse to all or any part of the facilities of the Company or
may be limited to the particular facility to which the indebtedness relates.

         The proceeds from any borrowings may be used for the payment of
distributions and working capital or to refinance indebtedness or to finance
acquisitions, expansions or developments of new facilities.

         In the event that the Board of Trustees determines to raise additional
equity capital, the Board of Trustees has the authority, without shareholder
approval, to issue additional Common Shares or Preferred Shares of the Company.
The Bylaws require the approval of at least two-thirds of the members of the
Board of Trustees for the Company to issue equity securities, other than Common
Shares issued (a) for at least the fair market value thereof at the time of
issuance as determined in good faith by a majority of the Board of Trustees, (b)
pursuant to any share incentive or option plans of the Company, or (c) in a bona
fide underwritten public offering managed by one or more nationally recognized
investment banking firms. Existing shareholders have no preemptive right to
purchase shares issued in any offering, and any such offering could cause a
dilution of a shareholder's investment in the Company.

         Working Capital Reserve Policies. The Company maintains working capital
reserves (and when not sufficient, access to borrowings) in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and the management of
its investments.

         Conflicts of Interest Policies. The Company has adopted certain
policies designed to minimize potential conflicts of interest. However, there
can be no assurance that these policies always have been or will be successful
in eliminating the influence of such conflicts. The Declaration of Trust
requires that at least a majority of the members of the Board of Trustees be
comprised of "Independent Trustees," defined therein as individuals who qualify
as trustees but who are neither an officer nor an employee of the Company or its
affiliates, nor a director, trustee, officer or employee of, or other person who
has a material financial interest in, any of (i) The Wackenhut Corporation or
Wackenhut Corrections, or (ii) any lessee or tenant of a facility owned by the
Company or by the Company's affiliates, or (iii) any owner, lessee or tenant of
any facility financed by the Company or by the Company's affiliates, other than
any such owner, lessee or tenant which is an affiliate of the Company, or (iv)
any management company operating any facility owned or financed by the Company
or by the Company's affiliates, or (v) an affiliate of any of the foregoing. The
Declaration of Trust provides that such provisions relating to Independent
Trustees may be amended with the approval by the shareholders by the affirmative
vote of two-thirds of all of the votes entitled to be cast on such matters. In
addition, the Bylaws provide that the selection of operators for the Company's
facilities and the entering into and consummation of any agreement or
transactions with Wackenhut Corrections or its affiliates, including, but not
limited to, the negotiation, enforcement and renegotiation of the terms of any
lease of any of the Company's facilities with such parties, be approved by the
Company Independent Committee which must consist solely of Independent Trustees.

         Other Policies. The Company operates in a manner that will not subject
it to regulation under the Investment Company Act of 1940. The Company does not
(i) invest in the securities of other issuers for the purpose of exercising
control over such issuer, (ii) underwrite securities of other issuers or (iii)
trade actively in loans or other investments.

         Although it does not currently intend to do so, the Company may make
investments other than as previously described, provided that such investments
do not disqualify the Company from its REIT status. The Company may repurchase
or otherwise reacquire Common Shares or any other securities it may issue and
may engage in such activities in the future. The Board of Trustees has no
present intention of causing the Company to repurchase any of the Common Shares,
and any such action would be taken only in conformity with applicable federal
and state laws and the requirements for qualifying as a REIT under the Code and
the Treasury Regulations. Although it may do so in the future, the Company has
not issued Common Shares or any other securities in exchange for property, nor
has it reacquired (other than the 1,000 founder's shares) any of its Common
Shares or any other securities. The Company may make loans to third parties,
including, without limitation, to its officers and to joint ventures in which it
decides to participate. Such loans generally require the approval of the Board
of Trustees, and loans to Wackenhut Corrections and its affiliates or to a joint
venture in which Wackenhut Corrections participates require the approval of the
Company's Independent Committee.


                                       20
<PAGE>   25

         At all times, the Company intends to make investments in such a manner
as to be consistent with the requirements of the Code to qualify as a REIT and
the Board of Trustees shall endeavor to take no action which disqualifies the
Company as a REIT or otherwise causes the revocation of the Company's election
to be taxed as a REIT without the affirmative vote of the holders of not less
than two-thirds of the shares of the Company entitled to vote on such matter.

SUBSEQUENT EVENTS

         On March 16, 2001, the Company acquired the Mountain View Correctional
Facility (the "Mountain View Facility"), for approximately $25,200,000,
including transaction costs, from an unrelated third party. The 576-cell,
medium-security prison is leased to the State of North Carolina, and is subject
to the terms of an existing long-term, triple-net lease, which was assigned by
the previous facility owner to the Company.

         The initial lease on this facility, which became effective December
1998, included cash rental of $2,768,700 during the first year of the lease,
payable monthly in arrears. On each anniversary date of the lease, the rental
payment escalates at the Consumer Price Index (CPI), with a minimum increase of
3.5%, but not greater than 4%. The current annual rent is approximately
$2,965,900. The initial term of the lease is ten years, with two, ten-year
renewals at the State of North Carolina's option. The lessee has the option to
acquire the facility in December 2004, for approximately $26,200,000. At the end
of each lease year thereafter, the lessee has an option to purchase the facility
for a predetermined declining amount. At the end of the thirtieth lease year,
the lessee may purchase the facility for a nominal payment. The annual lease
payment is subject to appropriation by the North Carolina General Assembly.

         The Company acquired the Mountain View Facility using the proceeds
under its Bank Credit Agreement, which has been amended to a total capacity of
$110,000,000. The amendments included increasing the interest rate grid
applicable to all borrowings by 50 basis points, as well as payment of
additional bank fees of approximately $625,000, and certain covenant changes. In
addition the Company committed to entering into interest rate obligations which
would effectively fix the interest rate on an additional $30,000,000 of the
Company's outstanding debt, on or before June 15, 2001.

ITEM 2.  PROPERTIES.

         For a description of the facilities owned and leased by the Company,
see "Item 1. Business." The Company also leases 2,600 square feet of office
space at an annual rent of approximately $44,000. The term of such lease expires
on May 31, 2005.

ITEM 3.  LEGAL PROCEEDINGS.

         Owners and operators of privatized correctional and detention
facilities are subject to a variety of legal proceedings arising in the ordinary
course of operating such facilities, including proceedings relating to personal
injury and property damage. Such proceedings are generally brought against the
operator of a correctional or detention facility, but may also be brought
against the owner. Although the Company is not currently a party to any legal
proceeding, it is possible that in the future the Company could become a party
to such proceedings. Wackenhut Corrections is a party to certain litigation
relating to the Company's facilities arising in the ordinary course of
operations, as well as other litigation. The Company does not believe that such
litigation, if resolved against Wackenhut Corrections, would have a material
adverse effect upon the Company's business, financial position or results of
operations, unless the ability of Wackenhut Corrections to perform under the
Company's leases was impaired. All of the leases between Wackenhut Corrections
and the Company provide that Wackenhut Corrections is responsible for claims
based on personal injury and property damage at the Company's facilities and
require Wackenhut Corrections to maintain insurance for such purposes.

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

         None.


                                       21
<PAGE>   26

                                     PART II

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

         Since April 23, 1998, the Company's Common Shares have been listed on
the New York Stock Exchange ("NYSE") under the symbol "CPV." The following table
sets forth the range of high and low sales prices for the Common Shares for the
period from January 1, 1999 to December 31, 2000, as reported by NYSE.

<TABLE>
<CAPTION>
                                                              2000                             1999
                                                  ---------------------------       --------------------------
                                                      HIGH            LOW              HIGH             LOW
                                                  -------------   -----------       ----------       ---------
<S>                                               <C>     <C>     <C>    <C>        <C>  <C>         <C>  <C>
First Quarter...............................      $12     7/8     $10    3/16       $19  3/8         $14  3/4
Second Quarter..............................       11     15/16     9    7/8         17  11/16        13  3/16
Third Quarter...............................       11     3/4       9    1/2         16  3/8          13  7/16
Fourth Quarter..............................       10     5/16      9     --         14  11/16        11  1/8
</TABLE>

         As of March 26, 2001, there were 7,130,000 shares of Common Shares
outstanding, held by 111 shareholders of record. The Company believes that
certain holders of record hold a substantial number of Common Shares as nominees
for a significant number of beneficial owners.

RECENT SALES OF UNREGISTERED SECURITIES

         None.

DISTRIBUTIONS

         Subsequent to the IPO, the Company has paid regular quarterly
distributions to its shareholders. The Board of Trustees, in its sole
discretion, has determined the actual distribution rate based on the Company's
actual results of operations, economic conditions, tax considerations (including
those related to REITs) and other factors. In 2000, the Company paid four cash
dividend distributions (each in the amount of $.365 per common share) totalling
$1.46 per common share. In 1999, the Company paid four cash dividend
distributions (two in the amount of $.35 per common share and two in the amount
of $.365 per common share) totaling $1.43 per common share.


                                       22
<PAGE>   27

         The Company believes that in order to facilitate a clear understanding
of the operating results of the Company, funds from operations should be
examined in conjunction with the Company's financial statements and information
included elsewhere in this Report. Funds from operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles ("GAAP"), consistently applied and should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions. The Company's funds from operations are not comparable to funds
from operations reported by other REITs that do not define the term using the
current National Association of Real Estate Investment Trusts ("NAREIT")
definition or that interpret the current NAREIT definition differently than does
the Company.

ITEM 6.  SELECTED FINANCIAL DATA.

         The selected consolidated financial data set forth below are derived
from the Company's consolidated financial statements which appear elsewhere in
this report. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Result of Operations," and
the Consolidated Financial Statements and Notes thereto, included elsewhere in
this report.

<TABLE>
<CAPTION>
                                                                                                                  FOR THE
                                                                                                                PERIOD FROM
                                                                                                                  2/18/98
                                                                                        YEAR          YEAR      (INCEPTION)
                                                                                        ENDED         ENDED         TO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                                              12/31/00      12/31/99      12/31/98
                                                                                     ---------      --------    -----------
<S>                                                                                  <C>            <C>         <C>
OPERATING RESULTS
Revenue.........................................................................     $  22,711      $  20,329    $  8,628
Net income......................................................................         8,444          8,728       5,386
Weighted average shares outstanding, diluted....................................         7,130          7,130       5,546
Net income per share, diluted...................................................          1.18           1.22        0.97
Funds from operations...........................................................        13,786         13,612       7,276
Funds from operations per share, diluted........................................          1.93           1.91        1.31

DIVIDENDS
Cash distribution per share.....................................................     $    1.46      $    1.43    $    .60

BALANCE SHEET DATA (DECEMBER 31, 2000, 1999 and 1998)
Real estate properties, net.....................................................      $210,324      $ 200,415    $ 37,597
Total assets....................................................................       213,775        203,548     142,764
Revolving line of credit........................................................        81,400         69,200       9,000
Total liabilities...............................................................        84,832         72,788      10,765
Total shareholders' equity......................................................       128,943        130,760     131,999
</TABLE>


                                       23
<PAGE>   28

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

         THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED
ELSEWHERE HEREIN.

FORWARD-LOOKING STATEMENTS

         The management's discussion and analysis of financial condition and
results of operations contains forward-looking statements that are based on
current expectations, estimates and projections about the business marketplace
in which Correctional Properties Trust (the "Company") operates. This section of
the annual report also includes management's beliefs and assumptions. Words such
as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
("Future Factors") which are difficult to predict. Therefore, actual outcomes
and results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

         Future Factors include, without limitation, increasing competition,
including new entrants in the marketplace; the mix of tenants as it relates to
other private operators and governmental entities; governmental and public
policy changes; reliance on a single tenant for a significant portion of its
revenue; interest rate risk; continued availability of financing; rental rates
sufficient to make acquisitions feasible; continued ability to pay a dividend;
and financial instruments and financial resources in the amounts, at the times
and on the terms required to support the Company's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic
economic conditions including interest rate fluctuations and other future
factors. The Company discusses such risks in the Company's various reports filed
with the Securities and Exchange Commission.

         The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto.

OVERVIEW

         The Company was formed in February 1998 as a Maryland real estate
investment trust to capitalize on the growing trend toward privatization in the
corrections industry by acquiring correctional and detention facilities from
both private prison operators and governmental entities and to lease such
facilities to experienced correctional and detention facility operators under
long-term, non-cancelable, triple-net leases (leases where the tenant is
required to pay all operating expenses, taxes, insurance, structural and
non-structural repairs and other costs).

         The principal business strategy of the Company is to acquire
correctional and detention facilities that meet the Company's investment
criteria, from both private prison managers and government entities, to expand
its existing facilities, and to lease all such facilities under long-term leases
to qualified third-party operators. The Company's facilities at December 31,
2000 are privately managed facilities that are operated by Wackenhut Corrections
Corporation ("WCC"). However, the Company is pursuing other acquisition
opportunities, including correctional facilities owned and operated by various
government entities and private operators other than WCC, and in fact acquired a
facility on March 16, 2001 leased directly to the State of North Carolina.

         Substantially all of the Company's revenues are derived from: (i) rents
received under triple-net leases of correctional and detention facilities; and
(ii) interest earned from the temporary investment of funds in short-term
investments.

         The Company incurs operating and administrative expenses including
compensation expense for its executive officers and other employees, office
rental and related occupancy costs and various expenses incurred in the process
of acquiring additional properties. The Company is self-administered and managed
by its executive officers and staff, and does not engage a separate advisor or
pay an advisory fee for administrative or investment services, although the
Company does engage legal, accounting, tax and financial advisors from time to
time. The primary non-cash expense of the Company is depreciation of its
correctional and detention facilities.


                                       24
<PAGE>   29

         The Company has leveraged and anticipates having to continue to
leverage its portfolio of real estate equity investments, and expects to
continue to incur short-term indebtedness and related interest expense.

         The Company intends to make distributions to its shareholders in
amounts not less than the amounts required to maintain REIT status under the
Internal Revenue Service Code.

FINANCIAL CONDITION

RESULTS OF OPERATIONS

         2000 COMPARED WITH 1999

         For the twelve months ended December 31, 2000, rental revenues
increased to $22,690,000 from $20,293,000 for the twelve months ended December
31, 1999. This increase resulted primarily from the acquisition of the Jena
Facility in January 2000.

         Depreciation for the twelve months ended December 31, 2000 increased to
$5,342,000 from $4,884,000 for the twelve months ended December 31, 2001. This
increase resulted primarily from the additional depreciation incurred after the
Company's acquisition of the Jena Facility.

         General and administrative expenses for the twelve months ended
December 31, 2000 decreased to $1,450,000 from $1,491,000 for the twelve months
ended December 31, 1999.

         Interest expense increased to $7,475,000 for the twelve months ended
December 31, 2000 from $5,226,000 for the twelve months ended December 31, 1999.
This increase resulted primarily from additional borrowings of approximately
$12,200,000 associated with the acquisition of the Jena Facility and higher
borrowing rates on all outstanding floating rate LIBOR debt associated with the
Bank Credit Facility .

         Net income for the twelve months ended December 31, 2000 decreased to
$8,444,000 from $8,728,000 for the twelve months ended December 31, 1999.

         1999 COMPARED WITH 1998 (FEBRUARY 18, 1998 (INCEPTION) TO DECEMBER 31,
1998)

         For the twelve months ended December 31, 1999, rental revenues
increased to $20,293,000 from $8,132,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from the
Company's incremental revenue associated with completing the purchases of the
Lawton Community Correctional Facility (the "Lawton Facility") for a total cost
of approximately $46,000,000 and the expansion of the Lea County Correctional
Facility (the "Hobbs Expansion") for a total cost of approximately $20,000,000
during January 1999.

         Interest income for the twelve months ended December 31, 1999 decreased
to $36,000 from $496,000 for the period from February 18, 1998 (Inception) to
December 31, 1998. During both periods the Company invested cash in short-term
instruments bearing interest between 5% and 6%. Cash available to the Company
subsequent to its April 1998 initial public offering generated interest income
throughout 1998. The Company used the cash available in 1998 to fund a portion
of the Lawton Facility and the Hobbs Expansion, each acquired in 1999. The
diminished 1999 cash balance resulted in a smaller amount of interest income
during the twelve months ended December 31, 1999 compared to the prior period.

         Depreciation increased to $4,884,000 for the twelve months ended
December 31, 1999 from $1,890,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from the
acquisition of the Lawton Facility and the Hobbs Expansion in January 1999.

         General and administrative expenses increased to $1,491,000 for the
twelve months ended December 31, 1999 from $1,052,000 for the period from
February 18, 1998 (Inception) to December 31, 1998. The change resulted from
increases in management salaries and benefits, accounting, legal and other
administrative costs.


                                       25
<PAGE>   30

         Interest expense increased to $5,226,000 for the twelve months ended
December 31, 1999 from $300,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from
increased borrowings associated with the acquisition of the Lawton Facility and
the Hobbs Expansion in January 1999.

         Net income for the twelve months ended December 31, 1999 increased to
$8,728,000 from $5,386,000 for the period from February 18, 1998 (Inception) to
December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

         The Company expects to meet its short-term liquidity requirements
generally through its working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient to
allow the Company to make distributions necessary to enable the Company to
continue to qualify as a REIT. All facilities owned by the Company are leased
under triple-net leases, which require the lessee to pay substantially all
expenses associated with the operation of such facilities. As a result of these
arrangements, the Company does not believe it will be responsible for any major
expenses in connection with the facilities during the terms of the leases.

         The Company has a $100 million secured line of credit (the "Bank Credit
Facility") which may be used to finance the acquisition of correctional and
detention facilities from WCC and others, to expand current facilities and for
general working capital requirements. The Company's ability to borrow under the
Bank Credit Facility is subject to the Company's ongoing compliance with several
covenants including a cash flow covenant restricting collateralized borrowings
to four times Adjusted EBITDA (as defined in the Bank Credit Facility).
Additionally, the Bank Credit Facility is secured by all of the Company's
facilities at December 31, 2000. The Company has the ability to borrow
additional non-recourse funds subject to various additional limitations
discussed in the Bank Credit Facility. As of December 31, 2000, $81,400,000 had
been drawn on the Bank Credit Facility at an average rate of 8.5% based upon
LIBOR plus an applicable margin.

         On July 24, 2000, the company entered into a $45 million notional
amount cash flow interest rate swap. The swap agreement provides that floating
rate LIBOR payments on $45 million of indebtedness will be exchanged for fixed
payments at a rate of 7.035%. In addition, the Company will be obligated for the
EuroDollar Rate Margin described in the Bank Credit Facility. The effect of the
interest rate swap is that the interest rate on approximately 55.3% of the
Company's borrowings under the Bank Credit Facility is fixed at 7.035% plus the
applicable margin, which was 2.0% as of December 31, 2000. The Company accounts
for the amount payable or receivable under this swap each period through
interest expense.

         On March 16, 2001, the Company entered into Amendment Agreement No. 2
to Credit Agreement ("Amendment No.2") and Amendment Agreement No. 3 to Credit
Agreement ("Amendment No. 3"), each amending the Bank Credit Facility. The
Amendments included increasing the revolving credit commitment to $110,000,000,
increasing the interest rate grid applicable to all borrowings by 50 basis
points, as well as payment of additional bank fees of $625,000 and certain
covenant changes. The increased capacity was necessary to fund the Company's
acquisition of an additional prison facility in North Carolina on March 16,
2001.

         Amendment No. 3 also requires the Company to enter into by June 15,
2001 and thereafter maintain Swap Agreements or similar arrangements providing
protection against fluctuations in interest rates on its indebtedness, having an
aggregate notional amount of not less than $75,000,000 including the $45,000,000
already subject to such arrangements.

         The Company expects to meet its long-term liquidity requirements for
the funding of real property development and acquisitions by borrowing under the
Bank Credit Facility and by issuing equity or debt securities in public or
private transactions. The Company anticipates that as a result of its intention
to maintain a moderate ratio of debt to total capitalization, it may be able to
obtain financing for its long-term capital needs. However, there can be no
assurance that such additional financing or capital will be available on terms
acceptable to the Company. The Company may, under certain circumstances, borrow
additional amounts in connection with the renovation or expansion of facilities,
the acquisition of additional properties, or as necessary, to meet certain
distribution requirements imposed on REITs under the Internal Revenue Code.



                                       26
<PAGE>   31
FUNDS FROM OPERATIONS

         Management believes Funds From Operations ("FFO") is helpful to
investors as a measure of the performance of an equity REIT. Along with cash
flows from operating activities, financing activities and investing activities,
FFO provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures.

         The Company computes FFO in accordance with standards established by
the White Paper on Funds from Operations (the "White Paper") approved by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in 1995, which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and accordingly, may not be
comparable to such other REITs. The White Paper defines FFO as net income
(loss), computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Further, FFO
does not represent amounts available for management's discretionary use because
of needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties.

         FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions.

         The Company believes that in order to facilitate a clear understanding
of the consolidated operating results of the Company, FFO should be examined in
conjunction with net income as presented in the consolidated financial
statements.


                                       27
<PAGE>   32

         The following table presents the Company's FFO for the years ended
December 31, 2000 and 1999:

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)                                                                2000                1999
-------------------------                                                          -----------           -----------
<S>                                                                                <C>                   <C>
Net Income.....................................................................    $     8,444           $     8,728
Real estate depreciation.......................................................          5,342                 4,884
                                                                                   -----------           -----------
Funds from operations..........................................................    $    13,786           $    13,612
                                                                                   -----------           -----------
Common shares outstanding
    Basic......................................................................          7,130                 7,130
    Diluted....................................................................          7,130                 7,130
</TABLE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company is exposed to market risks inherent in the Company's
financial instruments. These instruments arise from transactions entered into in
the normal course of business and relate to the Company's acquisitions of
correctional and detention facilities. The Company is subject to interest rate
risk on its existing Bank Credit Facility, the Interest Rate Swap and any future
financing requirements. The Company does not use financial instruments for
trading or speculative purposes and all financial instruments are entered into
in accordance with Board approved policies.

         The Company's interest rate risk is related primarily to the variable
rate Bank Credit Facility, which the Company has sought to reduce by entering
into the Interest Rate Swap. The Company is also exposed to market risk from (i)
the interest rate risk on short-term borrowings, (ii) the possibility of
non-performance by the counterparty to the Interest Rate Swap (which the Company
does not anticipate), (iii) its ability to refinance its Bank Credit Facility at
maturity at market rates and (iv) the impact of interest rate movements on its
ability to obtain and maintain adequate financing to fund future acquisitions.
While the Company cannot predict or manage its ability to refinance existing
debt or the impact interest rate movements will have on its existing debt,
management continues to evaluate its financial position on an ongoing basis and
may in the future seek to minimize interest rate exposure. The Company's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows. To achieve this objective, the Company has
entered into the Interest Rate Swap.

         As of December 31, 2000, $81,400,000 had been drawn on the Bank Credit
Facility at an average rate of 8.5%. Holding the variable rate debt balance
constant, each one percentage point increase in interest rates occurring on the
first day of 2001 would result in an increase in interest expense for fiscal
year 2001 of approximately $814,000.

         The Company's interest rate swap provides that floating rate LIBOR
payments on $45 million of indebtedness will be exchanged for fixed payments at
a rate of 7.035% per annum. In addition, the Company will be obligated for the
EuroDollar Rate Margin described in the Credit Facility. The fair value of the
Interest Rate Swap at December 31, 2000 is a liability of approximately
$1,500,000.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Company's consolidated financial statements for the year ended
December 31, 2000 and the respective notes thereto, are set forth elsewhere in
this report. An index of these financial statements appears in Item 14.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.


                                       28
<PAGE>   33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Correctional Properties Trust:

We have audited the accompanying consolidated balance sheets of Correctional
Properties Trust (a Maryland real estate investment trust) and subsidiaries as
of December 31, 2000 and 1999, and the related consolidated statements of
income, shareholders' equity and cash flows for the years ended December 31,
2000 and 1999 and for the period from February 18, 1998 (Inception) to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial position of Correctional
Properties Trust and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years ended December
31, 2000 and 1999 and for the period from February 18, 1998 (Inception) to
December 31, 1998, in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

West Palm Beach, Florida,
     January 15, 2001 (except with respect to the matters discussed in Notes 3
and 9, as to which the date is March 16, 2001).


                                       29
<PAGE>   34

CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND DECEMBER 31, 1999

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                            2000            1999
----------------------------------------------------------                         ---------       ---------
<S>                                                                                <C>             <C>
Assets
Real estate properties, at cost
   Correctional and detention facilities ................................          $ 222,440       $ 207,189
   Less--accumulated depreciation .......................................            (12,116)         (6,774)
                                                                                   ---------       ---------
      Net real estate properties ........................................            210,324         200,415
Cash and cash equivalents ...............................................                466             121
Deferred financing costs ................................................              1,214           1,654
Other assets ............................................................              1,771           1,358
                                                                                   ---------       ---------
      Total assets ......................................................          $ 213,775       $ 203,548
                                                                                   =========       =========
Liabilities and shareholders' equity
Liabilities
Accounts payable and accrued expenses ...................................          $   1,555       $   1,899
Deferred revenue ........................................................              1,877           1,689
Revolving line of credit ................................................             81,400          69,200
                                                                                   ---------       ---------
      Total liabilities .................................................             84,832          72,788
                                                                                   ---------       ---------
Commitments and contingencies (note 6)
Shareholders' equity
   Preferred shares, $.001 par value; 50,000,000 shares authorized;
      none outstanding ..................................................                 --              --
   Common shares, $.001 par value; 150,000,000 shares
      authorized; 7,130,000 shares issued and outstanding ...............                  7               7
   Capital in excess of par value .......................................            131,259         131,112
   Distributions in excess of income ....................................             (2,323)           (359)
                                                                                   ---------       ---------
      Total shareholders' equity ........................................            128,943         130,760
                                                                                   ---------       ---------
   Total liabilities and shareholders' equity ...........................          $ 213,775       $ 203,548
                                                                                   =========       =========
</TABLE>

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


                                       30
<PAGE>   35

CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 18,
1998 (INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                2000         1999         1998
------------------------------------------------              -------      -------      -------
<S>                                                           <C>          <C>          <C>
Revenues
   Rental .........................................           $22,690      $20,293      $ 8,132
   Interest .......................................                21           36          496
                                                              -------      -------      -------
                                                               22,711       20,329        8,628
                                                              -------      -------      -------
Expenses
   Depreciation ...................................             5,342        4,884        1,890
   General and administrative .....................             1,450        1,491        1,052
   Interest .......................................             7,475        5,226          300
                                                              -------      -------      -------
                                                               14,267       11,601        3,242
                                                              -------      -------      -------
Net income ........................................           $ 8,444      $ 8,728      $ 5,386
                                                              =======      =======      =======
Net income per common share:
   Basic ..........................................           $  1.18      $  1.22      $  0.97
   Diluted ........................................           $  1.18      $  1.22      $  0.97
Weighted average number of shares outstanding:
   Basic ..........................................             7,130        7,130        5,541
   Diluted ........................................             7,130        7,130        5,546
</TABLE>

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


                                       31
<PAGE>   36

CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000
AND DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 18, 1998 (INCEPTION) TO DECEMBER
31, 1998

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
----------------------                                                                (DISTRIBUTIONS
                                                                                         IN EXCESS
                                                                                        OF INCOME)
                                                 COMMON SHARES           CAPITAL IN      BALANCE OF
                                            ------------------------      EXCESS OF    UNDISTRIBUTED
                                             SHARES           AMOUNT      PAR VALUE        INCOME         TOTAL
                                            -------          -------     ----------   --------------    ---------
<S>                                         <C>              <C>         <C>          <C>               <C>
Initial capital contribution .........           --          $    --      $      3       $     --       $       3
Initial public offering of shares,
    net of issuance costs ............        7,130                7       130,719             --         130,726
Non-cash compensation charge .........           --               --           162             --             162
Net income ...........................           --               --            --          5,386           5,386
Distributions to shareholders ........           --               --            --         (4,278)         (4,278)
                                            -------          -------      --------       --------       ---------
Balance, December 31, 1998 ...........        7,130                7       130,884          1,108         131,999
Non-cash compensation charge .........           --               --           228             --             228
Net income ...........................           --               --            --          8,728           8,728
Distributions to shareholders ........           --               --            --        (10,195)        (10,195)
                                            -------          -------      --------       --------       ---------
Balance, December 31, 1999 ...........        7,130                7       131,112           (359)        130,760
Non-cash compensation charge .........           --               --           147             --             147
Net income ...........................           --               --            --          8,444           8,444
Distributions to shareholders ........           --               --            --        (10,408)        (10,408)
                                            -------          -------      --------       --------       ---------
Balance, December 31, 2000 ...........        7,130          $     7      $131,259       $ (2,323)      $ 128,943
                                            =======          =======      ========       ========       =========
</TABLE>

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


                                       32
<PAGE>   37

CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 18,
1998 (INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)                                                     2000           1999           1998
----------------------                                                   --------       --------       --------
<S>                                                                      <C>            <C>            <C>
Cash flows from operating activities
   Net income ..................................................         $  8,444       $  8,728       $  5,386
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation of real estate properties ...................            5,342          4,884          1,890
      Other amortization .......................................              587            668            271
      Changes in assets and liabilities:
       Other assets ............................................             (413)          (610)          (748)
       Accounts payable and accrued expenses ...................             (344)         1,238            661
       Deferred revenue ........................................              188            585          1,104
                                                                         --------       --------       --------
         Net cash provided by operating activities .............           13,804         15,493          8,564
                                                                         --------       --------       --------
Net cash used in investing activities
   Acquisition of real estate properties .......................          (15,251)       (67,702)      (139,487)
                                                                         --------       --------       --------
Cash flows from financing activities
   Initial capitalization ......................................               --             --              3
   Proceeds from initial public offering,
      net of offering costs ....................................               --             --        130,726
   Distributions to shareholders ...............................          (10,408)       (10,195)        (4,278)
   Borrowings from revolving line of credit ....................           12,200         60,200          9,000
   Deferred financing costs ....................................               --             --         (2,203)
                                                                         --------       --------       --------
       Net cash provided by financing activities ...............            1,792         50,005        133,248
                                                                         --------       --------       --------
       Net increase (decrease) in cash and cash equivalents ....              345         (2,204)         2,325
Cash and cash equivalents, beginning of period .................              121          2,325             --
                                                                         --------       --------       --------
Cash and cash equivalents, end of period .......................         $    466       $    121       $  2,325
                                                                         ========       ========       ========
   Supplemental disclosure:
      Cash paid for interest ...................................         $  6,920       $  1,279       $    185
                                                                         ========       ========       ========
</TABLE>

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


                                       33
<PAGE>   38

CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000

1.       ORGANIZATION AND OPERATIONS

         Correctional Properties Trust (the "Company") was formed in February
1998 as a Maryland real estate investment trust to capitalize on the growing
trend toward privatization in the corrections industry by acquiring correctional
and detention facilities from both private prison operators and governmental
entities. Through December 31, 2000, the Company's facilities were all leased
to Wackenhut Corrections Corporation (together with its subsidiaries, "WCC") and
the Company operates in only one segment.

         On April 28, 1998, the Company commenced operations after completing
its initial public offering (the "IPO") of 6,200,000 common shares of beneficial
interest. Subsequently, on May 13, 1998, the underwriters involved in the IPO
exercised their over-allotment option for an additional 930,000 shares resulting
in a total of 7,130,000 shares of beneficial interest outstanding. The 7,130,000
common shares were issued at an IPO price of $20.00 generating gross proceeds of
$142,600,000. The aggregate proceeds to the Company, net of underwriters'
discount of $9,982,000 and offering costs of $1,892,000, were approximately
$130,726,000.

         Simultaneous with the completion of the IPO, the Company acquired the
following eight correctional and detention facilities (the "Initial
Facilities"), located in five states with an aggregate design capacity of 3,154
beds, from WCC for an aggregate purchase price of $113,000,000 (collectively,
the "Formation Transactions"):

         (i)      Aurora INS Processing Center (Aurora, Colorado);

         (ii)     McFarland Community Correctional Facility (McFarland,
                  California);

         (iii)    Queens Private Correctional Facility (New York, New York);

         (iv)     Central Valley Community Correctional Facility (McFarland,
                  California);

         (v)      Golden State Community Correctional Facility (McFarland,
                  California);

         (vi)     Desert View Community Correctional Facility (Adelanto,
                  California);

         (vii)    Broward County Work Release Center (Broward County, Florida);
                  and

         (viii)   Karnes County Correctional Center (Karnes County, Texas).

         As part of the Formation Transactions, the Company also entered into
agreements with WCC to lease the Initial Facilities back to WCC pursuant to
long-term, non-cancelable triple-net leases (the "Leases") which require WCC to
pay all operating expenses, taxes, insurance and other costs. The Leases provide
for an initial term of 10 years that may generally be extended by WCC for three
five-year terms at fair market rental rates. The Leases provide for a base rent
equal to 9.5% of the total purchase price of each Initial Facility and annual
rent escalations equal to the annual increase in the Consumer Price Index--All
Urban Consumers, as published by the Bureau of Statistics of the United States
Department of Labor (the "CPI"), subject to a minimum annual increase of 3% at
the end of years one and two and a maximum annual increase of 4% throughout the
term of the Leases.

         Further, the Company has entered into a Right to Purchase Agreement
with WCC, pursuant to which the Company will have the right, during the 15 years
following the consummation of the IPO (so long as there are any leases in force
between the Company and WCC), to acquire and leaseback to WCC any future
facilities, subject to exception where the sale or transfer of ownership of a
facility is previously restricted.

         On October 30, 1998, Correctional Properties Trust completed the
acquisition of the 600-bed medium security Lea County Correctional Facility in
Hobbs, New Mexico (the "Hobbs Facility") for approximately $26,500,000.

         During January 1999, the Company completed the acquisition of the
600-bed expansion of the Hobbs Facility for approximately $20,000,000 and the
Lawton Correctional Facility (the "Lawton Facility") for approximately
$46,000,000. WCC leased the Lawton Facility and the Hobbs Facility from the
Company for the same base rent and escalation percentage as the Initial
Facilities for an initial term of ten years, with three additional renewal
options for terms of five years each. The renewal terms are to be determined by
fair market rental rates.


                                       34
<PAGE>   39

         On January 7, 2000, the Company purchased the Jena Juvenile Justice
Center (the "Jena Facility") from WCC for approximately $15,300,000, using funds
available under a $100 million secured line of credit (the "Bank Credit
Facility"). WCC has leased the 276-bed facility located in Jena, Louisiana at an
initial cap rate of 11% with 4% annual escalators for an initial term of ten
years, with three additional renewal options for terms of five years each in
length. The lease provides for fixed rental payments to the Company without
regard for occupancy. WCC does not presently have an operating contract with a
client for the Jena Facility. However, WCC continues to make rental payments to
Correctional Properties Trust. As a result of the termination of WCC's previous
operating contract, the Jena Facility no longer is included in the Company's
pledge pool Borrowing Base described in the Bank Credit Facility.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The consolidated financial statements of the Company include all the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

         The Company considers all short-term, highly liquid investments that
are readily convertible to cash and have an original maturity of three months or
less at the time of purchase to be cash equivalents.

DEFERRED FINANCING COSTS

         Deferred financing costs are being amortized on a straight-line basis
over the five-year term of the Bank Credit Facility. This method approximates
the effective interest rate method.

REAL ESTATE PROPERTIES

         Real estate properties are recorded at cost. Acquisition costs and
transaction fees directly related to each property are capitalized as a cost of
the respective property. The cost of real estate properties acquired is
allocated between land, buildings and improvements, and machinery and equipment
based upon cost at time of acquisition. Depreciation is provided for on a
straight-line basis over an estimated useful life of 40 years for buildings and
improvements.

         As of December 31, 2000, the Company had investments in eleven leased
real estate properties with an initial cost totaling $222,400,000. Components of
these real estate investments at cost are as follows:

<TABLE>
<S>                                                                                                 <C>
Land and land improvements.......................................................................   $     8,500,000

Buildings and improvements.......................................................................   $   213,900,000
</TABLE>

LONG-LIVED ASSETS

         Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" requires that long-lived assets, including certain identifiable
intangibles and the goodwill related to those assets, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. Management has reviewed the
Company's long-lived assets and has determined that there are no events
requiring impairment loss recognition. The method used to determine impairment
would be undiscounted operating cash flows over the remaining amortization
period for the related long-lived assets. The Company would measure impairment
as the difference between fair value and the net book value of the related
asset.


                                       35
<PAGE>   40

LEASES AND RENTAL INCOME

         All leases are accounted for as operating leases. Lease revenue is
recognized on a straight-line basis over the lease term including the impact of
the scheduled rent increases for any leases which are determinable at the
inception of the lease. Deferred revenue represents monthly rent received in
advance from WCC. Any increases in lease revenue due to scheduled rent increases
which were not determinable at the inception of the lease will be recognized
when determinable. The annual minimum rent to be received for correctional and
detention facilities under non-cancelable operating leases as of December 31,
2000 is as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR                                                                                   ANNUAL RENT
-----------                                                                                   -----------
<S>                                                                                           <C>
2001....................................................................................      $   22,631
2002....................................................................................          22,703
2003....................................................................................          22,703
2004....................................................................................          22,703
2005....................................................................................          22,703
Thereafter..............................................................................          63,795
                                                                                              ----------
                                                                                              $  177,238
                                                                                              ==========
</TABLE>

FEDERAL INCOME TAXES

         The Company has sought qualification as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code commencing with its taxable period
ended December 31, 1998. The Company intends to continue to seek to qualify as a
REIT in the future. As a result, management believes the Company will generally
not be subject to federal income tax on its taxable income at corporate rates to
the extent it distributes annually at least 95% of its taxable income to its
shareholders and complies with certain other requirements. Accordingly, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements.

         If the Company fails to qualify as a REIT in any taxable year, it would
be subject to federal income tax on its taxable income. Such an event could
materially affect the Company's net income. However, the Company believes that
it is organized and operates in such a manner as to qualify for treatment as a
REIT for the years ended December 31, 2000, 1999 and for the period from
February 18, 1998 (inception) to December 31, 1998.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying value of cash and cash equivalents, accounts payable and
accrued expenses, and the revolving line of credit approximate fair value. The
fair value of the Company's interest rate swap at December 31, 2000 is a
liability of approximately $1,500,000.

CONCENTRATION OF CREDIT RISK

         The Company is exposed to credit related losses in the event of
non-performance by counterparties to certain derivative financial instruments.
The Company monitors the credit worthiness of the counterparties and presently
does not expect default by any of the counterparties. The Company does not
obtain collateral in connection with its derivative financial instruments.

         The credit exposure that results from the Company's interest rate swap
is represented by the fair value of the swap as of the reporting date.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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 and the reported amounts of revenues and
expenses during the reporting periods. Actual results could vary from those
estimates. Significant estimates include the useful lives of real estate
properties.


                                       36
<PAGE>   41
COMPREHENSIVE INCOME

         Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. For the
years ended December 31, 2000, 1999 and for the period from February 18, 1998
(inception) to December 31, 1998, there were no differences between net income
and comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENT

         The Company will adopt Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and 138, on January 1, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or a
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has an interest rate swap that
management of the Company has determined to be an effective cash flow hedge. The
Company will record a charge to other comprehensive loss during the first
quarter of 2001 of approximately $1,500,000 as a component of shareholders'
equity as a result of adopting SFAS No. 133.

3.       BANK CREDIT FACILITY

         The Company has a $100 million secured line of credit (the "Bank Credit
Facility") which may be used to finance the acquisition of correctional and
detention facilities from WCC and others, to expand current facilities and for
general working capital requirements. The Company's ability to borrow under the
Bank Credit Facility is subject to the Company's ongoing compliance with several
covenants including a cash flow covenant restricting collateralized borrowings
to four times Adjusted EBITDA (as defined in the Bank Credit Facility).
Additionally, the Bank Credit Facility is secured by all of the Company's
facilities at December 31, 2000. The Company has the ability to borrow
additional non-recourse funds subject to various additional limitations
discussed in the Bank Credit Facility. As of December 31, 2000, $81,400,000 had
been drawn on the Bank Credit Facility at an average rate of 8.5% based upon
LIBOR plus an applicable margin.

         On July 24, 2000, the Company entered into a $45 million notional
amount cash flow interest rate swap. The swap agreement provides that floating
rate LIBOR payments on $45 million of indebtedness will be exchanged for fixed
payments at a rate of 7.035%. In addition, the Company will be obligated for the
EuroDollar Rate Margin described in the Bank Credit Facility. The effect of the
interest rate swap is that the interest rate on approximately 55.3% of the
Company's borrowings under the Bank Credit Facility is fixed at 7.035% plus the
applicable margin, which was 2.0% at December 31, 2000. The Company accounts for
the amount payable or receivable under the swap each period through interest
expense.

         On March 16, 2001, the Company entered into Amendment Agreement No. 2
to Credit Agreement ("Amendment No. 2") and Amendment Agreement No. 3 to Credit
Agreement ("Amendment No. 3"), each amending the Bank Credit Facility. The
Amendments include increasing the revolving credit commitment to $110,000,000,
increasing the interest rate grid applicable to all borrowings by 50 basis
points, as well as additional bank fees of $625,000 and certain covenant
changes. This increase in capacity was necessary to fund the Company's
acquisition of an additional prison facility in North Carolina on March 16,
2001.

         Amendment No. 3 also requires the Company to enter into by June 15,
2001 and thereafter maintain Swap Agreements or similar arrangements providing
protection against fluctuations in interest rates on its indebtedness, having an
aggregate notional amount of not less than $75,000,000 including the $45,000,000
already subject to such arrangements.

4.       SHARE OPTION AND INCENTIVE PLANS

         The Company has established share option and incentive plans for the
purpose of attracting and retaining qualified executive officers and key
employees, as well as non-employee trustees.

         In conjunction with the IPO, the Company granted options with respect
to an aggregate of 590,000 common shares to officers, employees and trustees.
The exercise price for such options is the IPO price of $20.00. The term of such
options is ten years from the date of grant. In general, one-fourth of the
aggregate of 565,000 options granted to executive officers and employees vested
immediately and the remaining shares vested ratably on the first, second, and
third anniversary of the date of


                                       37
<PAGE>   42

grant, respectively. The options granted to the non-employee trustees in the
aggregate of 25,000 shares vested in full at the date of grant. The value of
options granted to non-employees in the aggregate of 240,000 shares is being
charged to compensation expense over the life of the options. The amount of
related compensation expense recognized in 2000, 1999 and 1998, respectively,
was approximately $147,000, $228,000 and $162,000.

         On January 21, 1999, the Company granted 51,000 options for common
shares to officers and employees and 10,000 options for common shares to
non-employee trustees. Such options were granted at an exercise price of $17.31
per share, the fair market value at date of grant. The term of these options is
ten years from the date of grant. The options granted to officers vest
immediately as to one-fourth of the shares subject thereto, and vest as to the
remaining shares ratably on the first, second and third anniversary of the grant
date. The options granted to the trustees vested in full at the date of grant.

         On April 25, 2000, the Company granted 96,000 options for common shares
to officers and employees and 10,000 options for common shares to non-employee
trustees. Such options were granted at an exercise price of $11.19 per share,
the fair market value of a share at the date of the grant. The term of these
options is ten years from the date of grant. The options granted to officers
vest immediately as to one-fourth of the shares subject thereto and vest ratably
as to the remaining shares on the first, second and third anniversaries of the
grant date. The options granted to the trustees vested in full on the date of
the grant.

         A summary of the status of the Company's stock option plans, including
their weighted average option exercise price, as of December 31, 2000, 1999 and
1998, respectively, is presented below:

<TABLE>
<CAPTION>
                                                     2000                      1999                    1998
                                             -----------------------   ----------------------   ---------------------
                                                           WEIGHTED-                WEIGHTED-               WEIGHTED-
                                                           AVERAGE                  AVERAGE                 AVERAGE
                                                           EXERCISE                 EXERCISE                EXERCISE
                                             SHARES         PRICE      SHARES        PRICE      SHARES       PRICE
                                             -------       --------    -------      --------    -------     --------
<S>                                          <C>           <C>         <C>          <C>         <C>         <C>
Outstanding at beginning of year..........   651,000        $19.75     590,000       $20.00          --           --
Options granted...........................   106,000        $11.19      61,000       $17.31     590,000       $20.00
Options exercised.........................        --            --          --           --          --           --
Options forfeited.........................        --            --          --           --          --           --
                                             -------        ------     -------       ------     -------       ------
Outstanding at end of year................   757,000        $18.55     651,000       $19.75     590,000       $20.00
                                             =======        ======     =======       ======     =======       ======
Exercisable at end of year................   525,750        $19.16     334,750       $19.78     166,250       $20.00
</TABLE>

         Significant option groups outstanding at December 31, 2000, and related
weighted average price and life information, are as follows:

<TABLE>
<CAPTION>
                                                      EXERCISE PRICE/                  EXERCISE PRICE/
                                                     WEIGHTED AVERAGE                 WEIGHTED AVERAGE  REMAINING LIFE
                 GRANT DATE          OUTSTANDING      EXERCISE PRICE     EXERCISABLE   EXERCISE PRICE     OUTSTANDING
                 ----------          -----------     ----------------    -----------  ----------------  --------------
                 <S>                 <C>             <C>                 <C>          <C>               <C>
                   4/28/98             590,000            $20.00           448,750         $20.00          7.3 years
                   1/21/99              61,000            $17.31            38,500         $17.31          8.1 years
                   4/25/00             106,000            $11.19            38,500         $11.19          9.3 years
                                       -------                            --------
                                       757,000            $18.55           525,750         $19.16
                                       =======                            ========
</TABLE>

         As of December 31, 2000, the Company had options with respect to an
aggregate of 88,000 common shares available for grant. The Company applies APB
Opinion No. 25 and related interpretations in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for its employee stock plans. Had compensation for the Company's
stock-based compensation plans been determined pursuant to SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and earnings
per share would have decreased accordingly. Using the Black-Scholes
option-pricing model, the Company's pro forma net income, pro forma net income
per share and pro forma weighted average fair value of options granted, with
related assumptions, are as follows:

<TABLE>
<CAPTION>
                                                                         2000              1999              1998
                                                                       --------          --------          --------
<S>                                                                    <C>               <C>               <C>
Pro forma net income..........................................         $  8,239          $  8,512          $ 4,999
</TABLE>


                                       38
<PAGE>   43

<TABLE>
<S>                                                                       <C>                <C>              <C>
Pro forma basic earnings per share............................             1.16              1.19             0.90
Pro forma diluted earnings per share..........................             1.16              1.19             0.90
Pro forma weighted average fair value of options granted......             0.04              0.51             2.42
Risk-free interest rate.......................................             6.50%             4.69%            5.79%
Expected life (years).........................................               10                10               10
Expected volatility...........................................             11.8%             13.9%            23.0%
Quarterly dividend rate.......................................            12.51%              8.1%             7.0%
</TABLE>

                                       39
<PAGE>   44

5. EARNINGS PER SHARE

         Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common shares after considering the additional dilution. The following
data show the amounts used in computing earnings per share and the effects on
income and the weighted average number of shares of potential dilutive common
stock (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                                             FOR THE PERIOD
                                                                                                            FEBRUARY 18, 1998
                                                                     YEAR ENDED         YEAR ENDED             (INCEPTION)
                                                                    DECEMBER 31,       DECEMBER 31,          TO DECEMBER 31,
                                                                        2000               1999                   1998
                                                                    ------------       ------------        -----------------
    <S>                                                             <C>                <C>                 <C>
    Net income................................................       $  8,444           $   8,728              $  5,386
    Weighted average shares--basic............................          7,130               7,130                 5,541
    Per share--basic..........................................       $   1.18           $    1.22              $   0.97
    Effect of dilutive stock options..........................             --                  --                     5
    Weighted average shares--diluted..........................          7,130               7,130                 5,546
    Per share--diluted........................................       $   1.18           $    1.22              $   0.97
</TABLE>

         Options to purchase 590,000 shares of the Company's stock at $20.00 per
share have been outstanding since February 20,1998. Options to purchase an
additional 61,000 shares were granted at a fair market value exercise price of
$17.31 per share on January 21, 1999. Options to purchase an additional 106,000
shares were granted at a fair market exercise price of $11.19 per share on April
25, 2000. None of these options were included in the computation of diluted EPS
in 1999 and 2000 because their effect would be anti-dilutive. All options expire
in either the years 2008, 2009 or 2010 and are outstanding at December 31, 2000.

6. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

         The nature of the Company's business results in claims for damages
arising from the conduct of its employees or others. In the opinion of
management, there are no known pending legal proceedings that would have a
material effect on the consolidated financial statements of the Company.

LEASE COMMITMENTS

         The Company leases office space and data processing equipment under
non-cancelable operating leases expiring through 2005. Rent expense for the
years ended December 31, 2000, and 1999 and for the period from February 18,
1998 (Inception) through December 31, 1998 was $42,000, $43,000, and $27,000
respectively.

         The minimum commitments under these obligations are as follows:

<TABLE>
<CAPTION>
YEAR                                                                             MINIMUM COMMITMENT
----                                                                             ------------------
<S>                                                                              <C>
2001............................................................................     $  42,000
2002............................................................................        43,000
2003............................................................................        45,000
2004............................................................................        47,000
2005............................................................................        20,000
                                                                                     ---------
Total...........................................................................     $ 197,000
                                                                                     =========
</TABLE>


                                       40
<PAGE>   45

7. SAVINGS AND RETIREMENT PLANS

         The Company has a 401(k) retirement plan (the "401(k) Plan") covering
all of the officers and employees of the Company. The 401(k) Plan permits
participants to contribute, until termination of employment with the Company, up
to a maximum of 15% of their compensation to the 401(k) Plan. Contributions of
participants are not matched by the Company. For the years ended December 31,
2000 and 1999, and for the period from February 18, 1998 (Inception) through
December 31, 1998, the Company incurred costs of approximately $1,200, $1,200
and $6,000 respectively, in connection with the 401(k) Plan.

         Subsequent to the Company's IPO, the Board of Trustees approved and
adopted a Senior Executive Retirement Plan. The Chief Executive Officer of the
Company is currently the only eligible participant. The Company is finalizing
the benefits payable under this plan and the manner in which they will be funded
and will begin to incur corresponding expenses beginning in the year 2001.

8.       SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER
         SHARE DATA)

<TABLE>
<CAPTION>
                                                                              AS OF OR FOR THE PERIOD ENDED:
                                                               ------------------------------------------------------------
                                                                 1ST               2ND             3RD              4TH
                                                               QUARTER           QUARTER         QUARTER          QUARTER
                                                               --------          --------        --------         --------
2000
----
<S>                                                            <C>               <C>             <C>              <C>
Real estate properties, net..........................          $214,396          $213,059        $211,722         $210,324
Total assets.........................................           217,530           216,178         216,873          213,775
Revenue..............................................             5,649             5,685           5,684            5,693
Net income...........................................             2,231             2,147           2,035            2,031
Net income per share, diluted........................              0.31              0.30            0.29             0.28
Funds from operation.................................             3,562             3,484           3,372            3,368
Cash distribution per share..........................             0.365             0.365           0.365            0.365


1999
----

Real estate properties, net..........................          $202,531          $202,899        $201,657         $200,415
Total assets.........................................           207,407           206,058         204,726          203,548
Revenue..............................................             4,872             5,129           5,162            5,166
Net income...........................................             2,212             2,207           2,161            2,148
Net income per share, diluted........................              0.31              0.31            0.30             0.30
Funds from operation.................................             3,380             3,439           3,403            3,390
Cash distribution per share..........................              0.35              0.35           0.365            0.365
</TABLE>

9.       SUBSEQUENT EVENTS

         On January 18, 2001, the Board of Trustees declared a distribution of
$0.365 per share for the quarter ended December 31, 2000, to shareholders of
record on February 2, 2001. The distribution was paid on February 15, 2001 and
represents a distribution for the period from October 1, 2000 through December
31, 2000.

         On March 16, 2001, the Company acquired the Mountain View Correctional
Facility (the "Mountain View Facility"), for approximately $25,200,000,
including transaction costs from an unrelated third party. The 576-cell,
medium-security prison is leased to the State of North Carolina, and is subject
to the terms of an existing long-term, triple-net lease, which was assigned by
the previous facility owner to the Company.

         The initial lease on this facility, which became effective December
1998, included cash rental of $2,768,700 during the first year of the lease,
payable monthly in arrears. On each anniversary date of the lease, the rental
payment escalates at the Consumer Price Index (CPI), with a minimum increase of
3.5%, but not greater than 4%. The current annual rent is approximately
$2,965,900. The initial term of the lease is ten years, with two, ten-year
renewals at the State of North Carolina's option. The lessee has the option to
acquire the facility in December 2004, for approximately $26,200,000. At the end
of each


                                       41
<PAGE>   46

lease year thereafter, the lessee has an option to purchase the facility for a
predetermined declining amount. At the end of the thirtieth lease year, the
lessee may purchase the facility for a nominal payment. The annual lease payment
is subject to appropriation by the North Carolina General Assembly.

         The Company acquired the Mountain View Facility using the proceeds
under its Bank Credit Agreement, which has been amended to a total capacity of
$110,000,000. The amendments included increasing the interest rate grid
applicable to all borrowings by 50 basis points, as well as payment of
additional bank fees of approximately $625,000, and certain covenant changes. In
addition, the Company committed to entering into interest rate obligations which
would effectively fix the interest rate on an additional $30,000,000 of the
Company's outstanding debt, on or before June 15, 2001.


                                       42
<PAGE>   47

                                    PART III

         The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the definitive Proxy Statement of the Company relating
to the 2000 Annual Meeting of Shareholders and is incorporated herein by
reference.


                                       43
<PAGE>   48

                                     PART IV

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

(a)(1)   The following consolidated financial statements are filed as part of
         this Form 10-K:

                  Correctional Properties Trust Consolidated Financial
                  Statements:

                  Report of Independent Certified Public Accountants

                  Consolidated Balance Sheets at December 31, 2000 and December
                  31, 1999

                  Consolidated Statement of Income for the years ended December
                  31, 2000 and December 31, 1999 and period from February 18,
                  1998 (Inception) to December 31, 1998

                  Consolidated Statement of Shareholders Equity for years ended
                  December 31, 2000 and December 31, 1999 and period from
                  February 18, 1998 (Inception) to December 31, 1998

                  Consolidated Statement of Cash Flows for the years ended
                  December 31, 2000 and December 31, 1999 and period from
                  February 18, 1998 (Inception) to December 31, 1998

                  Notes to Consolidated Financial Statements.

   (2)   The following financial statement schedules are filed as part of this
         Form 10-K:

         None.

   (3)   See Exhibit Index included elsewhere herein.

(b)      Reports on Form 8-K:

         None.


                                       44
<PAGE>   49

                                   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.

Date:  March 31, 2001               CORRECTIONAL PROPERTIES TRUST
                                    (Registrant)

                                    By:  /s/ CHARLES R. JONES
                                        ----------------------------------------
                                        Charles R. Jones
                                        Chief Executive Officer,
                                        President and Trustee
                                        (Principal financial and accounting
                                        officer)

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles R. Jones as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

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

<TABLE>
<CAPTION>
                SIGNATURE                                         TITLE                                        DATE
--------------------------------------------         -----------------------------------                  --------------
<S>                                                  <C>                                                  <C>
/s/ DR. GEORGE C. ZOLEY                              Chairman of the Board                                March 31, 2001
--------------------------------------------
Dr. George C. Zoley

/s/ RICHARD R. WACKENHUT                             Vice-Chairman of the Board                           March 31, 2001
--------------------------------------------
Richard R. Wackenhut

/s/ GEORGE R. WACKENHUT                              Trustee                                              March 31, 2001
--------------------------------------------
George R. Wackenhut

/s/ ANTHONY P. TRAVISONO                             Trustee                                              March 31, 2001
--------------------------------------------
Anthony P. Travisono

/s/ CLARENCE E. ANTHONY                              Trustee                                              March 31, 2001
--------------------------------------------
Clarence E. Anthony

/s/ ROBERT R. VEACH, JR.                             Trustee                                              March 31, 2001
--------------------------------------------
Robert R. Veach, Jr.

/s/ JAMES D. MOTTA                                   Trustee                                              March 31, 2001
--------------------------------------------
James D. Motta

/s/ WILLIAM M. MURPHY                                Trustee                                              March 31, 2001
--------------------------------------------
William M. Murphy
</TABLE>


<PAGE>   50

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER                          DESCRIPTION OF EXHIBITS
------   -----------------------------------------------------------------------
<S>      <C>
3.1      Articles of Amendment and Restatement of Declaration of Trust of
         Correctional Properties Trust (1)

3.2      Amended and Restated Bylaws of Correctional Properties Trust (2)

3.3      Specimen of certificate representing the Common Shares (3)

4.1      Provisions defining the rights of shareholders are found in the
         Articles of Amendment and Restatement of the Declaration of Trust and
         the Amended and Restated Bylaws, respectively, of Correctional
         Properties Trust (included as Exhibits 3.1 and 3.2 hereof)

10.1     Agreement of Limited Partnership of Correctional Properties Trust
         Operating Limited Partnership L.P. (3)

10.2     Form of Master Agreement to Lease between CPT Operating Partnership
         L.P. and Wackenhut Corrections Corporation (3)

10.3     Form of Lease Agreement between CPT Operating Partnership L.P. and
         Wackenhut Corrections Corporation (3)

10.4     Form of Right to Purchase Agreement between Wackenhut Corrections
         Corporation and CPT Operating Partnership L.P. (3)

10.5     Form of Option Agreement between Wackenhut Corrections Corporation and
         CPT Operating Partnership L.P. (3)

10.6     Form of Trustee and Officer Indemnification Agreement between
         Correctional Properties Trust and its trustees and officers (3)

10.7     Correctional Properties Trust 1998 Employee Share Incentive Plan (4)+

10.8     Correctional Properties Trust 1998 Non-Employee Trustees' Share Option
         Plan (4)+

10.9     Correctional Properties Trust 1999 Employee Share Incentive Plan (6)+

10.10    Agreement of Sale and Purchase dated October 30, 1998 between Wackenhut
         Corrections Corporation and CPT Operating Partnership L.P. (3)

10.11    Credit Agreement dated October 2, 1998 by and among CPT Operating
         Partnership, L.P., Correctional Properties Trust, NationsBank, N.A.,
         NationsBanc Montgomery Securities LLC, the Bank of Nova Scotia and the
         Lenders parties thereto from time to time (5)

10.11(a) Amendment Agreement No. 1 to Credit Agreement, dated March 10, 2000, by
         and among CPT Operating Partnership, L.P., Correctional Properties
         Trust, Bank of America, N.A. (successor by merger to NationsBank, N.A),
         as Agent for the Lenders party to the Credit Agreement*

10.11(b) Amendment Agreement No. 2 to Credit Agreement, dated March 16, 2001, by
         and among CPT Operating Partnership, L.P., Correctional Properties
         Trust, Bank of America, N.A. (successor by merger to NationsBank, N.A),
         as Agent for the Lenders party to the Credit Agreement (8)
</TABLE>


<PAGE>   51

<TABLE>
<CAPTION>
NUMBER                           DESCRIPTION OF EXHIBITS
-------- -----------------------------------------------------------------------
<S>      <C>
10.11(c) Amendment Agreement No. 3 to Credit Agreement, dated March 16, 2001, by
         and among CPT Operating Partnership, L.P., Correctional Properties
         Trust, Bank of America, N.A. (successor by merger to NationsBank, N.A),
         as Agent for the Lenders party to the Credit Agreement (8)

10.12    Agreement of Sale and Purchase dated January 15, 1999 between Wackenhut
         Corrections Corporation and CPT Operating Partnership LP (7)

10.13    Agreement of Sale and Purchase dated January 7, 2000 between Wackenhut
         Corrections Corporation and CPT Operating Partnership LP (7)

10.14    The Agreement of Sale, by and between Corrections Corporation of
         America, a Maryland corporation, and CPT Operating Partnership, L.P., a
         Delaware limited partnership (7)

21.1     List of Subsidiaries of Correctional Properties Trust (4)

23.1     Consent of Arthur Andersen LLP*

</TABLE>

*        Filed herewith.

+        Management contract or compensatory plan or arrangement.

(1)      Incorporated by reference to exhibit 3.2 to Amendment No. 1 to the
         Registrant's Form S-11 (File No. 333-46681) filed with the Commission
         on March 20, 1998.

(2)      Incorporated by reference to exhibit 3.4 to Amendment No. 1 to the
         Registrant's Form S-11 (File No. 333-46681) filed with the Commission
         on March 20, 1998.

(3)      Incorporated by reference to Amendment No. 1 to the Registrant's Form
         S-11 (File No. 333-46681) filed with the Commission on March 20, 1998.

(4)      Incorporated by reference to Amendment No. 2 to the Registrant's Form
         S-11 (File No. 333-46681) filed with the Commission on April 8, 1998.

(5)      Incorporated by reference to exhibit 4.1 of the Registrant's Form 10-Q
         for the quarter ended September 30, 1998 filed with the Commission on
         November 16, 1998.

(6)      Incorporated by reference to exhibit 10.9 to Registrant's Form 10-K for
         the year ended December 31, 1998 filed with the Commission on March 31,
         1999.

(7)      Incorporated by reference to Registrant's Form 10-K for the year ended
         December 31, 1999 filed with the Commission on March 31, 2000.

(8)      Incorporated by reference to Registrant's Form 8-K filed with the
         Commission on March 31, 2001.