<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, 1998

                                       OR

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

                   For the transition period from ____ to ____

                         Commission file number 1-14031

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

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

3300 PGA BLVD., SUITE 430
PALM BEACH GARDENS, FLORIDA                                 33410       
----------------------------------------                    -------------------
(Address of Principal Executive Offices)                    (Zip Code)

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

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

         Common Shares of Beneficial Interest, par value $.001 per share

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

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         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 19, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $111,571,770 based on
the closing price on that date of $15.875 per share. As of that date, there were
7,130,000 shares of the registrant's Common Stock outstanding.

                       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 1999 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 Act of 1934, as amended.



<PAGE>   2


                          Correctional Properties Trust
                           Annual Report on Form 10-K

                                      Index

<TABLE>
<CAPTION>

                                                                                                           Page
                                                                                                          Number
                                                                                                          ------
<S>            <C>                                                                                        <C>
                                                       PART I
Item 1.        Business................................................................................      2

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......................................     30

Item 11.       Executive Compensation..................................................................     30

Item 12.       Security Ownership of Certain Beneficial Owners and Management..........................     30

Item 13.       Certain Relationships and Related Transactions..........................................     30


                                                      PART IV

Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................     31
</TABLE>




<PAGE>   3



                                     PART I

FORWARD-LOOKING STATEMENTS:

         This report contains forward-looking statements that are based on
current expectations, estimates and projections and are subject to a number of
risks and uncertainties. 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 which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements as a result of a number of
factors, including, but not limited to, risks generally inherent in the
correctional and detention industry, including limited contract duration,
limited availability of alternate tenants, and reliance upon governmental
appropriations for payments under operating agreements; governmental and public
policy changes; dependence upon Wackenhut Corrections Corporation as the sole
tenant for revenues and the Company's ability to make distributions; continued
availability of financing in amounts, at times and on terms required to support
the Company's business development; and changes in tax and other regulations
applicable to a real estate investment trust. In addition, such statements could
be affected by general industry and market conditions and growth rates, general
domestic and international economic conditions including interest rate and
currency rate fluctuations and other risks. The Company discusses such risks in
the Company's Registration Statement on Form S-11, as amended, and various
reports filed with the Securities and Exchange Commission.



<PAGE>   4


ITEM 1. BUSINESS.

GENERAL

         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 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



                                        2


<PAGE>   5



correctional and detention facilities and a growing acceptance of the trend
toward privatization in the corrections industry. Management believes that
recent statistics illustrate this trend. 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 1,870,328 in 1998, representing an increase of approximately 273%. In
addition, according to the Bureau of Justice Statistics, as of December 31,
1997, state prison systems reported operating at approximately 15% to 24%
overcapacity and the federal corrections system reported operating at
approximately 19% 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 believes that
it is well-positioned to capitalize on these favorable industry fundamentals due
to (i) the corrections industry knowledge, experience and contacts of the
members of its Board of Trustees (the "Board of Trustees") and management team,
(ii) its relationship and contractual arrangements with Wackenhut Corrections
Corporation ("Wackenhut Corrections"), and (iii) its access to capital as a
publicly-traded company. 

         The Company's principal executive offices are located at, and its
mailing address is, Gardens Plaza, Suite 430, 3300 PGA Boulevard, Palm Beach
Gardens, Florida 33410. The Company's telephone number is (561) 630-6336.






                                        3


<PAGE>   6

THE FORMATION TRANSACTIONS

         In connection with the consummation of the IPO, the Company and
Wackenhut Corrections 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 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 commencing with its
taxable year ending December 31, 1998. These transactions include 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 estimated offering expenses. All of the net
proceeds to the Company from the IPO have been contributed by the Company
directly to CPT Operating Partnership L.P., a Delaware limited partnership (the
"Operating Partnership") to fund its 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 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 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").

         LEASES. Concurrent with the Company's acquisition of the Initial
Facilities, the Company leased such facilities to Wackenhut Corrections (and
Wackenhut Corrections will continue to operate such facilities) pursuant to the
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



                                        4


<PAGE>   7



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 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 the 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 right of first refusal on the proposed sale by the
Company of any such Future Facility.

         


                                        5


<PAGE>   8
BUSINESS AND GROWTH STRATEGIES

         The Company's general business objectives are to maximize current
returns to shareholders through increases in revenue, 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 intends 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, attractive opportunities exist to acquire
or develop correctional and detention facilities from or on behalf of private
prison owners and operators and various government entities. The Company
believes it has a competitive advantage in the acquisition of new correctional
and detention facilities due to (i) its relationship and contractual
arrangements with Wackenhut Corrections (which among other things provides the
Company access to Wackenhut Corrections' experienced management team and the
option to acquire any of the Option Facilities, and, with certain limited
exceptions, the right to acquire any of the Future Facilities), (ii) the
corrections industry knowledge, experience and contacts of its Board of Trustees
and management team and (iii) its access to significant capital resources as a
publicly-traded company.

                                        6


<PAGE>   9



         In addition to the possible acquisition of the Option Facilities, the
Company intends to 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 7% 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 will exist to
acquire additional private correctional facilities from Wackenhut Corrections on
attractive terms.

         The Company also believes that attractive opportunities 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, many such government entities have been and will be
forced to 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 will 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. In pursuing such opportunities, the
Company expects to utilize the corrections industry knowledge, experience and
contacts of its Board of Trustees and management team.

         EXPANSION OPPORTUNITIES. The Company also believes that there may be
opportunities for selective expansion of its existing correctional facilities
which could result in increased cash flows and property values. The Company
intends to provide expansion space as needed by its tenants and expects that
such expansion of its facilities will result in correspondingly higher rental
payments.

         RENT ESCALATIONS. All of the Company's leases provide for a stable
source of cash flow and opportunities for future growth in revenues. The base
rent for the first year for each facility is initially set at a fixed amount
equal to 9.5% of the facility purchase price. Thereafter, minimum rent escalates
by a fixed three percent at the first two anniversary's of the IPO and by an
amount equal to CPI for the remaining term of each lease, subject to a maximum
of four percent throughout the term of the leases (the "Base Rent Escalation").
However, there can be no assurance that such contractual escalations will be
realized due to certain factors, including changing circumstances and the
possible renegotiation of the leases.

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 Limited Partner, Inc. ("CPT LP"), 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 will make regular quarterly cash distributions
to its partners, including the Company and CPT LP, in proportion to their
percentage interests (i.e., the number of units) in the Operating Partnership.
The Company will, in turn, pay cash distributions to its shareholders in an
amount per Common Share equal to the amount distributed by the Operating
Partnership per unit.

         The Operating Partnership was organized to facilitate the
tax-advantaged acquisition of additional correctional and detention facilities
from private owners, although the Company has no present plan to acquire any
particular facility. 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 under 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.





STRUCTURE OF THE COMPANY

         The following diagram sets forth the structure of the Company:

<TABLE>
<CAPTION>

<S>        <C>       <C>          <C>        <C>         <C>                      <C>
     ------------------------------
     CORRECTIONAL PROPERTIES TRUST
            (THE "COMPANY")
     ------------------------------

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

(1)      Following the consummation of the IPO, WCCRE 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. WCCRE Inc. and WCCRE LLC are sometimes referred to together
         herein as "WCCRE."

(2)      The Operating Partnership leased the following Initial Facilities to
         Wackenhut Corrections: the Queens Facility, the Aurora Facility, the 
         Hobbs Facility and the Karnes Facility.

(3)      The Operating Partnership leased the following Initial Facilities to
         WCCRE, 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, a wholly-owned subsidiary of Wackenhut Corrections, with WCCRE
         as the lessor and Wackenhut Corrections as the lessee. 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."




                                        7


<PAGE>   10
  THE OWNED FACILITIES AND OPTION FACILITIES.

  THE OWNED FACILITIES 

         The Initial Facilities acquired by the Company in connection with the
IPO and the Lee County Correctional Facility (the "Hobbs Facility" and together
with the Initial facilities, the "Owned Facilities") acquired by the Company on
October 30, 1999 were purchased for an aggregate cash purchase price of
approximately $139.5 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 and provide for aggregate initial annual rents of
approximately $13.2 million. Throughout the terms of these leases, the base
annual rents escalate by the Base Rent Escalation. The Owned Facilities are
located in six states and have an aggregate design capacity of 3,754 beds. The
following table sets forth certain information with respect to the Owned
Facilities as of December 31, 1998:

<TABLE>
<CAPTION>
                                                             DESIGN             EXPIRATION
                                                            CAPACITY                OF
                                                               AND     FACILITY  FACILITY                FACILITY      INITIAL
                           TYPE OF   CONTRACTING  SECURITY  OCCUPANCY   OPENING  OPERATING     RENEWAL    PURCHASE       ANNUAL
FACILITY AND LOCATION      FACILITY    ENTITY     LEVEL(1)   RATE(2)     DATE    AGREEMENT    OPTIONS      PRICE       BASE RENT
---------------------      --------   ----------  --------  ---------  -------- -----------   -------    ---------     ---------
<S>                        <C>        <C>        <C>        <C>          <C>       <C>         <C>       <C>            <C>     

Aurora INS Processing
   Center............     INS          INS(3)     Minimum/   300/85%     May       May         Four      $7,828,775   $   743,734
   (the "Aurora           Processing              Medium                 1997      1999        One-
   Facility")             Center                                                               Year
   Aurora, CO

McFarland Community
   Correctional Facility  Pre-Release  CDOC(4)    Minimum/   224/99%     February  June         --        7,020,219       666,921
   (the "McFarland        Center                  Medium                 1988      2001  
   Facility")
   McFarland, CA          

Queens Private 
   Correctional
   Facility..........     INS          INS(5)     Minimum/   200/76%     March     June        Two       14,732,071     1,399,547
   (the "Queens           Detention               Medium                 1997      1999(8)     One-
   Facility")             Facility                                                             Year
   New York, NY           
                          

Central Valley Community
   Correctional Facility  Adult        CDOC       Minimum/   550/89%     December  December     --       17,590,995     1,671,145
   (the "Central Valley   Correctional            Medium                 1997      2007
   Facility")             Facility  
   McFarland, CA          
                          

Golden State Community
   Correctional Facility  Adult        CDOC      Minimum/    550/88%     December  December     --       17,555,536     1,667,776
   (the "Golden State     Correctional           Medium                  1997      2007
   Facility")             Facility 
   McFarland, CA          
                          

Desert View Community
   Correctional Facility  Adult        CDOC      Minimum/    550/88%     December  December     --       16,864,731     1,602,149
   (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-        300/99%(6)  February  February    Unlimited 15,128,724     1,437,229
   (the "Broward County   Center       County    Secured                 1998      2003(9)     Two-
   Facility")                          and                                                     Year 
   Broward County, FL                  BSO(6)

                                       
Karnes County 
   Correctional
   Center............     Adult        Karnes    Multi-      480/85%     January   Varies      Varies    16,320,000     1,550,400
   (the "Karnes           Correctional County    Security                1996
   Facility")             Facility
   Karnes County, TX      
                          

</TABLE>


                                        8


<PAGE>   11
<TABLE>
<CAPTION>


<S>                        <C>        <C>        <C>        <C>          <C>       <C>         <C>       <C>            <C>     
Lea County Correctional                                                                          
Facility (the "Hobbs 
Facility")                State        Lea       Multi-      600/100%    May       May         Annual    26,446,624     2,512,429
Hobbs, NM                 Prison       County    Security    -------     1998      2001                ------------   -----------

Total/Weighted Average                                       3,754/90%                                 $139,487,674   $13,251,330 
                                                             ========                                  ============   ===========
</TABLE>

--------------------
(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, 1999. 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 physical occupancy
     rate was 99% as of December 31, 1998, the Broward County Sheriff's office
     has guaranteed payment based on a 100% occupancy rate. Accordingly, the
     designated occupancy rate is 100%.

         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 and the Desert
View Facility.

         The Karnes Facility is a medium security correctional facility located
in Karnes, 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 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 which expires in 2008.

         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
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.

         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 600 beds. Construction was completed in May 1998. Wackenhut
Corrections has contracted with Lea County to operate the facility, which
contract expires in May 2001.

         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 2001.

         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 January 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
October 2002.

         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 to be 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.

         With exception to Aurora INS Processing Center and McFarland Community
Correctional 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, 1998. For federal income tax purposes, the basis will be equal to
their 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%. Real estate taxes will be paid by Wackenhut Corrections pursuant
to the terms of the Leases.

         THE OPTION FACILITIES. The Option Facilities are located in three 
states and have an aggregate design capacity of 2,256 beds. The following table
sets forth certain information with respect to the Option Facilities as of
December 31, 1998. Unless otherwise noted, the Company will own fee title to the
Option Facilities, free and clear of any material liens, upon acquisition
thereof.


                                       9
<PAGE>   12
<TABLE>
<CAPTION>


                                                                                           
                                                                             ANTICIPATED    ANTICIPATED
                                                                                DESIGN         LEASE
                                  TYPE OF     CONTRACTING    SECURITY            (BED)         TERM
     FACILITY AND LOCATION        FACILITY       ENTITY        LEVEL           CAPACITY       (YEARS)
     ---------------------        --------    -----------    --------       -------------    -----------
<S>                               <C>           <C>           <C>              <C>              <C>
Michigan Youth Correctional
   Facility (the "Michigan
   Facility")..................   Juvenile      MDOC(1)       Maximum             480            10
   Lake County, MI                Correctional
                                  Facility

Jena Juvenile Justice Center
   (the "Jena Facility").......   Juvenile      LDOC(2)       Multi-              276            10
   Jena, LA                       Correctional                Security
                                  Facility

Lawton Correctional Facility
   (the "Lawton Facility").....   Prison        ODOC(3)(4)    Medium            1,500            10
   Lawton, OK

                                                                                -----
Total(5).......................                                                 2,256
                                                                                =====
</TABLE>

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

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

(2)  State of Louisiana Department of Public Safety and Corrections.

(3)  State of Oklahoma Department of Corrections.

(4)  Wackenhut Corrections commenced construction of this facility in August
     1997 and in April 1998 was awarded a contract for up to 1,500 beds at the
     facility by the ODOC. The Company exercised its option to acquire, and
     consummated the purchase of, this facility on January 15, 1999.

(5)  State of New Mexico Department of Corrections.


         The Michigan Facility is located in Lake County, Michigan and is
situated on approximately 99 acres. This approximately 163,250 square foot
facility contains a design capacity of 480 beds. Construction of the Michigan
Facility is anticipated to be completed during the fourth quarter of 1999. The
State of Michigan has awarded Wackenhut Corrections an operating agreement for a
term of five years from the opening of the facility. Wackenhut Corrections is
currently finalizing the terms of the operating agreement with the State of
Michigan.

         The Jena Facility is located in Jena, Louisiana and is 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. The Jena Facility is operated by Wackenhut Corrections under an operating
agreement with the State of Louisiana, the term of which is subject to certain
qualifications more fully discussed in "Subleases--The Jena Facility."

         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.



                                       10


<PAGE>   13

LEASES AND SUBLEASES

         Simultaneous with the Company's acquisition of the Owned Facilities
(and, if acquired, the Option Facilities), the Company leased such facilities
either directly to Wackenhut Corrections or to WCCRE, which in turn subleased
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 Inc., 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 Inc., 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 and
the Karnes Facility.

         LEASES

         The Company leases each of its facilities (including all Owned
Facilities and, if acquired, Option Facilities) to Wackenhut Corrections or to
WCCRE. 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 such an agreement, as determined by binding
arbitration. In addition, an


                                       11


<PAGE>   14



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 Initial Facility. The initial Annual
Base Rent for the Aurora Facility is $743,734, for the McFarland Facility is
$666,921, for the Queens Facility is $1,399,547, for the Central Valley Facility
is $1,671,145, for the Golden State Facility is $1,667,776, for the Desert View
Facility is $1,602,149, for the Broward Facility is $1,437,229, for the Karnes
Facility is $1,550,400 and for the Hobbs Facility is $2,512,429. Annual Base
Rent for each leased property will be increased each year by the Base Rent
Escalation.

         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,
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 leased property, 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>   15



         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. Management of the Company believes that the insurance
coverage currently maintained by Wackenhut Corrections on each Owned Facility is
adequate in scope and amount and expects that adequate insurance will be
maintained by Wackenhut Corrections on each such facility in the future. 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.


                                       13


<PAGE>   16



         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 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, real estate taxes and other impositions on the particular
facility being 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. The total
condemnation award shall be payable to the Company, except that Wackenhut
Corrections may recover its business damages, the value of its trade fixtures,
personal property and improvements which are not capital additions purchased or
financed by the Company and the value of its leasehold interest.

         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 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


                                       14


<PAGE>   17



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.

         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 remainder 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 Correction 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 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 opened, and in connection with the conveyance of certain of the
Option 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. In the case of the Michigan
Facility, the Company will recognize and leave undisturbed the rights of the
State of Michigan under an existing sublease with Wackenhut Corrections in the
event the option relating to such facility is exercised by the Company.
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 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 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


                                       15


<PAGE>   18



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.

         THE CALIFORNIA FACILITIES SUBLEASES. WCCRE 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 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
expires 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 MICHIGAN FACILITY SUBLEASE. Wackenhut Corrections entered into a
lease agreement (the "Michigan Sublease") with the State of Michigan in January
1998 for an initial term of twenty years to commence on the later to occur of
September 1, 1999 or occupancy of the Michigan Facility (estimated to occur no
later than November 1, 1999). The lease may be extended at the option of the
State of Michigan for two consecutive five year terms. The annual base rent is
payable monthly at a fixed rate for the entire term and is subject to annual
adjustments only in the amount of any increase or decrease in the cost of
insurance, taxes, maintenance and repair (excluding building system replacement
costs) after the base year ending August 31, 2000. The Michigan Sublease
contains broad indemnification provisions obligating Wackenhut Corrections to
indemnify the State of Michigan for any actions taken by it on the premises and
for any breach in the performance of its obligations under the Michigan
Sublease. The Michigan Sublease grants the State of Michigan the right to
terminate the Michigan Sublease upon the occurrence of certain events, including
nonappropriation. In the event the operating agreement with Wackenhut
Corrections is terminated during the term of the Michigan Sublease, the State of
Michigan has the unilateral right to appoint a replacement operator of the
Facility. If Wackenhut Corrections defaults on its obligations under the lease
for the Michigan Facility, the Company will be required to permit the State of
Michigan to continue to occupy the facility under the terms of the Michigan
Sublease which would result in the Company receiving reduced rental income from
this facility. In addition, the provisions of the Michigan Sublease are not as
favorable to the lessor as comparable provisions of the lease.

         The State of Michigan is also granted an option to purchase the
facility under the Michigan Sublease at any time after the first five years of
the term at a price equal to the replacement cost less depreciation. Wackenhut
Corrections will agree in the lease for this facility that Wackenhut Corrections
will pay the shortfall to the Company in the event the purchase option is
exercised and the purchase price paid by the State of Michigan is less than the
net book value of the Michigan Facility as shown on the Company's books and
records at the time the purchase option is exercised.


                                       16


<PAGE>   19



         The Michigan Sublease requires the consent of the State of Michigan
prior to a transfer of ownership of the Facility. The Company will not exercise
its option to acquire the Michigan Facility unless and until it has received
such required consent.

         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 at minimum 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. The Louisiana Operating
Agreement, however, provides that the LDOC may elect to assume the operation of
the facility if Wackenhut Corrections fails to cure operational defects, upon
the condition that the LDOC assumes payment of principal, interest and other
obligations under the contemplated Mortgage Debt. In addition, the term of the
Louisiana Operating Agreement was intended to be commensurate with the
contemplated 25 year Mortgage Debt. The Option Agreement for this facility
requires Wackenhut Corrections to use reasonable efforts to obtain a
clarification from the State of Louisiana acknowledging the private ownership
and financing of the Jena Facility. If the Company is not satisfied with the
terms of any such amendment to the Louisiana Operating Agreement or other
clarification, it may elect not to exercise its option to purchase this
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 by Dr. George C. Zoley 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 reports on privatization from the Private Corrections
Project Center of the University of Florida (the "Privatization Report"),
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, 1998, Wackenhut Corrections had 52 correctional and detention facilities
under contract or award, of which 40 were in operation with an aggregate design
capacity of 35,707 beds and an average occupancy rate of 96.6% (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
Option Facilities. Wackenhut Corrections is expected to sell additional
correctional and detention 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. It is not currently contemplated that Wackenhut Corrections
or any of its affiliates will provide administrative or other services to the
Company.


                                       17


<PAGE>   20


THE BANK CREDIT FACILITY

         To ensure that the Company has sufficient liquidity to conduct its
operations, in October 1998, the Company obtained from the 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 additional correctional and
detention facilities (including the Option Facilities and the Future
Facilities), the expansion of existing facilities and for working capital
requirements. The Bank Credit Facility has a term of five years 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 (subject to certain exceptions): (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
Operating Partnership. 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, 1998, the
amount of outstanding indebtedness under the Bank Credit Facility was $9.0
million. As of March 19, 1999, primarily as a result of purchasing the Lawton
Facility and an expansion of the Hobbs Facility, the amount of outstanding
indebtedness under the Bank Credit Facility was $73.0 million.

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. The number of
inmates in a particular area could have a material effect on the revenues of the
Company's correctional and detention facilities. In addition, 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 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


                                       18


<PAGE>   21
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
Americans with Disabilities Act of 1990, as amended (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 such facility. Nonetheless, under the
master leases, 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 intends to make an election 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 that is distributed to its shareholders. 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 pursue
other opportunities as well, including investment opportunities abroad and 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 compulsory
but merely advisory, management of the Company has no present intent to acquire
any facility until construction is completed.



                                       19


<PAGE>   22



         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. The Company has not, and has no
intention to, purchase securities of, or interests in, other entities engaged in
real estate activities.

         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
shall have a right of first refusal with respect to any sale of the Facilities.
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 total market capitalization 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 $100 million
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. 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.

         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



                                       20


<PAGE>   23



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 Independent Committee.


                                       21


<PAGE>   24



         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 January 15, 1999, the Company acquired the first of the Option
Facilities, the Lawton Correctional Facility (the "Lawton Facility") in Lawton,
Oklahoma with a design capacity of approximately 1,500 beds for approximately
$46 million.

ITEM 2. PROPERTIES.

         For a description of the facilities owned and leased by the Company,
see "Item 1. Business." The Company also leases 1,800 square feet of office
space at an annual rent of $41,105. The term of such lease expires on April 30,
2000.

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. The Company does not believe that such litigation, if resolved
against Wackenhut Corrections, would have a material adverse effect upon its
business, financial position or results of operations. 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.



                                       22


<PAGE>   25



                                     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 April 23, 1998 to December 31, 1998, as reported by NYSE.

                                                COMMON SHARES
                                       -------------------------------
                                         HIGH                    LOW
                                       -------                 -------
Second Quarter                         23 7/16                 19 3/16
Third Quarter                          21  5/8                 13 5/8
Fourth Quarter                         20                      15

         As of March 19, 1999, there were 7,130,000 shares of Common Shares
outstanding, held by 40 shareholders of record. The Company believes that
certain holders of record hold a substantial number of shares of Common Shares
as nominees for a significant number of beneficial owners.

RECENT SALES OF REGISTERED SECURITIES

         In connection with the Company's IPO, the Company's Registration
Statement on Form S-11 (No. 333-46681) (the "Registration Statement") was
declared effective on April 22, 1998. Pursuant to such Registration Statement,
on April 28, 1998, the Company sold 6,200,000 shares of Common Stock at a price
of $20 per share. The managing underwriters for this sale of Common Stock were
Salomon Smith Barney, Prudential Securities Incorporated, SBC Warburg Dillon
Reed Inc., Genesis Merchant Group Securities and SunTrust Equitable Securities
(collectively, the "Underwriters"). On May 13, 1998, pursuant to the
Underwriters' over-allotment option, the Company sold an additional 930,000
shares of Common Stock at a price of $20 per share. All of the securities
offered by the Registration Statement were sold in the offering and thereafter
the offering terminated.

         The aggregate gross proceeds to the Company in connection with the
offering were approximately $142.6 million. The total expenses incurred in
connection with the offering, including underwriting discounts and commissions,
and fees for registration, legal, accounting, transfer agent, printing and other
miscellaneous fees, were approximately $11.9 million, resulting in net offering
proceeds of approximately $130.7 million to the Company. Such net proceeds were
contributed to the Operating Partnership in exchange for the Company's 100%
interest therein. The Operating Partnership subsequently used the net proceeds
received from the Company as follows: (i) approximately $113.0 million were used
to purchase the eight Initial Facilities, (ii) the remaining amount of
approximately $19.6 million were used to assist in purchasing the Hobbs Facility
for a total cost of $26.5 million; and (iii)for working capital. Pending the
described uses, the remaining net proceeds have been invested in short-term
investments.

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. The Company's first distribution, for
the period from the closing of the IPO through June 30, 1998, was $0.25 per
Common Share, representing a pro rata distribution of the anticipated regular
quarterly distribution of $0.35 per share for a full quarter, which on an
annualized basis, represents an initial anticipated distribution rate of $1.40
or approximately 7.0% of the Offering Price. The Company has paid two additional
distributions. On November 18, 1998, the Company paid a $0.35 per Common Share
distribution to shareholders of record on November 4, 1998. In addition, on
February 18, 1999 the Company paid a $0.35 per Common Share distribution to
shareholders of record on February 4, 1999.


                                       23


<PAGE>   26




         The Company has established the initial annual distribution rate based
on the Company's estimate of cash available for distribution for the twelve
months following the consummation of the IPO, by adding (i) the Company's
estimate of the funds from operations for the year ended December 31, 1997,
based upon the pro forma contractual rental revenue and related real estate
depreciation for the two Initial Facilities that were operational for the full
year ended December 31, 1997 and the four Initial Facilities that were
operational for a portion of the year ended December 31, 1997; (ii) the
Company's estimate of the amount necessary to annualize the sum of the
contractual rental income, net of related real estate depreciation, and the
Company's estimate of the related real estate depreciation for the year ended
December 31, 1997 for the four Initial Facilities that were operational for some
portion of such year, based upon the contractual rental revenue payable on
account of such facilities; and (iii) an amount equal to the sum of the
Company's estimate of the contractual rental income, net of related real estate
depreciation, and the Company's estimate of the related real estate depreciation
for the two Initial Facilities that became operational during February 1998,
based upon the contractual rental revenue payable on account of such facilities.
None of the Initial Facilities were owned or operated by the Company and none of
the leases were in effect prior to consummation of the IPO. All such Initial
Facilities were operated by Wackenhut Corrections prior to consummation of the
IPO. The estimate of cash available for distribution is being made solely for
the purpose of setting the initial distribution and is not intended to be a
forecast of the Company's results of operations or liquidity, nor is the
methodology upon which such adjustments were made necessarily intended to be a
basis for determining future distributions.

         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 as of the
Company's quarters ended June 30, 1998, September 30, 1998 and December 31, 1998
and year ended December 31, 1998 are derived from the Company's consolidated
financial statements. The Company's consolidated balance sheet as of December
31, 1998 and consolidated statement of operation for the period ended December
31, 1998 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>

                                                    2nd Quarter      3rd Quarter      4th Quarter      Period Ended
As of or for the Period Ended:                         6/30/98*          9/30/98         12/31/98         12/31/98*
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>               <C>  
OPERATING RESULTS
Revenue                                                   2,139            3,099            3,390             8,628
Net Income                                                1,305            2,080            2,001             5,386
Weighted Average Common Shares
   Outstanding, Diluted                                   4,844            7,130            7,130             5,546
Net Income per Share, Diluted                              0.27             0.29             0.28              0.97

Funds from Operations                                     1,765            2,736            2,775             7,276

</TABLE>



                                       24


<PAGE>   27

<TABLE>
<CAPTION>



<S>                                                       <C>              <C>              <C>               <C>  
Funds from Operations per Share, Diluted                   0.36             0.38             0.39              1.31

DIVIDENDS

Cash Distribution per Share                                  --    $        0.25    $        0.35     $        0.60

BALANCE SHEET DATA

Real Estate Properties, Net                                                                                 137,597 
Total Assets                                                                                                142,764 
Total Debt                                                                                                    9,000 
Total Shareholders' Equity                                                                                  131,999
--------------------------------------------------------------------------------------------------------------------
</TABLE>

 *   Operations commenced April 28, 1998

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.

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 leasing such
facilitates 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 Owned Facilities are privately
managed facilities that are operated by Wackenhut Corrections. However, the
Company is pursuing other acquisition opportunities, including correctional
facilities owned and operated by various government entities and private
operators other than Wackenhut Corrections.

         The Company and Wackenhut Corrections have a strategic relationship
whereby the Company has the right to purchase certain correctional and detention
facilities from Wackenhut Corrections and lease the facilities back to Wackenhut
Corrections, which will continue to operate the facilities.

         Substantially all of the Company's revenues are derived from: (i) rents
received under triple net leases of correctional and detention facilities from
Wackenhut Corrections; 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



                                       25


<PAGE>   28



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.

         The Company anticipates leveraging its portfolio of real estate equity
investments and expects to incur long and short-term indebtedness, and related
interest expense in order to grow revenue, net income, and Funds From
Operations.

         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.

HISTORY

         On April 28, 1998 the Company completed its IPO of 6,200,000 Common
Shares.

         Simultaneous with the completion of the IPO, the Company acquired the
Initial Facilities located in five states with an aggregate design capacity of
3,154 beds from Wackenhut Corrections for an aggregate purchase price of $113.0
million:

                  Aurora INS Processing Center
                  Aurora, Colorado;

                  McFarland Community Correctional Facility
                  McFarland, California;

                  Queens Private Correctional Facility
                  New York, New York;

                  Central Valley Community Correctional Facility
                  McFarland, California;

                  Golden State Community Correctional Facility
                  McFarland, California;

                  Desert View Community Correctional Facility
                  Adelanto, California;

                  Broward County Work Release Center
                  Broward County, Florida; and

                  Karnes County Correctional Center
                  Karnes County, Texas.

         On May 13, 1998, the underwriters involved in the IPO exercised their
over-allotment option for an additional 930,000 Common Shares outstanding,
resulting in a total of 7,130,000 shares outstanding. The 7,130,000 Common
Shares were issued at an IPO price of $20.00 per share, generating gross
proceeds of approximately $142.6 million. The aggregate proceeds to the Company,
net of underwriters' discount of approximately $9.9 million and offering costs
of approximately $1.9 million, were approximately $130.7 million.

         On October 30, 1998, the Company completed the acquisition of the
600-bed medium security Hobbs Facility for approximately $26.5 million from
Wackenhut Corrections.


                                       26


<PAGE>   29

FINANCIAL CONDITION

  RESULTS OF OPERATIONS


         The Company consummated the IPO, purchased the eight Initial Facilities
and began operations on April 28, 1998. Accordingly, rental and interest revenue
and operating expenses including depreciation were generally recognized by the
Company during the period from April 28, 1998 through December 31, 1998.

         During 1998, rental revenues of $8.1 million were generated from the
leaseback to Wackenhut Corrections of the nine Owned Facilities, eight purchased
April 28, 1998 with proceeds of the Offering and one facility (the Hobbs
Facility) purchased October 30, 1998.

         Interest income of $0.5 million was earned during the year by investing
in short-term instruments bearing interest between 4% and 6%.

         Depreciation of real estate properties totaled $1.9 million for the
period ended December 31, 1998.

         General and administrative expenses incurred during the period ended
December 31, 1998 were approximately $1.1 million, or 13% of lease revenues.
These expenses consisted primarily of management salaries and benefits, and
professional and other administrative costs.

         The Company incurred interest expense of $0.3 million for the period
ended December 31, 1998 on funds borrowed under the Company's Bank Credit
Facility.

  LIQUIDITY AND CAPITAL RESOURCES

         Upon completion of the IPO, the Company received approximately $130.7
million in net proceeds. The Company used these funds to purchase the eight
Initial Facilities at a cost of $113.0 million. On October 30, 1998 the Company
purchased the Hobbs Facility for approximately $26.5 million.

         The Company invested cash on hand in interest-bearing accounts and
other short-term, interest-bearing securities.

         The Company expects to meet its short-term liquidity requirements
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 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 Bank Credit Facility will enable the Company to borrow up to
$100 million generally at floating rates between 125 to 200 basis points over
LIBOR. The Company's ability to borrow under the Bank Credit Facility is subject
to the Company's compliance with a number of covenants. As of December 31, 1998
$9.0 million had been drawn on the Bank Credit Facility. Subsequent to December
31, 1998, the Company made additional borrowings under the Bank Credit Facility
to finance the acquisition of the 600-bed expansion to the Hobbs Facility for
approximately $22.0 million, and the acquisition of the Lawton Correctional
Facility for approximately $46.0 million.

         The Company has no commitments with respect to other capital
expenditures. In addition, the Company has an option to acquire, at a similar
price of up to 105% of cost, and lease back to WCC, any correctional or
detention facility which Wackenhut Corrections acquires or has the right to
acquire, subject to certain limitations.

         The Company expects to meet its long-term liquidity requirements for
the funding of real estate 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
initially low debt to total capitalization and its intention to maintain a
moderate ratio of debt to total capitalization, it will 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.



                                       27


<PAGE>   30



  YEAR 2000 READINESS DISCLOSURE

         The year 2000 issue is the result of shortcomings in many electronic
data processing systems and other equipment that make operations beyond the year
1999 troublesome. The internal clocks in computers and other equipment will not
roll over from "12/31/99" to "01/01/00" and programs and hardware, if not
corrected, will be unable to distinguish between the year 2000 and the year
1900. This may result in processing data inaccurately or in stopping data
processing altogether.

         The Company's year 2000 compliant process may be described in three
phases. The awareness phase encompasses developing a budget and project plan.
The assessment phase identifies mission-critical systems to check for
compliance. Based on current information, both of these phases have been
completed.

         The Company is in the final stage of validation of its systems.
Validation involves testing the systems. The Company expects that all systems
will be tested before the end of the second quarter 1999.

         The Company has incurred and will continue to incur expenses related to
year 2000 compliance. These costs include time and effort if internal staff and
consultants for validation. The total costs, funded from working capital and not
considered material, for achieving year 2000 compliance, are estimated to be
less than $5000.

         These total estimated costs exclude payroll costs of internal staff
related to year 2000 compliance as the Company does not separately track such
costs. Deferral of other projects that would have a material effect on
operations has not been required, nor anticipated, as a result of the Company's
year 2000 efforts.

         The state of year 2000 readiness for third parties with which the
Company shares a material relation, such as banks and vendors used by the
Company, is being reviewed by management. At this time, the Company is unaware
of any third party year 2000 issues that would materially effect these
relations. Wackenhut Corrections has informed the Company that it has several
information system initiatives under way including the replacement of certain of
Wackenhut Correction's computer systems to be year 2000 compliant.

         While the Company expects to be year 2000 compliant in 1999 for all
major systems, there can be no assurance that defects will not be discovered in
the future. The Company is assessing its risk and full impact on operations
should the most reasonably likely worst case year 2000 scenario occur. In
conjunction with the validation phase the Company is developing contingency
plans and expects to complete them in 1999.

  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 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.



                                       28


<PAGE>   31



         Operations commenced on April 28, 1998. The following table presents
the Company's FFO and cash available for distribution for the periods indicated:

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

         The Company is exposed to certain market risks inherent in the
Company's financial instruments. These instruments arise from transactions
entered into in the normal course of business and, in some cases, 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 and any
future financing requirements.

         As of December 31, 1998, $9,000,000 had been drawn on the Bank Credit
Facility at a rate of 6.29% through March 30, 1999. No indebtedness greater than
three months in duration exists as of December 31, 1998.

         The Company's primary market risk exposure relates to (i) the interest
rate risk on long-term and short-term borrowings, (ii) its ability to refinance
its Bank Credit Facility at maturity at market rates, (iii) the impact of
interest rate movements on its ability to meet interest expense requirements and
exceed financial covenants and (iv) the impact of interest rate movements on the
Company's ability to obtain 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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Company's consolidated financial statements for the year ended
December 31, 1998 and the respective notes thereto, is 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.



                                       29


<PAGE>   32



                                    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 1999 Annual Meeting of Shareholders and is incorporated herein by
reference.




                                       30


<PAGE>   33



                                     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 Sheet at December 31, 1998

                  Consolidated Statement of Income for the period from February
                    18, 1998 (inception) to December 31, 1998

                  Consolidated Statement of Shareholders Equity for the period
                    from February 18, 1998 (inception) to December 31, 1998

                  Consolidated Statement of Cash Flows for the period from
                    February 18, 1998 (inception) to December 31, 1998

                  Notes to Consolidated Financial Statements.




























                                       31


<PAGE>   34


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO  CORRECTIONAL PROPERTIES TRUST:

We have audited the accompanying consolidated balance sheet of Correctional
Properties Trust (a Maryland trust) and subsidiaries as of December 31, 1998 and
the related consolidated statements of income, shareholders' equity and cash
flows 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides 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, 1998 and the results of
their operations and their cash flows for the period from February 18, 1998 to
December 31, 1998 in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP


West Palm Beach, Florida,
   January 21, 1999.















                                       32
<PAGE>   35


CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                       DECEMBER 31, 1998
------------------------------------------------------------------------
<S>                                                    <C>
ASSETS

REAL ESTATE PROPERTIES, AT COST
     CORRECTIONAL AND DETENTION FACILITIES                 $139,487
     LESS - ACCUMULATED DEPRECIATION                         (1,890)
                                                           ---------
          NET REAL ESTATE PROPERTIES                        137,597

CASH AND CASH EQUIVALENTS                                     2,325
DEFERRED FINANCING COSTS                                      2,094
OTHER ASSETS                                                    748
                                                           --------
         TOTAL ASSETS                                      $142,764
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES

ACCOUNTS PAYABLE AND ACCRUED EXPENSES                      $    661
DEFERRED REVENUE                                              1,104
REVOLVING LINE OF CREDIT                                      9,000
                                                           --------
         TOTAL LIABILITIES                                   10,765
                                                           --------
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
     CAPITAL IN EXCESS OF PAR VALUE                         130,884
     BALANCE OF UNDISTRIBUTED INCOME                          1,108
                                                           --------
         TOTAL SHAREHOLDERS' EQUITY                         131,999
                                                           --------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $142,764
------------------------------------------------------------------------
</TABLE>

          THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ARE AN INTEGRAL PART OF THIS BALANCE SHEET.


                                       33
<PAGE>   36


CONSOLIDATED STATEMENT OF INCOME
Period from February 18, 1998 (Inception) to December 31, 1998
(Amounts in thousands, except share amounts)

<TABLE>
------------------------------------------------------------------------
<S>                                                             <C>
REVENUES
      RENTAL                                                    $8,132
      INTEREST                                                     496
                                                                ------
                                                                 8,628
                                                                ------

EXPENSES
      DEPRECIATION                                               1,890
      GENERAL AND ADMINISTRATIVE                                 1,052
      INTEREST                                                     300
                                                                ------
                                                                 3,242
                                                                ------
NET INCOME                                                      $5,386
------------------------------------------------------------------------

NET INCOME PER COMMON SHARE

      BASIC                                                     $ 0.97

      DILUTED                                                   $ 0.97
------------------------------------------------------------------------

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC             5,541

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, DILUTED           5,546
------------------------------------------------------------------------
</TABLE>

          THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    ARE AN INTEGRAL PART OF THIS STATEMENT.


                                       34
<PAGE>   37


CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period from February 18, 1998 (Inception) to December 31, 1998
(Amounts in thousands)

<TABLE>
<CAPTION>
                                      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
---------------------------------------------------------------------------------------------
</TABLE>


          THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    ARE AN INTEGRAL PART OF THIS STATEMENT.



                                       35
<PAGE>   38


CONSOLIDATED STATEMENT OF CASH FLOWS
Period from February 18, 1998 (Inception) to December 31, 1998
(Amounts in thousands)

<TABLE>
---------------------------------------------------------------------------------
<S>                                                                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      NET INCOME                                                        $   5,386
      ADJUSTMENTS TO NET INCOME:
      DEPRECIATION OF REAL ESTATE PROPERTIES                                1,890
      OTHER AMORTIZATION                                                      271
      CHANGES IN ASSETS AND LIABILITIES:
      DEFERRED FINANCING COSTS                                             (2,203)
      OTHER ASSETS                                                           (748)
      ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                   661
      DEFERRED REVENUE                                                      1,104
                                                                         --------

            NET CASH PROVIDED BY OPERATING ACTIVITIES                       6,361
                                                                         --------

CASH FLOWS FROM INVESTING ACTIVITIES
     ACQUISITION OF REAL ESTATE PROPERTIES                               (139,487)
                                                                         --------

            NET CASH USED IN INVESTING ACTIVITIES                        (139,487)
                                                                         --------

CASH FLOWS FROM FINANCING ACTIVITIES
      INITIAL CAPITALIZATION                                                    3
      PROCEEDS FROM INITIAL PUBLIC OFFERING, NET OF OFFERING COSTS        130,726
      DISTRIBUTIONS TO SHAREHOLDERS                                        (4,278)
      PROCEEDS FROM REVOLVING LINE OF CREDIT                                9,000
                                                                         --------

            NET CASH PROVIDED BY FINANCING ACTIVITIES                     135,451
                                                                         --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                   2,325
CASH AND CASH EQUIVALENTS, BEGINNING OF OPERATIONS                             --
                                                                         --------

CASH AND CASH EQUIVALENTS, END OF YEAR                                  $   2,325

CASH PAID FOR INTEREST                                                  $     185
---------------------------------------------------------------------------------
</TABLE>

          THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    ARE AN INTEGRAL PART OF THIS STATEMENT.


                                       36
<PAGE>   39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31 1998

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. The Company operates in one industry segment in the United States.

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 outstanding. The 7,130,000 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 $130,726,000.

Simultaneous with the completion of the IPO, the Company acquired eight Initial
Facilities located in five states with an aggregate design capacity of 3,154
beds from Wackenhut Corrections Corporation and certain of its subsidiaries
(collectively, "WCC") for an aggregate purchase price of $113,000,000
(collectively, the "Formation Transactions").

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
initial, annual base rents which aggregate $10,700,000, and 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%
during the first three years and a maximum annual increase of 4% throughout the
term of the Leases.

On October 30, 1998, the Company completed the acquisition from WCC of the
600-medium security Lea County Correctional Facility in Hobbs, New Mexico (the
"Hobbs Facility") for approximately $26,500,000. Further, the Company has
entered into a Right


                                       37
<PAGE>   40


to Purchase Agreement with WCC, pursuant to which the Company will have the
right, during the fifteen years following the consummation of the IPO (so long
as there are any leases in force between the Company and WCC), to acquire and
lease back to WCC any future facilities subject to certain limited exceptions
where the sale or transfer of ownership of a facility is previously restricted.

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 loan. 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 the 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, 1998, the Company had investments in nine leased real estate
properties totaling $139,500,000. Components of these real estate investments at
cost are as follows:

Land and Land Improvements =  $8,100,000
Buildings and Improvements = $131,400,000

Long-Lived Assets

Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets for 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 improvement 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.

Leases and Rental Income

All leases are accounted for as operating leases. Lease revenue is earned on a
straight-






                                       38
<PAGE>   41


line basis over the lease term including the impact of the scheduled rent
increases for the leases. Deferred revenue represents monthly rent received in
advance from WCC. The annual minimum rent income to be received for correctional
and detention facilities under non-cancelable operating leases as of December
31, 1998 are as follows:

<TABLE>
<CAPTION>
(In thousands)
Fiscal Year                                   Annual Rental
-----------------------------------------------------------
<S>                                           <C>
       1999                                     $ 13,479
       2000                                       13,883
       2001                                       14,058
       2002                                       14,058
       2003                                       14,058
Thereafter                                        57,366
                                                --------
                                                $126,902
-----------------------------------------------------------
</TABLE>

Federal Income Taxes

The Company will seek qualification as a Real Estate Investment Trust ("REIT")
under the Internal Revenue Code commencing with its taxable period ending
December 31, 1998. 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.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts payable, accrued
expenses and the revolving line of credit approximate fair value.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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 period. Actual results could vary from those estimates.

Recent Accounting Pronouncements

The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in
financial statements. This statement requires that all elements of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. For the period ended December 31,
1998, the Company's comprehensive income equaled its net income, as there were
no adjustments to net income under SFAS 130.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." 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.





                                       39
<PAGE>   42


SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Management
believes the impact of adopting this statement will not have a material impact
upon the Company's results of operations or financial position.

3. BANK CREDIT FACILITY

The Company has obtained a $100 million secured line of credit (the "Bank Credit
Facility") which may be used to finance the acquisition of additional
correctional and detention facilities from WCC and others, to expand the
existing facilities and for general working capital requirements. As of December
31, 1998, $9,000,000 had been drawn on the Bank Credit Facility at a rate of
6.29% based upon LIBOR plus an applicable margin through March 30, 1999. The
Bank Credit Facility is subject to certain financial covenants and is secured by
the nine existing facilities as of December 31, 1998. No indebtedness greater
than three months in duration existed as of December 31, 1998. Subsequent to
December 31, 1998, the Company made additional borrowings under the Bank Credit
Facility to finance the acquisition of the 600 bed expansion to the Hobbs
Facility for approximately $22,000,000 and the acquisition of the Lawton
Correctional Facility for approximately $46,000,000.

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, key employees and
consultants, as well as non-employee trustees. In conjunction with the IPO, the
Company granted options with respect to 590,000 common shares. The exercise
price for such options is the initial public offering price of $20.00. The term
of such options is ten years from the date of grant. The 25,000 options granted
to the non-employee trustees vested at the date of grant. One-fourth of the
remaining 565,000 shares granted, vested immediately with the remaining options
becoming exercisable ratably on the first, second, and third anniversary of the
date of grant, respectively. The value of 240,000 options granted to
non-employees is being charged to compensation expense over the life of the
options. Shares remaining for issuance under the share incentive and
non-employee trustees plan total 620,000 and 55,000, respectively.

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

<TABLE>
<CAPTION>
                                       SHARES            EXERCISE PRICE
-----------------------------------------------------------------------
<S>                                   <C>                    <C>
Outstanding At Beginning of Year           --                    --

Options Granted                       590,000                $20.00

Options Exercised                          --                    --

Options Forfeited                          --                    --
                                      -------                ------

Outstanding at End of Year            590,000                $20.00
                                      -------                ------

Exercisable at End of Year            166,250                $20.00
-----------------------------------------------------------------------
</TABLE>




                                       40
<PAGE>   43
Significant option groups outstanding at December 31, 1998, and related weighted
average price and life information are as follows:

<TABLE>
<CAPTION>
                                                    Exercise         Remaining Life
Grant Date       Outstanding      Exercisable        Price            Outstanding
<S>              <C>              <C>               <C>              <C>
-----------------------------------------------------------------------------------
4/28/98            590,000          166,250          $20.00           9.7 years
-----------------------------------------------------------------------------------
</TABLE>

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized for grants to employees. 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 for options granted, 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, for the period from Inception to December 31,
1998, are as follows:

<TABLE>
<S>                                    <C>
Pro Forma Net Income                   $4,999
Pro Forma Basic Earnings
   Per Share                           $ 0.90
Pro Forma Diluted Earnings
    Per Share                          $ 0.90
Pro Forma Weighted Average
    Fair Value of Options Granted      $ 2.42
Discount Interest Rate                   5.79%
Expected Life (Years)                      10
Expected Volatility                        23%
Quarterly Dividend Rate                     7%
</TABLE>

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 are 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 share data):


<TABLE>
<CAPTION>
          February 18 - December 31, 1998
------------------------------------------------
<S>                                       <C>
Basic EPS
     Net income                           $5,386
                                          ------
    Weighted average shares                5,541
                                          ------
    Per share - Basic                     $ 0.97

------------------------------------------------
Diluted EPS
    Net income                            $5,386
                                          ------
    Weighted average shares                5,541
    Effect of dilutive stock options           5
                                          ------
                                           5,546
                                          ------
    Per share - Diluted                   $ 0.97
------------------------------------------------
</TABLE>




                                       41
<PAGE>   44


Options to purchase 590,000 shares of the Company's stock at $20.00 per share
have been outstanding since February 20, 1998 but were not included in the
computation of diluted EPS because their effect would be anti-dilutive. The
options expire in the year 2008 and were still outstanding at December 31, 1998.

6. COMMITMENTS AND CONTINGENCIES

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 pending legal proceedings that would have a material effect on the
consolidated financial statements of the Company.

The Company leases office space and data processing equipment under
non-cancelable operating leases expiring between 2000 and 2001. Rent expense for
fiscal year ended December 31, 1998 was $27,403.

The minimum commitments under these obligations are as follows:

<TABLE>
<CAPTION>
      Year                               Minimum Commitment
      ----                               ------------------
<S>                                           <C>    
      1999                                    $57,000
      2000                                     29,000
      2001                                      5,000
Thereafter                                         --       
-----------------------------------------------------------
                                              $91,000
</TABLE>

7. SAVINGS PLAN:

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. In addition, contributions of
participants are matched by the Company in an amount equal to 50% of the
participant's contribution up to a maximum of 6% of such person's compensation
(a maximum of 3%). For the year ended December 31, 1998, the Company incurred
costs of $6,027 in connection with the 401 (k) Plan.

8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                    2nd Quarter         3rd Quarter         4th Quarter
Period Ended                                          6/30/98             9/30/98             12/31/98
                                                      -------             -------             --------
<S>                                                <C>                 <C>                 <C>
Revenue                                                 2,139               3,099               3,390

Net Income                                              1,305               2,080               2,001

Weighted Average Shares Outstanding, Diluted            4,844               7,130               7,130

Net Income Per Share, Diluted                            0.27                0.29                0.28

Total Assets                                          112,581             111,925             137,603

Cash Dividend Declared Per Common Share                    --                0.25                0.35
--------------------------------------------------------------------------------------------------------
</TABLE>




                                       42
<PAGE>   45
9. SUBSEQUENT EVENTS

On January 21, 1999, the Board of Trustees declared a distribution of $0.35 per
share for the quarter ended December 31, 1998, to shareholders of record on
February 4, 1999. The distribution was paid on February 18, 1999 and represents
a distribution for the period from October 1, 1998 through December 31, 1998.

On January 15, 1999, the Company completed the acquisition from WCC of the
600-bed expansion to the Hobbs Facility for approximately $22,000,000.

The Company also purchased from WCC on January 15, 1999 for approximately
$46,000,000 the Lawton Correctional Facility.

WCC will leaseback the Hobbs and Lawton Facilities from the Company for an
initial term of ten (10) years, with three (3) additional renewal options for
terms of five (5) years each. The annual lease payments for the Hobbs Facility
and the Lawton Expansion during the initial ten (10) year term will be
approximately $6,4000,000, subject to annual cost of living adjustments set
forth in the Purchase Agreement. The renewal terms will be determined by fair
market rental rates.

   (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.



































                                       43
<PAGE>   46



                                   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, 1999                          CORRECTIONAL PROPERTIES TRUST
                                                   (Registrant)

                                            By: /s/ Charles R. Jones
                                                --------------------------------
                                                    Charles R. Jones
                                                    Chief Executive Officer,
                                                    President and Trustee

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles R. Jones and Patrick T. Hogan,
and each of them, 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 attorneys-in-fact and agents, and each of them, 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 attorneys-in-fact and agents, or any of them, or their 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, 1999
----------------------------------------------             
        Dr. George C. Zoley

/s/ Richard R. Wackenhut                           Vice-Chairman of the Board                    March 31, 1999
---------------------------------------------- 
        Richard R. Wackenhut

/s/ George R. Wackenhut                            Trustee                                       March 31, 1999
----------------------------------------------
        George R. Wackenhut

/s/ Anthony P. Travisono                           Trustee                                       March 31, 1999
----------------------------------------------
        Anthony P. Travisono

/s/ Clarence E. Anthony                            Trustee                                       March 31, 1999
----------------------------------------------
        Clarence E. Anthony

/s/ Robert R. Veach, Jr.                           Trustee                                       March 31, 1999
----------------------------------------------
        Robert R. Veach, Jr.

/s/ James D. Motta                                 Trustee                                       March 31, 1999
----------------------------------------------
        James D. Motta

/s/ William M. Murphy                              Trustee                                       March 31, 1999
----------------------------------------------
        William M. Murphy

/s/ Patrick T. Hogan                               Vice-President, Chief Financial Officer,      March 31, 1999
----------------------------------------------     Secretary and Treasurer
        Patrick T. Hogan                           (Principal financial and accounting
                                                   officer)

</TABLE>



                                       44


<PAGE>   47
                                INDEX TO EXHIBITS


NUMBER                           DESCRIPTION OF EXHIBITS
------                           -----------------------

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*+

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)

21.1  List of Subsidiaries of Correctional Properties Trust (4)

23.1  Consent of Arthur Andersen LLP*

24.1  Powers of Attorney*

27.1  Financial Data Schedule

<PAGE>   48


----------------
 *    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.