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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, 2002
|                                           
|OR                                         
|                                           
|o                                           |  | 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(State or Other Jurisdiction
    of Incorporation or Organization) |  | 65-0823232(I.R.S. Employer
    Identification No.)

|                                                                                                          |  |                 | 
|--------------------------------------------------------------------------------------------------------- |  | --------------- | 
|3300 PGA BOULEVARD, SUITE 750
    PALM BEACH GARDENS, FLORIDA(Address of Principal Executive
    Offices) |  | 33410(Zip Code)

(561) 630-6336

(Registrant telephone number, including area code)


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

|                                                                    |  |                                          
|------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                 |  | Name of each exchange on which registered
|                                                                   
|Common Shares of Beneficial Interest, $.001 par
    value per share |  | New York Stock Exchange                  
|                                                                    |  |                                          

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

none




(Title of Class)


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

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).
Yes
x No
o

As of June 28, 2002, the aggregate market
value of the voting shares held by non-affiliates of the
registrant was approximately $155,589,000 based on the closing
price on that date of $22.00 per share.

As of March 11, 2003, there were 7,428,550
of the registrants Common Shares 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
2003 Annual Meeting of Shareholders.

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



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Correctional Properties Trust

Annual Report on Form 10-K


Index

|         |  |                                                                                           |  |        |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ------ | -- | 
|         |  |                                                                                           |  | Page  
|         |  |                                                                                           |  | Number
|         |  |                                                                                           |  |       
|PART I  
|        
|Item 1.  |  | Business                                                                                  |  |        | 2  | 
|Item 2.  |  | Properties                                                                                |  |        | 23 | 
|Item 3.  |  | Legal Proceedings                                                                         |  |        | 24 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                   |  |        | 24 | 
|        
|PART II 
|        
|Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |        | 25 | 
|Item 6.  |  | Selected Financial Data                                                                   |  |        | 26 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |        | 27 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |        | 32 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                               |  |        | 33 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |        | 33 | 
|        
|PART III
|        
|Item 10. |  | Directors and Executive Officers of the Registrant                                        |  |        | 51 | 
|Item 11. |  | Executive Compensation                                                                    |  |        | 51 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |        | 51 | 
|Item 13. |  | Certain Relationships and Related Transactions                                            |  |        | 51 | 
|Item 14. |  | Controls and Procedures                                                                   |  |        | 51 | 
|        
|PART IV 
|        
|Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |        | 52 | 



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PART I

FORWARD-LOOKING STATEMENTS:

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

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

1



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Item 1.     Business.

General

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

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

Management believes that the privatized
corrections industry has the potential for substantial growth in
the United States due to increases in the inmate population,
decreases in the availability of capital for new correctional
and detention facilities and a growing acceptance of the trend
toward privatization in the corrections industry. According to
the United States Bureau of Justice Statistics (Bureau of
Justice Statistics), the inmate population in federal,
state and local facilities in the United States has grown from
501,886 in 1980 to 2,100,146 at December 31, 2001. In
addition, according to the Bureau of Justice Statistics, as of
December 31, 2001, state prison systems reported operating
at between 1% and 16% above capacity and the federal corrections
system reported operating at approximately 31% above capacity.
The privatized corrections industry has capitalized on these
favorable supply/demand fundamentals, resulting in a substantial
increase in the number of privatized beds.

The Company owns and leases thirteen correctional
properties in nine states with an aggregate design capacity of
7,282 beds as of December 31, 2002.

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

The Formation Transactions

In connection with the consummation of the IPO on
April 28, 1998, the Company and Wackenhut Corrections
Corporation (Wackenhut Corrections or
WCC) engaged in a series of transactions (the
Formation Transactions) which were designed to
consolidate ownership in the Company of eight correctional and
detention facilities operated by Wackenhut Corrections (the
Initial Facilities), to provide a vehicle for
possible future acquisitions of other facilities which Wackenhut
Corrections owns or has a right to acquire (in addition to other
facilities the Company may acquire) and to enable the Company to
qualify as a REIT for federal income tax purposes. These
transactions included the following:

Issuance of Common Shares and Redemption of
Founders Shares.The Company
sold 7,130,000 Common Shares in the IPO, resulting in net
proceeds to the Company of approximately $130.7 million after
deduction of the underwriting discounts and commissions and
offering expenses. All of the net proceeds to the Company from
the IPO were contributed by the Company directly to CPT
Operating Partnership L.P., a Delaware limited partnership (the
Operating Partnership) to fund the Companys
investment in the Operating Partnership, in exchange for a
combined 100% interest in the Operating Partnership. The Company
owns a 98% limited partnership interest and a 1% general
partnership interest in the Operating Partnership. CPT Limited
Partner, Inc. (CPT LP), a wholly owned subsidiary of
the Company, 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.

2



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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). Two of the three Option
Facilities have been purchased by the Company. As of
January 31, 2001, the Companys option has expired
with respect to the third Option Facility without the Company
exercising such option.

Leases.Concurrent
with the Companys acquisition of the Initial Facilities,
the Company leased such facilities to Wackenhut Corrections or
its affiliate  See Structure of the
Company  (and Wackenhut Corrections will
continue to operate such facilities) pursuant to leases for an
initial term of 10 years. Subject to certain limited
exceptions, the term of each of these 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 these leases will be automatically extended
upon expiration thereof on the same terms (including the then
applicable base rent and Base Rent Escalation (as hereinafter
defined) as reflected in the applicable lease if there is at
such time an unexpired sublease with respect to such facility.
The two Option Facilities, which were acquired were leased by
the Company to Wackenhut Corrections under the same terms
(although with the Jena Facility at a different lease rate) as
the Initial Facilities. Under the terms of the leases with
Wackenhut Corrections, Wackenhut Corrections has a 30-day right
of first refusal on the proposed sale by the Company of any of
the facilities leased to it.

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

3



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Business and Growth Strategies

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

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

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

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

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

Rent Escalations.All of the Companys leases
provide for a source of cash flow with opportunities for future
growth in revenues. The base rent for the first year for each
facility purchased from Wackenhut Corrections before
January 1, 2000 is equal to 9.5% of the facility purchase
price. Thereafter, minimum rent escalates by a fixed three
percent at the first two annual lease anniversaries and by an
amount equal to increases in the CPI at each successive annual
anniversary for the remaining term of each lease, subject to a
maximum increase of four percent per annum throughout the term
of the leases (the Base Rent Escalation). However,
there can be no assurance that such contractual escalations will
be realized based on the CPI index or other factors.

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The Operating Partnership

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

The Operating Partnership was organized to
facilitate the tax-advantaged acquisition of additional
correctional and detention facilities from private owners. In
the event the Company undertakes such an acquisition, it is
contemplated that the owner of such a facility would become a
Limited Partner in the Operating Partnership and would be issued
units of limited partnership interests in the Operating
Partnership, representing an equal undivided fractional share of
each item of the Operating Partnerships income, gain, and
loss and in distribution of the Operating Partnerships
assets (the Units, and the holder thereof, a
Unitholder) 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, the current structure using the Operating Partnership
is being utilized, rather than the Company taking title to the
Initial Facilities or subsequently acquired facilities, in order
to avoid in the future a re-transfer of such 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). While there are no present plans to issue
Units to a private prison owner, the Company is pursuing
potential acquisitions which, if successful, may involve the
issuance of Units as a component of the consideration for such
acquisitions. 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.

5



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Structure of the Company

The following diagram sets forth the structure of
the Company:

CHART

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Following the consummation of the IPO, WCC RE
    Holdings, Inc., a wholly-owned subsidiary of Wackenhut
    Corrections, was merged with and into WCC RE Holdings LLC
    (WCCRE LLC), which was formed as a wholly-owned
    subsidiary of Wackenhut Corrections, with WCCRE LLC being the
    surviving entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | The Operating Partnership leases the Queens
    Facility, the Aurora Facility, the Hobbs Facility, the Karnes
    Facility, the Lawton Facility and the Jena Facility to Wackenhut
    Corrections.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | The Operating Partnership leases the following
    facilities to WCCRE LLC, each of which were in turn subleased to
    Wackenhut Corrections: the Broward Facility, the Central Valley
    Facility, the Golden State Facility, the Desert View Facility
    and the McFarland Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) | The provisions of certain existing facility
    operating agreements between Wackenhut Corrections and the
    respective contracting governmental entities afford the
    governmental entity the right to assume a lease of such facility
    (or designate another facility operator to assume the lease of
    such facility) at a fixed rental rate in the event of the early
    termination of the facility operating agreement upon the
    occurrence of certain events. In such instances, Wackenhut
    Corrections has entered into a sublease for the subject facility
    with WCCRE LLC, with WCCRE LLC as the sublessor and Wackenhut
    Corrections as the sublessee. The contracting governmental
    entity has the right to assume the rights of Wackenhut
    Corrections under such sublease on early termination of the
    operating agreement for the relevant facility. However, even if
    a government entity elects to exercise its right to assume a
    sublease relating to a facility, Wackenhut Corrections is
    nevertheless liable to the Company under the master lease
    relating to such facility. See Subleases.
|(5) | Correctional Properties North Carolina Prison
    Finance LLC (CP North Carolina) is a wholly owned
    subsidiary of the Company. CP North Carolina is a Delaware
    limited liability company formed solely to issue the Bonds and
    acquire and own the Mountain View and Pamlico Facilities. CP
    North Carolinas assets and credit are not available to pay
    the debts or obligations of any other entity. The Bonds are
    non-recourse to CP North Carolina and its sole member, CPT
    Operating Partnership L.P. Therefore, CP North Carolina and its
    sole member, CPT Operating Partnership L.P., are not liable on
    account of any deficiency in the event that the Trust Estate
    created under the Trust Indenture for the Bonds is insufficient
    to repay the Bonds or the other obligations of CP North Carolina
    under the Bond Documents.                                                                                                                                                                                                                                                                          

6



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

The Owned Facilities

The thirteen facilities owned by the Company at
December 31, 2002 (the Owned Facilities) were
purchased for an aggregate cash purchase price of approximately
$272 million. The Company leases eleven of the Owned Facilities
to Wackenhut Corrections or its subsidiary, (the WCC
Facilities) and two of the Owned Facilities to the state
of North Carolina (the North Carolina Facilities).
The thirteen Owned Facilities are located in nine states and
have an aggregate design capacity of 7,282 beds. The following
table sets forth certain information with respect to the Owned
Facilities as of December 31, 2002:

|                                                                                                 |  |              |            |             |  |          |            |             |  |  |                             |  |  |  |                                      | 
|------------------------------------------------------------------------------------------------ |  | ------------ | ---------- | ----------- |  | -------- | ---------- | ----------- |  |  | --------------------------- |  |  |  | ------------------------------------ | 
|                                                                                                 |  | Date         |            |             |  |          |            |            
|                                                                                                 |  | Facility was |            | Lease       |  |          |            |            
|                                                                                                 |  | Acquired by  |            | Expiration  |  |          |            |            
|                                                                                                 |  | the          |            | With WCC or |  | Type of  |            | Contracting
|Facility and Location                                                                            |  | Company      |            | State of NC |  | Facility |            | Entity     
|                                                                                                 |  |              |            |             |  |          |            |            
|WCC FACILITIES:                                                                                  |  |              |            |             |  |          |            |             |  |  |                             |  |  |  |                                      | 
|                                                                                                
|Aurora INS Processing Center (the Aurora
    Facility) Aurora, CO                              |  |              | April 1998 |             |  |          | April 2008 |             |  |  | INS Processing Center       |  |  |  | INS(4)                               | 
|                                                                                                
|McFarland Community Correctional Facility (the
    McFarland Facility) McFarland, CA           |  |              | April 1998 |             |  |          | April 2008 |             |  |  | Pre-Release Center          |  |  |  | CDOC(5)                              | 
|                                                                                                
|Queens Private Correctional Facility (the
    Queens Facility) New York, NY                    |  |              | April 1998 |             |  |          | April 2008 |             |  |  | INS Detention Facility      |  |  |  | INS(7)                               | 
|                                                                                                
|Central Valley Community Correctional Facility
    (the Central Valley Facility) McFarland, CA |  |              | April 1998 |             |  |          | April 2008 |             |  |  | Adult Correctional Facility |  |  |  | CDOC                                 | 
|                                                                                                
|Golden State Community Correctional Facility (the
    Golden State Facility) McFarland, CA     |  |              | April 1998 |             |  |          | April 2008 |             |  |  | Adult Correctional Facility |  |  |  | CDOC                                 | 
|                                                                                                
|Desert View Community Correctional Facility (the
    Desert View Facility Adelanto, CA         |  |              | April 1998 |             |  |          | April 2008 |             |  |  | Adult Correctional Facility |  |  |  | CDOC                                 | 
|                                                                                                
|Broward County Work Release Center (the
    Broward County Facility) Broward County, FL        |  |              | April 1998 |             |  |          | April 2008 |             |  |  | Work Release Center         |  |  |  | Broward County and BSO(8) and INS(9)

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                 |  |          |                 |           |  |          |         |              |  |           |               |  |  |  |                   |  |  |  |               | 
|------------------------------------------------------------------------------------------------ |  | -------- | --------------- | --------- |  | -------- | ------- | ------------ |  | --------- | ------------- |  |  |  | ----------------- |  |  |  | ------------- | 
|                                                                                                 |  |          |                 | Design    |  |          |         | Expiration   |  |          
|                                                                                                 |  |          |                 | Capacity  |  |          |         | of           |  | Operating
|                                                                                                 |  |          |                 | and       |  | Facility |         | Underlying   |  | Agreement
|                                                                                                 |  | Security |                 | Occupancy |  | Opening  |         | Operating    |  | Renewal  
|Facility and Location                                                                            |  | Level(1) |                 | Rate(2)   |  | Date     |         | Agreement(3) |  | Options  
|                                                                                                 |  |          |                 |           |  |          |         |              |  |          
|WCC FACILITIES:                                                                                  |  |          |                 |           |  |          |         |              |  |           |               |  |  |  |                   |  |  |  |               | 
|                                                                                                
|Aurora INS Processing Center (the Aurora
    Facility) Aurora, CO                              |  |          | Minimum/Medium  |           |  |          | 300/95% |              |  |           | May 1997      |  |  |  | March 2003(4)     |  |  |  |              | 
|                                                                                                
|McFarland Community Correctional Facility (the
    McFarland Facility) McFarland, CA           |  |          | Minimum/Medium  |           |  |          | 224/97% |              |  |           | February 1988 |  |  |  | June 2003(6)      |  |  |  |              | 
|                                                                                                
|Queens Private Correctional Facility (the
    Queens Facility) New York, NY                    |  |          | Minimum/Medium  |           |  |          | 200/78% |              |  |           | March 1997    |  |  |  | March 2004        |  |  |  | ThreeOne-Year
|                                                                                                
|Central Valley Community Correctional Facility
    (the Central Valley Facility) McFarland, CA |  |          | Minimum/Medium  |           |  |          | 550/95% |              |  |           | December 1997 |  |  |  | December 2007     |  |  |  |              | 
|                                                                                                
|Golden State Community Correctional Facility (the
    Golden State Facility) McFarland, CA     |  |          | Minimum/Medium  |           |  |          | 550/97% |              |  |           | December 1997 |  |  |  | December 2007     |  |  |  |              | 
|                                                                                                
|Desert View Community Correctional Facility (the
    Desert View Facility Adelanto, CA         |  |          | Minimum/Medium  |           |  |          | 550/97% |              |  |           | December 1997 |  |  |  | December 2007     |  |  |  |              | 
|                                                                                                
|Broward County Work Release Center (the
    Broward County Facility) Broward County, FL        |  |          | Non- Secured(9) |           |  |          | 300/72% | (8)          |  |           | February 1998 |  |  |  | September 2003(9) |  |  |  |               | 

7



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##### 



|                                                                                                        |  |              |                  |             |  |                    |              |             |              |                                |              |           |               |          |            |                 |        |                 |         |  |           |  |              |               |             |               |      |  |           |  |        |                 |        |  |  | 
|------------------------------------------------------------------------------------------------------- |  | ------------ | ---------------- | ----------- |  | ------------------ | ------------ | ----------- | ------------ | ------------------------------ | ------------ | --------- | ------------- | -------- | ---------- | --------------- | ------ | --------------- | ------- |  | --------- |  | ------------ | ------------- | ----------- | ------------- | ---- |  | --------- |  | ------ | --------------- | ------ |  |  | 
|                                                                                                        |  | Date         |                  |             |  |                    |              |             |              |                                |              | Design    |               |          |            | Expiration      |        |                
|                                                                                                        |  | Facility was |                  | Lease       |  |                    |              |             |              |                                |              | Capacity  |               |          |            | of              |        | Operating      
|                                                                                                        |  | Acquired by  |                  | Expiration  |  |                    |              |             |              |                                |              | and       |               | Facility |            | Underlying      |        | Agreement      
|                                                                                                        |  | the          |                  | With WCC or |  | Type of            |              | Contracting |              | Security                       |              | Occupancy |               | Opening  |            | Operating       |        | Renewal        
|Facility and Location                                                                                   |  | Company      |                  | State of NC |  | Facility           |              | Entity      |              | Level(1)                       |              | Rate(2)   |               | Date     |            | Agreement(3)    |        | Options        
|                                                                                                        |  |              |                  |             |  |                    |              |             |              |                                |              |           |               |          |            |                 |        |                
|Karnes County Correctional Center (the
    Karnes Correctional County Facility) Karnes County,
    TX |  |              | April 1998       |             |  |                    | April 2008   |             |              | Adult Correctional Facility    |              |           | Karnes County |          |            | Multi- Security |        |                 | 480/95% |  |           |  | January 1996 |               |             |               | 2026 |  |           |  | Varies |                
|                                                                                                       
|Lawton Correctional Facility (the Lawton
    Facility) Lawton, OK                                     |  |              | January 1999     |             |  |                    | January 2009 |             |              |                                | Prison       |           |               |          | ODOC(10)   |                 |        |                 | Medium  |  |           |  | 1,500/100%   |               |             | December 1999 |      |  | June 2003 |  |        | Three One- Year
|                                                                                                       
|Lea County Correctional Facility (the Hobbs
    Facility) Hobbs, NM                                   |  |              | October 1998(11) |             |  |                    | October 2008 |             |              |                                | State Prison |           |               |          | Lea County |                 |        | Multi- Security |         |  | 1,200/99% |  |              |               | May 1998    |               |      |  | June 2003 |  |        |                 | Annual | 
|                                                                                                       
|Jena Juvenile Justice Center (the Jena
    Facility) Jena, LA                                         |  |              | January 2000     |             |  |                    | January 2010 |             |              | Juvenile Correctional Facility |              |           | None          |          |            | Multi- Security |        |                 | 276/0%  |  |           |  | June 1999    |               |             |               | N/A  |  |           |  | N/A    |                
|                                                                                                       
|FACILITIES LEASED TO THE STATE OF NORTH
    CAROLINA:                                                   |  |              |                  |             |  |                    |              |            
|Mountain View Correctional Facility (the
    Mountain View Facility) Spruce Pine, NC                  |  |              | March 2001       |             |  | November 2008 (12) |              |             | State Prison |                                |              |           | (13)          |          |            |                 | Medium |                 |         |  | 576       |  |              | December 1998 |             |               | N/A  |  |           |  | N/A    |                
|                                                                                                       
|Pamlico Correctional Facility (the Pamlico
    Facility) Bayboro, NC                                  |  |              | June 2001        |             |  | August 2008 (12)   |              |             | State Prison |                                |              |           | (13)          |          |            |                 | Medium |                 |         |  | 576       |  |              |               | August 1998 |               |      |  | N/A       |  |        |                 | N/A    | 
|                                                                                                        |  |              |                  |             |  |                    |              |             |              |                                |              |           |               |          |            |                 |        |                 |         |  |           |  |              |               |             |               |      |  |           |  |        |                 |        |  |  | 
|Total Facilities                                                                                        |  |              |                  |             |  |                    |              |             |              |                                |              |           |               |          |            |                 |        |                 |         |  |           |  | 7,282        |               |             |               |      |  |           |  |        |                 |        |  |  | 
|                                                                                                        |  |              |                  |             |  |                    |              |             |              |                                |              |           |               |          |            |                 |        |                 |         |  |           |  |              |               |             |               |      |  |           |  |        |                 |        |  |  | 

8



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##### 





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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, 2002. 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. The State of North Carolina is not obligated to report
    occupancy percentages to the Company.
| | (3) | The Company is not a party to the underlying
    operating agreement on each facility. WCC is the party to the
    operating agreement with the contracting governmental entity on
    the WCC Facilities. The expiration or termination of the
    operating agreement between WCC and the governmental entity does
    not terminate or cause the expiration of the lease agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (4) | The United States Immigration and Naturalization
    Service (the INS). WCC has submitted a proposal to
    the INS on the Aurora Facility, and WCC has advised the Company
    that it expects a new contract will be executed prior to the
    expiration date of the current contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (5) | The State of California Department of Corrections.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (6) | The CDOC and WCC have signed an extension on the
    contract thru June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (7) | The facility operating agreement for the Queens
    Private Correctional Facility includes a minimum guarantee of
    150 beds (75% occupancy)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (8) | The Broward County Sheriffs Office (the
    BSO). In February 2003, Broward County and the BSO
    executed an operating agreement with WCC under which the BSO
    will utilize between 82-100 beds. The contract expires on
    September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (9) | The INS has executed an operating agreement with
    WCC under which the INS will utilize 150 beds in the Broward
    Facility. The contract was effective on August 1, 2002, and
    expires on September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|     |                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | State of Oklahoma Department of Corrections.                                                                                                                                                                                                                                                                                                                                                                          
|(11) | In October 1998, the Company acquired the 600-bed
    Hobbs Facility. Subsequently, the Company acquired the 600-bed
    expansion of the Hobbs Facility in January 1999, and an
    industries building in July 1999.                                                                                                                                                                                                
|(12) | The State of North Carolina has the option to
    acquire the Mountain View Facility in December 2004 for
    approximately $26.2 million and the Pamlico Facility in August
    2004 for approximately $25.2 million. At the end of each lease
    year thereafter, the State of North Carolina has an option to
    purchase the Mountain View and/or the Pamlico Facility for a
    predetermined declining amount.
|(13) | The facility is leased to the State of North
    Carolina and operated by the North Carolina Department of
    Correction.                                                                                                                                                                                                                                                                                            

9



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##### 



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

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

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

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

The Hobbs Facility is a new high-security
facility located on approximately 80 acres and contains
approximately 360,000 square feet with a design capacity of 1200
beds. Construction was completed in May 1998. Wackenhut
Corrections has contracted with Lea County to operate the
facility, which contract expires in June 2003.

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

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

The Mountain View Correctional Facility, located
in Spruce Pine, North Carolina, is a 576-cell, medium security
prison and is leased to the State of North Carolina. The North
Carolina Department of Correction operates the facility. The
facility, which was built in 1998, is situated on 93 acres and
contains approximately 197,000 square feet. The State of North
Carolina has the option to acquire the Mountain View Facility in
December 2004 for approximately $26.2 million. At the end of
each lease year thereafter, the State of North Carolina has an
option to purchase the Mountain View for a predetermined
declining amount.

The Pamlico Correctional Facility, located in
Bayboro, North Carolina, is a 576-cell, medium-security prison
and is leased to the State of North Carolina. The North Carolina
Department of Correction operates the facility. The facility,
which was built in 1998, is situated on 146 acres and contains
approximately 197,000 square feet. The State of North Carolina
has the option to acquire the Pamlico Facility in August 2004
for approximately $25.2 million. At the end of each lease year
thereafter, the State of North Carolina has an option to
purchase the Pamlico Facility for a predetermined declining
amount.

If the State of North Carolina were to elect to
exercise its option to acquire the Mountain View Facility and/or
the Pamlico Facility, the Company would be obligated to redeem
all or a portion of the Bonds using net proceeds from the
facility or facilities sale. In addition, the Company would
recognize a one-time gain on the sale of the facility and/or
facilities; however, future results of operations and cash flows
would be negatively impacted because the Company would no longer
receive the monthly rental income once a facility is sold.

10



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##### 



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 2003.

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

The Queens Facility is located on approximately
1.34 acres in New York, New York. The facility has a design
capacity of 200 beds and contains approximately 61,400 square
feet. Wackenhut Corrections began operating the facility in June
1997, and is presently operating the facility under a management
contract with the INS which expires in March 2004, and includes
three one-year renewal options at the option of the INS.

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 March 2003. WCC has submitted a proposal to the
INS on the Aurora Facility, and WCC has advised the Company that
it expects a new contract to be executed prior to the expiration
date of the current contract.

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

The Broward Facility is located in Pompano Beach,
Florida and is used to house residents participating in the
Broward County Work Release Program. The facility is located on
approximately ten acres and is designed to accommodate 300 beds.
The approximately 86,500 square foot structure is operated under
a management agreement between Broward County, the Sheriff of
Broward County and Wackenhut Corrections, which expires in
September 2003, for between 82-100 beds. The INS has also
executed an operating agreement with WCC under which the INS
will utilize 150 beds in the Broward Facility. The contract with
the INS was effective on August 1, 2002, and expires on
September 30, 2003.

Juvenile Correctional Facilities.Juvenile correctional facilities are
intended to house juvenile offenders under standards which
differ from those used to house adult offenders. On
January 7, 2000, the Company exercised its option to
purchase the Jena Facility for approximately $15,300,000. The
Jena Facility is located in Jena, Louisiana and was used to
house juvenile inmates. The facility is situated on
approximately 100 acres, consists of an approximately 62,400
square foot structure and has a capacity for 276 beds. At the
same time as the Company acquired the Jena Facility, the Company
entered into a lease with WCC for such facility at an initial
cap rate of 11% with 4% annual escalators for an initial term of
ten years, with three additional renewal options for terms of
five years each in length. The lease provides for fixed rental
payments to the Company without regard to occupancy. The Jena
Facility was operated by Wackenhut Corrections under an
operating agreement with the State of Louisiana, which has been
terminated. Wackenhut Corrections does not presently have an
operating contract with a client for the Jena Facility, and as a
result, the facility is currently vacant. However, Wackenhut
Corrections is obligated under the terms of the lease to
continue to make rental payments to the Company.

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

On May 14, 2002, the Company announced that
it had entered into an Agreement to Purchase and Sell, under
which the State of Louisiana was expected to acquire the Jena
Facility from the Company. The Agreement to Purchase and Sell
was contingent on several events over which the Company had no
control, including the approval by the State of Louisiana of
funding for the purchase and operation of the Facility, which
the State Legislature did not provide. Consequently, the
Agreement to Purchase and Sell, which specified that the closing
would occur on or before October 18, 2002, was not

11



---



##### 



extended and has expired. As a result of the
expiration of the Agreement to Purchase and Sell, the Jena
Facility is not offered for sale and is held and used in
continuing operations along with the other facilities of the
Company.

With the exception of the Hobbs Facility and the
Lawton Facility, the carrying value of each of the
Companys facilities is less than 10% of the Companys
total assets as of December 31, 2002. For federal income
tax purposes, the Companys tax basis in each facility is
generally the purchase price paid by the Company. The real
property associated with these properties (other than land)
generally will be depreciated for federal income tax purposes
over 40 years using the straight line method, which equates
to a rate of 2.5%. Other assets associated with the facilities
may be depreciated by the Company using applicable useful lives.

The Option Facilities.The Lawton Facility and the Jena
Facility were acquired by the Company. The option to purchase
the remaining Option Facility, the Michigan Youth Correctional
Facility, expired on January 31, 2001.

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

|                                                            |  |                |         |                |  |  |       | 
|----------------------------------------------------------- |  | -------------- | ------- | -------------- |  |  | ----- | 
|                                                            |  | Date Exclusive |         | Design        
|Facility and Location                                       |  | Option Expired |         | (Bed) Capacity
|                                                            |  |                |         |               
|Guadalupe County Correctional Facility,
    Santa Rosa, N.M |  |                | 1/31/01 |                |  |  | 600   | 
|                                                           
|Val Verde County Detention Center,
    Del Rio, TX          |  |                | 8/20/01 |                |  |  | 600   | 
|                                                           
|Western Regional Detention Facility,
    San Diego, CA      |  |                | 7/24/01 |                |  |  | 900   | 
|                                                           
|Rivers Correctional Institution
    Winton, NC              |  |                | 2/28/02 |                |  |  | 1,200 | 

Leases and Subleases with Wackenhut
Corrections

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

Because the leases on the WCC Facilities are
triple-net leases, which impose significant burdens upon the
tenant and provide for an escalating annual base rent, the
leases do not satisfy the requirements of such governmental
entities or allow Wackenhut Corrections the flexibility to
tailor the lease provisions to the terms of a particular Request
for Proposals (RFP). Therefore, in such instances
Wackenhut Corrections requests that the Company enter into the
lease with WCCRE LLC., which in

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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 WCC Facilities to WCCRE LLC., each of
which in turn is 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 WCC Facilities, directly to
Wackenhut Corrections: the Queens Facility, the Aurora Facility,
the Hobbs Facility, the Lawton Facility and the Karnes Facility.

Leases

The Company leases each of the WCC Facilities to
Wackenhut Corrections or to WCCRE LLC. Each such facility is the
subject of a separate lease that incorporates the provisions of
a master lease (the Master Lease) between the
Company and Wackenhut Corrections. The lease of each such
facility includes the land, the buildings and structures and
other improvements thereon, easements, rights and similar
appurtenances to such land and improvements, and permanently
affixed equipment, machinery, and other specified fixtures
relating to the operation of the facility. The lease of each
such facility provides for an initial term of 10 years (the
Fixed Term) and may be extended by Wackenhut
Corrections for three additional five-year terms beyond the
Fixed Term (the Extended Terms) at a fair market
rental rate as mutually agreed upon by the Company and Wackenhut
Corrections or, in the absence of such an agreement, as
determined by binding arbitration. In addition, an individual
lease will be automatically extended on the same terms
(including the then applicable base rent and Base Rent
Escalation) as reflected in the applicable lease if there is at
such time an unexpired sublease with respect to such facility.
The Fixed Term and Extended Terms under each lease shall be
subject to earlier termination upon the occurrence of certain
contingencies described in the lease. Any additional Future
Facilities will be leased upon terms and conditions
substantially similar to the above-described leases except that
the rental rate in the case of any Future Facility acquired
during the first five years following the IPO will be the
greater of (i) the fair market rental rate as mutually
agreed upon by the Company and Wackenhut Corrections or, in the
absence of such agreement, by binding arbitration or
(ii) 9.5% of the applicable Future Facility Purchase Price.
In the case of any Future Facility acquired thereafter, the
initial annual rental rate will be the fair market rental rate
as mutually agreed upon by the Company and Wackenhut Corrections
or in the absence of such an agreement, as determined by binding
arbitration.

Use of the Facilities.Each lease on the WCC Facilities
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.

Each lease of a WCC Facility 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 of the WCC
Facilities as of December 31, 2002, Wackenhut Corrections
is required, at its sole cost and expense, to maintain each
leased property in good order, repair and appearance and to make
structural and non-structural, interior and exterior, foreseen
and unforeseen, and ordinary and extraordinary repairs which may
be necessary and appropriate to keep such leased property in
good order and repair. The Company is not required to build or
rebuild any improvements to any property leased to Wackenhut
Corrections, or to make any repairs, replacements, alterations,
restorations or renewals to any leased property.

Wackenhut Corrections, at its sole cost and
expense, may make alterations, additions, changes and/or
improvements to each leased property, provided that with respect
to an improvement which has a cost of more than $500,000 or
which, when aggregated with the cost of all such improvements
for any individual leased property in the same lease year, would
cause the total cost of all such improvements to exceed
$1,000,000 (each such threshold amount increasing 4% per year,
cumulatively) the value and primary intended use of such leased
property (determined in the Companys reasonable judgment)
is not impaired and the prior written consent of the Company is
obtained. All machinery, equipment, furniture, furnishings, and
other personal property (except certain excluded proprietary
property) installed at the expense of Wackenhut Corrections on
any leased property, is required to remain the property of
Wackenhut Corrections until the expiration or earlier
termination of the lease, at which time the

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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.

Each lease on the WCC Facilities 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, or in the absence of such an agreement, as
determined by binding arbitration.

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

Environmental Matters.Each WCC Facility lease provides that
Wackenhut Corrections makes various representations and
warranties relating to environmental matters with respect to
each leased property. Each WCC Facility 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 on the WCC Facilities 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 on the WCC Facilities
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 on the WCC
Facilities 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 on the
WCC Facilities, 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 on the WCC
Facilities 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, any such subleases are inferior and
subordinate to the Companys interest in the facility.

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

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

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

Under each WCC Facility 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 on the WCC
Facilities, if, among other things, Wackenhut Corrections fails
to pay any rent within 15 days after notice of non-payment
from Company; if any bankruptcy proceedings are instituted by or
against Wackenhut Corrections and, if against Wackenhut
Corrections, such bankruptcy proceedings are not dismissed
within 90 days; if any material part of the property of
Wackenhut Corrections is levied upon or attached in any
proceeding and not discharged within a specified period of time;
if Wackenhut Corrections defaults in any payment of any
obligations for borrowed money having a principal balance in
excess of $25.0 million; or if Wackenhut

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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 WCC Facility lease, 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 rent provided in the lease for such
leased property for the remaining period of the term in excess
of rents received by the Company from any successor occupant.
Alternatively, at the Companys option, the Company will be
entitled to recover all unpaid Rent then due plus the present
value of the Rent for the unexpired term at the time of the
award, subject to the Companys obligation to deliver and
pay-over to Wackenhut 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 on the WCC Facilities 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 on the WCC Facilities 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 WCC
Facilities afford the governmental entity a right to assume an
existing sublease of the subject facility created between WCCRE
LLC and Wackenhut Corrections (or to designate another facility
operator to assume such sublease) at a fixed rental rate in the
event of early termination of the operating agreement upon the
occurrence of certain events. The rental payments and other
material terms of these existing subleases differ from
comparable provisions of the leases, and there is no requirement
that the governmental entity or its designee comply with the
provisions of the leases. In such cases, Wackenhut Corrections
will, nevertheless, remain primarily liable to the Company under
the leases on the WCC Facilities.

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

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

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

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

Relationship With Wackenhut Corrections
Corporation

Wackenhut Corrections is a leading developer and
manager of privatized correctional and detention facilities in
the United States and abroad. Wackenhut Corrections was founded
in 1984 as a division of The Wackenhut Corporation, a leading
provider of professional security services, to capitalize on
emerging opportunities in the private correctional services
market. According to industry reports, Wackenhut Corrections is
the second largest provider of privatized correctional and
detention services in the United States and the largest provider
of such services abroad, based upon the number of beds under
management. As of December 29, 2002, Wackenhut Corrections
had 57 correctional and detention facilities under contract or
award, with an aggregate design capacity of approximately 42,000
beds (with many of such facilities being leased by Wackenhut
Corrections from the contracting government entity).

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

Wackenhut Corrections, or a subsidiary thereof,
is the lessee of, and will continue to operate, each of the WCC
Facilities. Wackenhut Corrections may sell additional
correctional and detention facilities to the Company in the
future and enter into long-term, non-cancelable, triple-net
leases with the Company with respect to those facilities.

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On March 8, 2002, The Wackenhut Corporation,
which was the parent company and 57% owner of WCC, announced
that it had signed a definitive merger agreement with Group 4
Falck, a multinational security and corrective services company,
headquartered in Copenhagen, Denmark, which is publicly traded
on the Copenhagen Exchange. Prior to May 8, 2002, The
Wackenhut Corporation and WCC were each traded individually on
the New York Stock Exchange under the symbols WAK
and WHC, respectively. On May 8, 2002, the
merger was completed. As a result of the completion of the
merger between The Wackenhut Corporation and a subsidiary of
Group 4 Falck, The Wackenhut Corporation is no longer publicly
traded, or listed on the NYSE. WCC continues to be publicly
traded and listed on the NYSE. Group 4 Falck has announced its
intention to explore and possibly pursue various means by which
it may divest itself of the 57% ownership interest it now holds
in WCC. For further information and details, please refer to
news releases and Securities and Exchange Commission filings of
The Wackenhut Corporation and Wackenhut Corrections Corporation,
and statements or reports released by Group 4 Falck.

Following the merger, George Wackenhut and
Richard Wackenhut resigned as members of the WCC Board of
Directors, but continue as members of the Board of Trustees of
Correctional Properties Trust. In addition, George Zoley, who
resigned as Chairman of the Correctional Properties Trust Board
of Trustees in September 2002, became Chairman of the WCC Board
of Directors.

The Company currently leases eleven correctional
facilities to WCC under long-term, triple-net leases. The terms
and conditions of these non-cancelable leases will remain
unchanged as a result of the merger. The average remaining life
on these eleven leases as of December 31, 2002 is
approximately 5.75 years.

Leases on North Carolina Facilities

The Mountain View Lease Agreement

The Mountain View Facility is leased to the State
of North Carolina (the State) pursuant to a lease
agreement dated June 19, 1997. The Mountain View Facility
lease term commenced on December 1, 1998. The lease
agreement is for an initial term of ten years, with two
automatic extensions of ten years each, for a total term of
thirty years. The State can terminate the lease at the end of
any term or renewal term by giving the lessor at least
180 days advance written notice.

Equal monthly lease payments are due in arrears
on the last day of each month during the term of the Mountain
View lease agreement. A one percent (1%) late fee is assessable
in the event that a lease payment is not made on or before the
last day of the month.

The Mountain View lease agreement is a triple-net
lease and rental payments are due without deduction, offset or
abatement and are due without demand or notice. The State is
responsible for all costs of maintenance, insurance, taxes, and
preservation and protection of the premises. Beginning on the
first anniversary of the first rental payment date and on each
anniversary date thereafter during the initial term of the
Mountain View lease agreement and any renewal term, the rent is
increased by the greater of (a) three and one-half percent
(3.5%), or (b) the percentage of increase in the Consumer
Price Index for All Urban Consumers U.S. City Average, All
Items, but not to exceed four percent (4%).

The continuation of the Mountain View lease
agreement is dependent upon and subject to the appropriation of
funds for lease payments by the General Assembly of North
Carolina. Failure to appropriate sufficient funds for the
payment of the lease rental terminates the lease effective the
end of the immediately preceding fiscal period of the lessee
without further liability on the part of the State. The State
has agreed in the Mountain View lease agreement to seek
authorization and appropriation of funds for the required rental
payments from the North Carolina General Assembly by including
in its annual budget a request for adequate funds to satisfy its
obligations under the Mountain View lease agreement.

The State, commencing at the end of the sixth
year of the Mountain View Lease Agreement, and at the end of
each lease year thereafter, has the option to purchase the
Mountain View Facility. The States purchase price under
the option to purchase in year six (December 2004) is
approximately $26,200,000, and the option purchase price at the
end of each subsequent lease year, as specified in the lease
agreement, is at predetermined declining amounts.

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The Pamlico Lease Agreement

The Pamlico Facility is leased to the State
pursuant to a lease agreement dated June 19, 1997. The
Pamlico Facility lease term commenced on August 19, 1998.
The Pamlico lease agreement is for an initial term of ten years,
with two automatic extensions of ten years each for a total term
of thirty years. The State can terminate the lease at the end of
any term or renewal term by giving the lessor at least
180 days advance written notice.

Equal monthly lease payments are due in arrears
on the last day of each month during the term of the Pamlico
lease agreement. A one percent (1%) late fee is assessable in
the event that a lease payment is not made on or before the last
day of the month.

The Pamlico lease agreement is a triple-net lease
and rental payments are due without deduction, offset or
abatement and are due without demand or notice. The State is
responsible for all costs of maintenance, insurance, taxes, and
preservation and protection of the premises. Beginning on the
first anniversary of the first rental payment date and on each
anniversary date thereafter during the initial term of the lease
and any renewal term, the rent is increased by the greater of
(a) three and one-half percent (3.5%), or (b) the
percentage of increase in the Consumer Price Index for All Urban
Consumers U.S. City Average, All Items, but not to exceed four
percent (4%).

The continuation of the Pamlico lease agreement
is dependent upon and subject to the appropriation of funds for
lease payments by the General Assembly of North Carolina.
Failure to appropriate sufficient funds for the payment of the
lease rental terminates the lease effective the end of the
immediately preceding fiscal period of the lessee without
further liability on the part of the State. The State has agreed
in the lease agreement to seek authorization and appropriation
of funds for the required rental payments from the North
Carolina General Assembly by including in its annual budget a
request for adequate funds to satisfy its obligations under the
Pamlico lease agreement.

The State, commencing at the end of the sixth
year of the Pamlico lease agreement, and at the end of each
lease year thereafter, has the option to purchase the Pamlico
Facility. The States purchase price under the option to
purchase in year six (August 2004) is approximately $25,230,000,
and the option purchase price at the end of each subsequent
lease year, as specified in the lease agreement, is at
predetermined declining amounts.

The Bank Credit Facility

The Company currently has a $110 million bank
credit facility with Bank of America (the Bank Credit
Facility), which matures on October 1, 2003. The Bank
Credit Facility may be used to finance the acquisition of
correctional and detention facilities, the expansion of existing
facilities and for working capital requirements. The Company has
initiated the process of obtaining a new bank credit facility to
replace the existing Bank Credit Facility, and believes it will
be successful in this process. However, there can be no
assurance that a new bank credit facility will be completed by
the expiration date of the current Bank Credit Facility on terms
acceptable to the Company.

The Bank Credit Facility is secured by the
Companys facilities other than the North Carolina
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
on Eurodollar loans at a variable rate equal to: (I) LIBOR
plus 175 basis points if the ratio of Consolidated Total
Indebtedness to Consolidated Adjusted EBITDA is less than or
equal to 3.00 to 1.00 (II) LIBOR plus 200 basis points if
the ratio of Consolidated Total Indebtedness to Consolidated
Adjusted EBITDA is less than or equal to 3.50 to 1.00 but
greater than 3.00 to 1.00 (III) LIBOR plus 225 basis points
if the ratio of Consolidated Total Indebtedness to Consolidated
Adjusted EBITDA is less than or equal to 4.00 to 1.00 but
greater than 3.50 to 1.00 (IV)LIBOR plus 250 basis points if the
ratio of Consolidated Total Indebtedness to Consolidated
Adjusted EBITDA is less than or equal to 4.50 to 1.00 but
greater than 4.00 to 1.00; in each case, calculated based on
interest periods of one, two, three, six or nine months at the
option of the Company. The Eurodollar Rate Margin described
above in the amended Bank Credit Facility was 2.25% at
December 31, 2002. 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. In addition,
the Company paid fees and expenses of approximately $0.8

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million in connection with the amendments to the
Bank Credit Facility in 2001. As of December 31, 2002, the
amount of outstanding indebtedness under the Bank Credit
Facility was $74.0 million.

As of December 31, 2002, $74 million was
drawn on the $110 million Bank Credit Facility. As of
December 31, 2002, the Company had $36 million available
borrowing capacity under its Bank Credit Facility, including $5
million which is currently available to be drawn on the swing
line component of the Bank Credit Facility for general working
capital requirements. All borrowings under the Bank Credit
Facility are subject to the Companys compliance with
several restrictive covenants prior to any such amounts being
drawn to finance the acquisition of correctional and detention
facilities and/or to expand the Facilities and for general
working capital requirements. In order to fully utilize the
total capacity available under the Bank Credit Facility, it may
be necessary for the Company to issue additional equity in order
to comply with the restrictive covenants.

The Company has a total of $66 million of
notional amount cash flow interest rate swaps outstanding. The
swap agreements provide that floating rate LIBOR payments on $45
million of indebtedness will be exchanged for fixed payments at
a rate of 7.035% per annum and floating rate LIBOR payments on
$21 million of indebtedness will be exchanged for fixed payments
at a rate of 4.995% per annum. In addition, the Company will be
obligated for the EuroDollar Rate Margin described in the
amended Bank Credit Facility which was 2.25% at
December 31, 2002. The fair value of the interest rate
swaps at December 31, 2002 is a liability of $2,619,000.

The absence of a correctional service operating
or management contract between a governmental agency and a
qualified operator may cause a facility securing the Bank Credit
Facility, to become ineligible for inclusion in the Pledge Pool
Borrowing Base under the Bank Credit Facility.

WCC does not presently have a correctional
facility operating or management contract with a governmental
agency for the Jena Facility. However, WCC continues to make
rental payments to the Company as required under the terms of
the non-cancelable lease. As a result of the termination of the
operating contract in effect when the Company acquired the Jena
Facility, the Jena Facility is no longer included in the
Companys pledge pool Borrowing Base described in the Bank
Credit Facility.

Competition

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

Government Regulation

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

Environmental Matters.Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real
property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in
its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The
presence of such substances, or the failure to remediate such
substances properly when released, may adversely affect the
owners ability to sell such real estate or to borrow funds
if the borrower is using such real estate as collateral. Neither
the Company, Wackenhut Corrections nor any of their affiliates
has been notified by any government authority of any material
non-compliance, liability or other claim in connection with any
of the WCC Facilities and neither the Company, Wackenhut
Corrections nor any of their affiliates is aware of any other
environmental condition with respect to any of

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the WCC Facilities that is likely to be material
to the Company. Phase I environmental assessments have been
obtained for all of the WCC 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 WCC
Facilities. See Item 1. Business-Leases-Environmental
Matters.

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

Tax Considerations and Tax Status of the
Company

The Company has elected to be taxed as a REIT
under sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the Code), commencing with its
taxable year ending December 31, 1998. If the Company
qualifies for taxation as a REIT, with certain exceptions, the
Company will not be subject to federal income tax at the
corporate level on its taxable income. A REIT is subject to a
number of organizational and operational requirements, including
a requirement that it distribute at least 90% of its annual real
estate investment trust taxable income. Although the Company
believes it operates in a manner designed to qualify as a REIT,
it is possible that future economic, market, legal or tax
considerations may cause the Company to fail to qualify as a
REIT or may cause the Board of Trustees to revoke the REIT
election if the Board of Trustees and the holders of two-thirds
of all outstanding shares of beneficial interest of the Company
determine that such factors make it no longer beneficial to
qualify as a REIT.

Policies and Objectives With Respect to
Certain Activities

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

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

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

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houses. Comprised of 70 chapters and affiliated
organizations, as well as individual members numbering more than
20,000, the ACA serves as the umbrella organization for all
areas of corrections, and provides a broad base of expertise in
this industry.

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

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

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

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

Financing Policies.The Companys capital structure
at December 31, 2002 consisted of 49% equity and 51% debt.
As of December 31, 2002, the debt of the Company was
comprised of $74.0 million outstanding under the Bank Credit
Facility and $56.8 million of Bonds outstanding, which are
non-recourse to CP North Carolina and its sole member, CPT
Operating Partnership L.P. The Company determines its financing
policies in light of then current economic conditions, relative
costs of debt and equity capital, market values of properties,
growth and acquisition opportunities and other factors. The
Company has established the Bank Credit Facility which may be
used to finance the acquisition of additional correctional and
detention facilities (including the Option Facilities and the
Future Facilities), the expansion of existing facilities and for
working capital requirements. 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
facility. In addition, such indebtedness may be with or without
recourse to all or any part of the facilities of the Company or
may be limited to the particular facility to which the
indebtedness relates.

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

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

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

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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 joint
ventures in which it decides to participate. Such loans
generally require the approval of the Board of Trustees, and
loans to Wackenhut Corrections and its affiliates or to a joint
venture in which Wackenhut Corrections participates require the
approval of the Companys Independent Committee.

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.

Website

The Companys filings with the Securities
and Exchange Commission are available, via a link to the
Securities and Exchange Commissions website, along with
the Companys annual report, at the Companys website
located at www.CorrectionalPropertiesTrust.com.

Item 2.     Properties.

For a description of the facilities owned and
leased by the Company, see Item 1. Business.
The Company also leases 2,600 square feet of office space at an
annual rent of approximately $42,000. The term of such lease
expires on May 31, 2005.

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Item 3.     Legal
Proceedings.

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

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

None.

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PART II

Item 5.     Market
for Registrants Common Equity and Related Shareholder
Matters.

Since April 23, 1998, the Companys
Common Shares have been listed on the New York Stock Exchange
(NYSE) under the symbol CPV. The
following table sets forth the range of high and low sales
prices for the Common Shares for the period from January 1,
2001 to December 31, 2002, as reported by NYSE.

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 19.59 |      |  | $    | 16.00 |     |  | $ | 11.94 |  |  | $ | 9.63  | 
|Second Quarter |  |      | 22.00 |      |  |      | 17.79 |     |  |   | 14.25 |  |  |   | 11.95 | 
|Third Quarter  |  |      | 23.00 |      |  |      | 17.65 |     |  |   | 16.00 |  |  |   | 11.95 | 
|Fourth Quarter |  |      | 22.95 |      |  |      | 18.50 |     |  |   | 17.34 |  |  |   | 13.75 | 

As of March 11, 2003, there were 7,428,550
shares of Common Shares outstanding, held by 111 shareholders of
record. The Company believes that certain holders of record hold
a substantial number of Common Shares as nominees for a
significant number of beneficial owners.

Recent Sales of Unregistered
Securities

None.

Distributions

Subsequent to the IPO, the Company has paid
regular quarterly distributions to its shareholders. The Board
of Trustees, in its sole discretion, has determined the actual
distribution rate based on the Companys actual results of
operations, economic conditions, tax considerations (including
those related to REITs) and other factors. In 2002, the Company
paid four cash dividend distributions (each in the amount of
$.40 per common share) totaling $1.60 per common share, which
was classified for federal tax reporting purposes as 62.4% as
ordinary income and 37.6% as return of capital. In 2001, the
Company paid four cash dividend distributions (three in the
amount of $.365 per common share and one in the amount of $.375
per common share) totaling $1.47 per common share, which was
classified for federal tax reporting purposes as 46.3% as
ordinary income and 53.7% as return of capital.

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 consolidated 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.

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Securities Authorized For Issuance Under
Equity Compensation Plans

The following table provides information as of
December 31, 2002 regarding the Companys compensation
plans under which equity securities are authorized for issuance.

|                                                               |  |                      |         |                  |  |                      |       |  |  |  |         | 
|-------------------------------------------------------------- |  | -------------------- | ------- | ---------------- |  | -------------------- | ----- |  |  |  | ------- | 
|                                                               |  |                      |         |                  |  | Number of Securities
|                                                               |  |                      |         |                  |  | Remaining Available 
|                                                               |  |                      |         |                  |  | For Issuance Under  
|                                                               |  | Number of Securities |         |                  |  | Equity              
|                                                               |  | To Be Issued         |         | Weighted Average |  | Compensation        
|                                                               |  | Upon The Exercise    |         | Price of         |  | Plans (Excluding)   
|                                                               |  | Of Outstanding       |         | Outstanding      |  | Securities Reflected
|                                                               |  | Options              |         | Options          |  | in Column (a)       
|                                                               |  |                      |         |                  |  |                     
|PLAN CATEGORY                                                  |  | (a)                  |         | (b)              |  | (c)                 
|Equity Compensation Plans Approved by Security
    Holders     |  |                      | 623,100 |                  |  | $                    | 18.32 |  |  |  | 202,250 | 
|Equity Compensation Plans Not Approved by
    Security Holders |  |                      |        |                  |  |                      |      |  |  |  |        | 
|                                                               |  |                      |         |                  |  |                      |       |  |  |  |         | 
|Total                                                          |  |                      | 623,100 |                  |  | $                    | 18.32 |  |  |  | 202,250 | 
|                                                               |  |                      |         |                  |  |                      |       |  |  |  |         | 

Item 6.     Selected
Financial Data.

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

|                                                                      |  |          |         |          |  |          |         |          |  |             |         |  |  |   |         |  |  |   |         | 
|--------------------------------------------------------------------- |  | -------- | ------- | -------- |  | -------- | ------- | -------- |  | ----------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                      |  |          |         |          |  |          |         |          |  | For The    
|                                                                      |  |          |         |          |  |          |         |          |  | Period From
|                                                                      |  | Year     |         | Year     |  | Year     |         | Year     |  | 2/18/98    
|                                                                      |  | Ended    |         | Ended    |  | Ended    |         | Ended    |  | (Inception)
|                                                                      |  | 12/31/02 |         | 12/31/01 |  | 12/31/00 |         | 12/31/99 |  | to 12/31/98
|(In thousands, except per share amounts)                              |  |          |         |          |  |          |         |          |  |            
|OPERATING RESULTS                                                     |  |          |         |          |  |          |         |          |  |             |         |  |  |   |         |  |  |   |         | 
|Revenue                                                               |  | $        | 30,204  |          |  | $        | 27,431  |          |  | $           | 22,711  |  |  | $ | 20,329  |  |  | $ | 8,628   | 
|Net income                                                            |  |          | 10,128  |          |  |          | 8,950   |          |  |             | 8,444   |  |  |   | 8,728   |  |  |   | 5,386   | 
|Weighted average shares outstanding, diluted                          |  |          | 7,259   |          |  |          | 7,164   |          |  |             | 7,130   |  |  |   | 7,130   |  |  |   | 5,546   | 
|Net income per share, diluted                                         |  |          | 1.40    |          |  |          | 1.25    |          |  |             | 1.18    |  |  |   | 1.22    |  |  |   | 0.97    | 
|Funds from operations (A)                                             |  |          | 17,261  |          |  |          | 15,462  |          |  |             | 13,786  |  |  |   | 13,612  |  |  |   | 7,276   | 
|Funds from operations per share, diluted (A)                          |  |          | 2.38    |          |  |          | 2.16    |          |  |             | 1.93    |  |  |   | 1.91    |  |  |   | 1.31    | 
|                                                                     
|DIVIDENDS                                                             |  |          |         |          |  |          |         |          |  |             |         |  |  |   |         |  |  |   |         | 
|Cash distribution per share                                           |  | $        | 1.60    |          |  | $        | 1.47    |          |  | $           | 1.46    |  |  | $ | 1.43    |  |  | $ | .60     | 
|                                                                     
|BALANCE SHEET DATA (DECEMBER 31, 2002, 2001,
    2000, 1999 and 1998) |  |          |         |          |  |          |         |          |  |             |         |  |  |   |         |  |  |   |         | 
|Real estate properties, net                                           |  | $        | 246,229 |          |  | $        | 253,362 |          |  | $           | 210,324 |  |  | $ | 200,415 |  |  | $ | 137,597 | 
|Total assets                                                          |  |          | 262,589 |          |  |          | 266,847 |          |  |             | 213,775 |  |  |   | 203,548 |  |  |   | 142,764 | 
|Revolving line of credit                                              |  |          | 74,000  |          |  |          | 80,000  |          |  |             | 81,400  |  |  |   | 69,200  |  |  |   | 9,000   | 
|Bonds payable                                                         |  |          | 56,780  |          |  |          | 57,475  |          |  |             |        |  |  |   |        |  |  |   |        | 
|Total liabilities                                                     |  |          | 135,133 |          |  |          | 142,978 |          |  |             | 84,832  |  |  |   | 72,788  |  |  |   | 10,765  | 
|Total shareholders equity                                            |  |          | 127,456 |          |  |          | 123,869 |          |  |             | 128,943 |  |  |   | 130,760 |  |  |   | 131,999 | 

(A) See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Funds from Operations for the definition
of Funds from Operations as well as a reconciliation of net
income, in accordance with generally accepted accounting
principles, to Funds from Operations.

26



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

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

Forward-Looking Statements

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

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

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

Overview

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

The principal business strategy of the Company is
to acquire correctional and detention facilities that meet the
Companys investment criteria, from both private prison
managers, developers and government entities, to expand its
existing facilities, and to lease all such facilities under
long-term leases to qualified third-party operators. On
March 16, 2001 and June 28, 2001, the Company acquired
the Mountain View Facility and Pamlico Facility, respectively,
which are both leased to the State of North Carolina, and
operated by the North Carolina Department of Correction. With
the exception of the Mountain View Facility and Pamlico
Facility, the Companys remaining facilities are privately
managed facilities that are leased to and operated by Wackenhut
Corrections Corporation (WCC).

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

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

27



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The Company has leveraged and anticipates having
to continue to leverage its portfolio of real estate equity
investments, and expects to continue to incur short-term
indebtedness and related interest expense. The Company may also
incur long-term indebtedness to make acquisitions, and/or
refinance correctional facilities currently owned.

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 Code.

Critical Accounting Policies

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions in certain circumstances that affect amounts
reported in its financial statements and related notes. In
preparing these financial statements, management has made its
best estimates and assumptions that affect the reported assets
and liabilities. Management believes our most critical
accounting policies include revenue recognition, depreciation of
real estate, impairment of long-lived assets, the accounting for
interest rate swaps and stock options. Application of these
assumptions requires the exercise of judgment as to future
uncertainties and, as a result, future results could differ from
these estimates. For additional information, please see Note 2
Basis of Presentation and Summary of Significant
Accounting Policies in the notes to the consolidated
financial statements included in Item 8 of the Form 10-K
for the year ended December 31, 2002.

Revenue
Recognition

Lease revenue is recognized on a straight-line
basis over the lease term including the impact of scheduled rent
increases which are determinable in amount at the inception of
the lease. Any increases in lease revenue due to scheduled rent
increases which were not determinable at the inception of the
lease will be recognized when determinable. Scheduled rent
increases which are not determinable at lease inception are
dependent upon increases in the Consumer Price Index (CPI).

Depreciation
of Real Estate

Real estate properties are recorded at cost.
Acquisition costs and transaction fees directly related to each
property are capitalized as a cost of the respective property.
The cost of real estate properties acquired is allocated between
land, buildings and improvements, and machinery and equipment
based upon cost at time of acquisition. Depreciation is provided
for on a straight-line basis over an estimated useful life
ranging from 27-40 years for buildings and improvements.
Management is required to make subjective evaluations of the
estimated useful lives of its properties, which directly impacts
the Companys net income.

Impairment
of Long-lived Assets

Management reviews the recorded value of its real
estate for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management has reviewed the
Companys long-lived assets and has determined that there
are no events requiring impairment loss recognition. The method
used to determine impairment would be based on estimates of
undiscounted operating cash flows over the remaining
amortization period for the related long-lived assets. The
Company would measure impairment as the difference between fair
value and the net book value of the related asset.

Interest
Rate Swaps

In accordance with the Bank Credit Facility, the
Company utilizes interest rate swap derivative instruments to
manage changes in market conditions related to interest rate
payments on certain of its variable rate bank debt obligations.
These interest rate swaps exchange floating interest rate LIBOR
payments on certain established notional amounts for fixed rate
interest payments on the same notional amounts. The Company
recognizes its interest rate swap derivatives on the balance
sheet at fair value, which is determined by the counter party,
as either an asset or a liability. Management of the Company
determined the interest rate swaps to be effective cash flow
hedges, and therefore, changes in the fair value of these swap
agreements are recorded in accumulated other comprehensive loss,
which is a component of shareholders equity.

28



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Stock
Options

The Company accounts for stock-based compensation
utilizing the intrinsic value method in accordance with the
provisions of APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been
recognized for its employee stock plans because the exercise
prices of the stock options equal the market prices of the
underlying stock on the dates of grant. 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. For additional
information, please see Note 2 Basis of Presentation and
Summary of Significant Accounting Policies: Employee Stock-Based
Compensation Plans and Note 5 Share Option and
Incentive Plans in the notes to the consolidated financial
statements included in Item 8 of the Form 10-K for the
year ended December 31, 2002.

FINANCIAL CONDITION

Results of Operations

2002 Compared with 2001

For the twelve months ended December 31,
2002, rental revenues increased to $30,017,000 from $27,320,000
for the twelve months ended December 31, 2001. The 10%
increase in rental revenues resulted primarily from revenue
associated with the Mountain View Facility, purchased on
March 16, 2001, and the Pamlico Facility, purchased on
June 28, 2001, which increased rental revenue by $0.7
million and $1.6 million, respectively. The balance of the
increase is primarily due to rent escalations, based on the
Consumer Price Index (CPI), on certain of the
remaining facilities.

Depreciation for the twelve months ended
December 31, 2002 increased to $7,133,000 from $6,512,000
for the twelve months ended December 31, 2001. Depreciation
associated with the Mountain View Facility and Pamlico Facility
resulted in a 10% increase in depreciation from 2001 to 2002.

General and administrative expenses for the
twelve months ended December 31, 2002 decreased 9% to $1,525,000
from $1,673,000 for the twelve months ended December 31,
2001. The decrease in general and administrative expense is
primarily due to a decrease in professional fees.

Interest expense increased to $11,418,000 for the
twelve months ended December 31, 2002 from $10,296,000 for
the twelve months ended December 31, 2001. The increase is
primarily due to interest on the Bonds issued by a wholly-owned
subsidiary of the Company on June 28, 2001 in connection
with the refinancing of the Mountain View Facility and the
acquisition of the Pamlico Facility offset by a reduction in
interest on the Credit Facility.

Net income for the twelve months ended
December 31, 2002 increased to $10,128,000 from $8,950,000
for the twelve months ended December 31, 2001.

2001 Compared with 2000

For the twelve months ended December 31,
2001, rental revenues increased to $27,320,000 from $22,690,000
for the twelve months ended December 31, 2000. The 20%
increase in rental revenues resulted primarily from revenue
associated with the Mountain View Facility, purchased on
March 16, 2001, and the Pamlico Facility, purchased on
June 28, 2001. The balance of the increase is primarily due
to rent escalations, based on the Consumer Price Index
(CPI), on the initial facilities acquired at the IPO.

Depreciation for the twelve months ended
December 31, 2001 increased to $6,512,000 from $5,342,000
for the twelve months ended December 31, 2000. Depreciation
associated with the Mountain View Facility and Pamlico Facility
resulted in a 22% increase in depreciation from 2000 to 2001.

General and administrative expenses for the
twelve months ended December 31, 2001 increased 15% to
$1,673,000 from $1,450,000 for the twelve months ended
December 31, 2000. The increase in general and
administrative expense is primarily due to an increase in
pension expense associated with the Companys Senior
Executive Retirement Plan along with an increase in
directors and officers insurance.

29



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Interest expense increased to $10,296,000 for the
twelve months ended December 31, 2001 from $7,475,000 for
the twelve months ended December 31, 2000. The increase is
primarily due to the draw on the Credit Facility in connection
with the acquisition of the Mountain View Facility on
March 16, 2001 and interest on the Bonds issued by a
wholly-owned subsidiary of the Company on June 28, 2001 in
connection with the refinancing of the Mountain View Facility
and the acquisition of the Pamlico Facility.

Net income for the twelve months ended
December 31, 2001 increased to $8,950,000 from $8,444,000
for the twelve months ended December 31, 2000.

Liquidity and Capital Resources

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

The Company has a $110 million secured line of
credit (the Bank Credit Facility), which matures on
October 1, 2003. The Bank Credit Facility enables the
Company to borrow generally at floating rates based on LIBOR
plus the applicable interest rate margin under the Bank Credit
Facility; however, it includes a requirement that the Company
enter into certain interest rate swap agreements for a portion
of the amounts drawn under the Bank Credit Facility, which
effectively fixes the interest rate on a significant portion of
the borrowings. The Companys ability to borrow under the
secured line of credit is subject to the Companys
compliance with a number of restrictive covenants and other
requirements. The Company has initiated the process of obtaining
a new bank credit facility to replace the existing Bank Credit
Facility, and believes it will be successful in this process.
However, there can be no assurance that a new bank credit
facility will be completed by the expiration date of the current
Bank Credit Facility on terms acceptable to the Company. As of
December 31, 2002, the Company had interest rate swap agreements
for a total notional amount of $66 million, effectively fixing
the rate on a like amount of variable rate borrowings. The fair
value of the interest rate swaps at December 31, 2002 is a
liability of $2.6 million.

As of December 31, 2002, $74 million was
drawn on the $110 million Bank Credit Facility. As of
December 31, 2002, the Company had $36 million available
borrowing capacity under its Bank Credit Facility, including $5
million which is currently available to be drawn on the swing
line component of the Bank Credit Facility for general working
capital requirements. All borrowings under the Bank Credit
Facility are subject to the Companys compliance with
several restrictive covenants prior to any such amounts being
drawn to finance the acquisition of correctional and detention
facilities and/or to expand the Facilities and for general
working capital requirements. In order to fully utilize the
total capacity available under the Bank Credit Facility, it may
be necessary for the Company to issue additional equity in order
to comply with the restrictive covenants.

The Company has no commitments with respect to
other capital expenditures. The Company has an agreement under
which it may acquire, at a price of up to 105% of cost, and
lease back to WCC, any correctional or detention facility
acquired or developed and owned by WCC, subject to certain
limited exceptions, and subject to time constraints on each
specific property. Currently there are no WCC properties
eligible for purchase pursuant to this agreement.

The absence of a correctional service operating
or management contract between a governmental agency and a
qualified operator may cause a facility securing the Bank Credit
Facility, to become ineligible for inclusion in the Pledge Pool
Borrowing Base under the Bank Credit Facility. Wackenhut
Corrections Corporations (WCC) does not presently
have a correctional facility operating or management contract
with a governmental agency for the Jena Facility. However, WCC
continues to make rental payments to the Company as required
under the terms of the non-cancelable lease. As a result of the
termination of the operating contract in effect when the Company
acquired the Jena Facility, the Jena Facility is no longer
included in the Companys Pledge Pool Borrowing Base
described in the Bank Credit Facility. The current annual cash
rent on the Jena Facility is approximately $1,895,000.

The Company expects to meet its long-term
liquidity requirements for the funding of real property
development and acquisitions by borrowing under the Bank Credit
Facility and by issuing equity or debt securities in public or
private transactions. The Company anticipates that it will be
able to obtain financing for its long-term capital needs.
However, there can be no

30



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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

On June 12, 2002, the Company filed a
universal shelf registration statement on
Form S-3 with the Securities and Exchange Commission,
pursuant to Rule 415 under the Securities Act of 1933, as
amended, which is now effective. The Company may, from time to
time, offer its common shares of beneficial interest, preferred
shares, debt securities, which may be senior or subordinated,
depositary shares and warrants to acquire any of the foregoing
(collectively, the Securities). The Securities may
be offered in amounts, at prices and on terms to be set forth in
the prospectus contained in the registration statement, and in
one or more supplements to the prospectus, and may only be
offered pursuant thereto. The registration statement is intended
to provide the Company flexibility to raise up to $250 million
from the offering of the Securities, subject to market
conditions and capital needs. Net proceeds from the offering may
be used by the Company to acquire correctional properties, repay
outstanding debt, and for general working capital purposes.

The Companys business strategy is to
acquire correctional and detention facilities, and, as a result,
the Company incurs professional fees and acquisition related
costs in connection with the evaluation of potential
acquisitions. Other Assets in the accompanying Consolidated
Balance Sheet as of December 31, 2002 includes
approximately $160,000 of such evaluation costs incurred in 2002
in conjunction with a potential acquisition. In the event this
acquisition is not completed, this amount will be expensed in
2003.

Contractual Obligations and Contingent
Liabilities and Commitments

The following table aggregates the Companys
expected contractual obligations and commitments after
December 31, 2002:

|                 |  |       |         |                        |  |       |        |       |  |           |       |  |  |   |       |  |  |   |        | 
|---------------- |  | ----- | ------- | ---------------------- |  | ----- | ------ | ----- |  | --------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                 |  |       |         |                       
|                 |  |       |         | Payments due by period
|                 |  |       |         |                       
|                 |  |       |         | Less than              |  | 1-3   |        | 4-5   |  | More than
|                 |  | Total |         | 1 year                 |  | years |        | years |  | 5 years  
|(In thousands)   |  |       |         |                        |  |       |        |       |  |          
|Debt             |  | $     | 130,780 |                        |  | $     | 74,925 |       |  | $         | 2,675 |  |  | $ | 4,050 |  |  | $ | 49,130 | 
|Operating Leases |  | $     | 112     |                        |  | $     | 45     |       |  | $         | 67    |  |  | $ |      |  |  | $ |       | 

The Companys Bank Credit Facility, which
had an outstanding balance of $74.0 million at December 31,
2002, matures on October 1, 2003. The Company has initiated
the process of obtaining a new bank credit facility to replace
the existing Bank Credit Facility, and believes it will be
successful in this process. However, there can be no assurance
that a new bank credit facility will be completed by the
expiration date of the current Bank Credit Facility on terms
acceptable to the Company.

Funds from Operations

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

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

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

31



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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.

The following table presents the Companys
FFO for the years ended December 31, 2002, 2001 and 2000:

|                          |         |      |        |       |  |      |        |       |  |   |        |       | 
|------------------------- | ------- | ---- | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ----- | 
|(Amounts in thousands)    |         | 2002 |        | 2001  |  | 2000
|                          |         |      |        |       |  |     
|Net Income                |         | $    | 10,128 |       |  | $    | 8,950  |       |  | $ | 8,444  |      
|Real estate depreciation  |         |      | 7,133  |       |  |      | 6,512  |       |  |   | 5,342  |      
|                          |         |      |        |       |  |      |        |       |  |   |        |      
|Funds from operations     |         | $    | 17,261 |       |  | $    | 15,462 |       |  | $ | 13,786 |      
|                          |         |      |        |       |  |      |        |       |  |   |        |      
|Common shares outstanding |         |      |        |       |  |      |        |       |  |   |        |      
|                          | Basic   |      |        | 7,188 |  |      |        | 7,140 |  |   |        | 7,130 | 
|                          | Diluted |      |        | 7,259 |  |      |        | 7,164 |  |   |        | 7,130 | 

Item 7A.     Quantitative
and Qualitative Disclosures about Market Risk.

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

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

As of December 31, 2002, $74,000,000 had
been drawn on the Bank Credit Facility at an average rate of
8.21% based upon LIBOR plus an applicable margin through
January 23, 2003, taking into account the swap agreements
described below. No indebtedness under the Bank Credit Facility
greater than 90 days in duration existed as of
December 31, 2002. Holding the variable rate outstanding
debt balance constant, each one percentage point increase in
interest rates occurring on the first day of 2003 would result
in an increase in interest expense for fiscal year 2003 of
approximately $80,000.

The Companys total interest rate swaps of
$66 million provide that floating rate LIBOR payments on $45
million of indebtedness will be exchanged for fixed payments at
a rate of 7.035% per annum and floating rate LIBOR payments on
$21 million of indebtedness will be exchanged for fixed payments
at a rate of 4.995% per annum. In addition, the Company is
obligated for the EuroRate Margin described in the Bank Credit
Facility, which was 2.25% at December 31, 2002. The fair
value of the interest rate swaps at December 31, 2002 is a
liability of $2.6 million.

The Bonds outstanding at December 31, 2002
of $56,780,000 under the Trust Indenture are non-recourse to the
Companys subsidiary, which is the obligor under the Bonds,
and non-recourse to its sole member, CPT Operating Partnership
L.P., and bear interest at a fixed rate of 7.15% per annum.

32



---



##### 



Item 8.     Financial
Statements and Supplementary Data.

The Companys consolidated financial
statements for the year ended December 31, 2002 and the
respective notes thereto, are set forth elsewhere in this
report. An index of these financial statements appears in
Item 15.

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

On July 2, 2002, the Company dismissed
Arthur Andersen LLP as its independent auditors and engaged
Ernst & Young LLP as its new independent auditors. The
change in auditors became effective on July 2, 2002. This
decision was approved by the Companys Board of Trustees
upon the recommendation of its Audit and Finance Committee.

During the two fiscal years of the Company ended
December 31, 2001, and the subsequent interim period
through July 2, 2002, there were no disagreements between
the Company and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not
resolved to Arthur Andersens satisfaction, would have
caused Arthur Andersen to make reference to the subject matter
of the disagreement in connection with its reports.

None of the reportable events described under
Item 304(a)(1)(v) of Regulation S-K occurred within
the two fiscal years of the Company ended December 31, 2001
or within the interim period through July 2, 2002.

The audit reports of Arthur Andersen on the
consolidated financial statements of the Company as of and for
the fiscal years ended December 31, 2001 and 2000 did not
contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.

During the two fiscal years of the Company ended
December 31, 2001, and the subsequent interim period
through July 2, 2002, the Company did not consult with
Ernst & Young regarding any of the matters or events set
forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

33



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##### 



Report of Independent Certified Public
Accountants

To The Shareholders 
 Correctional Properties Trust

We have audited the accompanying consolidated
balance sheet of Correctional Properties Trust (the
Company)(a Maryland real estate investment trust) as
of December 31, 2002, and the related consolidated
statements of income, shareholders equity and cash flows
for the year then ended. Our audit also included the financial
statement schedule listed in the Index at Item 15(a)(2).
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audit. The financial statements of Correctional
Properties Trust as of December 31, 2001, and for each of
the two years in the period ended December 31, 2001 were
audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial
statements in their report dated January 14, 2002.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Correctional Properties Trust
at December 31, 2002, and the consolidated results of its
operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

ERNST & YOUNG LLP

West Palm Beach, Florida

January 23, 2003


34



---



##### 



Report of Independent Certified Public
Accountants **

To Correctional Properties Trust:

We have audited the accompanying consolidated
balance sheets of Correctional Properties Trust (a Maryland real
estate investment trust) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated
statements of income, shareholders equity and cash flows
for each of the three years in the period ended
December 31, 2001. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Correctional Properties
Trust and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the consolidated
financial statements, effective January 1, 2001, the
Company changed its method of accounting for derivative
instruments.

ARTHUR ANDERSEN LLP

West Palm Beach, Florida

January 14, 2002 (except with respect to the
matter discussed in Note 10, as to which the date is
January 23, 2002)


**Note: This report of the Independent Certified
Public Accountants is a copy of the previously issued report and
the predecessor auditor, Arthur Andersen LLP, has not reissued
the report.

35



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##### 



CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and December 31,
2001


|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |         |         |         | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|(Amounts in thousands, except share and per share amounts) |                                                                                                                              | 2002                       |                                            | 2001   
|                                                           |                                                                                                                              |                            |                                            |        
|Assets                                                     |                                                                                                                              |                            |                                            |         |         |         |        |        
|Real estate properties, at cost                            |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           | Correctional and detention facilities                                                                                        |                            | $                                          | 271,990 |         |         | $      | 271,990 |        
|                                                           | Less  accumulated depreciation                                                                                              |                            |                                            | (25,761 | )       |         |        | (18,628 | )      
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           |                                                                                                                              | Net real estate properties |                                            |         | 246,229 |         |        |         | 253,362 |        
|Cash and cash equivalents                                  |                                                                                                                              |                            | 4,333                                      |         |         |         | 1,429  |        
|Restricted cash                                            |                                                                                                                              |                            | 7,154                                      |         |         |         | 7,122  |        
|Deferred financing costs, net                              |                                                                                                                              |                            | 1,566                                      |         |         |         | 2,355  |        
|Other assets                                               |                                                                                                                              |                            | 3,307                                      |         |         |         | 2,579  |        
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           |                                                                                                                              |                            | Total assets                               |         | $       | 262,589 |        |         | $       | 266,847 | 
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                          
|Liabilities and shareholders
    equity                   |                                                                                                                              |                            |                                            |         |         |         |        |        
|Liabilities                                                |                                                                                                                              |                            |                                            |         |         |         |        |        
|Accounts payable and accrued expenses                      |                                                                                                                              | $                          | 4,353                                      |         |         | $       | 5,503  |        
|Bonds payable                                              |                                                                                                                              |                            | 56,780                                     |         |         |         | 57,475 |        
|Revolving line of credit                                   |                                                                                                                              |                            | 74,000                                     |         |         |         | 80,000 |        
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           |                                                                                                                              |                            | Total liabilities                          |         |         | 135,133 |        |         |         | 142,978 | 
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                          
|Commitments and contingencies                              |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                          
|Shareholders equity                                       |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           | Preferred shares, $.001 par value; 50,000,000
    shares authorized; none outstanding                                        |                            |                                            |        |         |         |        |        |        
|                                                           | Common shares, $.001 par value; 150,000,000
    shares authorized; 7,349,650 and 7,145,000 shares issued and
    outstanding |                            |                                            | 7       |         |         |        | 7       |        
|                                                           | Capital in excess of par value                                                                                               |                            |                                            | 135,302 |         |         |        | 131,470 |        
|                                                           | Distributions in excess of accumulated earnings                                                                              |                            |                                            | (5,234  | )       |         |        | (3,871  | )      
|                                                           | Accumulated other comprehensive loss                                                                                         |                            |                                            | (2,619  | )       |         |        | (3,737  | )      
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           |                                                                                                                              |                            | Total shareholders equity                 |         |         | 127,456 |        |         |         | 123,869 | 
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        
|                                                           |                                                                                                                              |                            | Total liabilities and shareholders equity |         | $       | 262,589 |        |         | $       | 266,847 | 
|                                                           |                                                                                                                              |                            |                                            |         |         |         |        |        

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

36



---



##### 



CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2002, 2001 and
2000


|                                                        |                            |      |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------------------------- | -------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|(Amounts in thousands, except per share amounts)        |                            | 2002 |        | 2001   |  | 2000
|                                                        |                            |      |        |        |  |     
|Revenues                                                |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        | Rental                     |      | $      | 30,017 |  |      | $      | 27,320 |  |   | $      | 22,690 | 
|                                                        | Interest                   |      |        | 187    |  |      |        | 111    |  |   |        | 21     | 
|                                                        |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        |                            |      | 30,204 |        |  |      | 27,431 |        |  |   | 22,711 |       
|                                                        |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                       
|Expenses                                                |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        | Depreciation               |      |        | 7,133  |  |      |        | 6,512  |  |   |        | 5,342  | 
|                                                        | General and administrative |      |        | 1,525  |  |      |        | 1,673  |  |   |        | 1,450  | 
|                                                        | Interest                   |      |        | 11,418 |  |      |        | 10,296 |  |   |        | 7,475  | 
|                                                        |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        |                            |      | 20,076 |        |  |      | 18,481 |        |  |   | 14,267 |       
|                                                        |                            |      |        |        |  |      |        |        |  |   |        |       
|Net income                                              |                            | $    | 10,128 |        |  | $    | 8,950  |        |  | $ | 8,444  |       
|                                                        |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                       
|Net income per common share:                            |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        | Basic                      |      | $      | 1.41   |  |      | $      | 1.25   |  |   | $      | 1.18   | 
|                                                        | Diluted                    |      | $      | 1.40   |  |      | $      | 1.25   |  |   | $      | 1.18   | 
|                                                       
|Weighted average number of shares outstanding:          |                            |      |        |        |  |      |        |        |  |   |        |       
|                                                        | Basic                      |      |        | 7,188  |  |      |        | 7,140  |  |   |        | 7,130  | 
|                                                        | Diluted                    |      |        | 7,259  |  |      |        | 7,164  |  |   |        | 7,130  | 
|                                                       
|Distributions declared per common share
    outstanding |                            | $    | 1.60   |        |  | $    | 1.47   |        |  | $ | 1.46   |       

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

37



---



##### 



CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

Years ended December 31, 2002, 2001 and
2000


|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------- |  | ------------- | ----- | ---------- |  | ------------- | - | ------------- |  | ---- | ------- | ----- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                    |  |               |       |            |  | Distributions |   | Accumulated   |  |     
|                                                                    |  | Common Shares |       | Capital in |  | in excess of  |   | other         |  |     
|                                                                    |  |               |       | excess of  |  | accumulated   |   | comprehensive |  |     
|(Amounts in thousands)                                              |  | Shares        |       | Amount     |  | par value     |   | earnings      |  | loss |         | Total
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |      
|Balance, December 31, 1999                                          |  |               | 7,130 |            |  | $             | 7 |               |  | $    | 131,112 |       |  | $ | (359    | ) |  | $ |       |   |  | $ | 130,760 |  
|Non-cash compensation charge                                        |  |               |      |            |  |               |  |               |  |      | 147     |       |  |   |        |   |  |   |       |   |  |   | 147     |  
|Net income                                                          |  |               |      |            |  |               |  |               |  |      |        |       |  |   | 8,444   |   |  |   |       |   |  |   | 8,444   |  
|Distributions to shareholders ($1.46 per share)                     |  |               |      |            |  |               |  |               |  |      |        |       |  |   | (10,408 | ) |  |   |       |   |  |   | (10,408 | )
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2000                                          |  |               | 7,130 |            |  |               | 7 |               |  |      | 131,259 |       |  |   | (2,323  | ) |  |   |       |   |  |   | 128,943 |  
|Exercise of stock options                                           |  |               | 15    |            |  |               |  |               |  |      | 167     |       |  |   |        |   |  |   |       |   |  |   | 167     |  
|Non-cash compensation charge                                        |  |               |      |            |  |               |  |               |  |      | 44      |       |  |   |        |   |  |   |       |   |  |   | 44      |  
|Net income                                                          |  |               |      |            |  |               |  |               |  |      |        |       |  |   | 8,950   |   |  |   |       |   |  |   | 8,950   |  
|Cumulative effect of change in accounting
    principle             |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   | (1,500 | ) |  |   | (1,500  | )
|Unrealized loss on derivative instruments                           |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   | (3,660 | ) |  |   | (3,660  | )
|Losses reclassified into earnings from other
    comprehensive loss |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   | 1,423  |   |  |   | 1,423   |  
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   |        |   |  |   | 5,213   |  
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Distributions to shareholders ($1.47 per share)                     |  |               |      |            |  |               |  |               |  |      |        |       |  |   | (10,498 | ) |  |   |       |   |  |   | (10,498 | )
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2001                                          |  |               | 7,145 |            |  |               | 7 |               |  |      | 131,470 |       |  |   | (3,871  | ) |  |   | (3,737 | ) |  |   | 123,869 |  
|Exercise of stock options                                           |  |               | 205   |            |  |               |  |               |  |      | 3,832   |       |  |   |        |   |  |   |       |   |  |   | 3,832   |  
|Net income                                                          |  |               |      |            |  |               |  |               |  |      |        |       |  |   | 10,128  |   |  |   |       |   |  |   | 10,128  |  
|Unrealized loss on derivative instruments                           |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   | (1,897 | ) |  |   | (1,897  | )
|Losses reclassified into earnings from other
    comprehensive loss |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   | 3,015  |   |  |   | 3,015   |  
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                |  |               |      |            |  |               |  |               |  |      |        |       |  |   |        |   |  |   |       |   |  |   | 11,246  |  
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Distributions to shareholders ($1.60 per share)                     |  |               |      |            |  |               |  |               |  |      |        |       |  |   | (11,491 | ) |  |   |       |   |  |   | (11,491 | )
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2002                                          |  |               | 7,350 |            |  | $             | 7 |               |  | $    | 135,302 |       |  | $ | (5,234  | ) |  | $ | (2,619 | ) |  | $ | 127,456 |  
|                                                                    |  |               |       |            |  |               |   |               |  |      |         |       |  |   |         |   |  |   |        |   |  |   |         |  

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

38



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##### 



CORRECTIONAL PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years ended December 31, 2002, 2001 and
2000


|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |         |       |       |        | 
|-------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------ | ------- | ------ | ------- | ----- | ------ | ------ | ------- | ----- | ----- | ------ | 
|(Amounts in thousands)                       |                                                                                       | 2002                                         |                                                         | 2001                                      |        | 2000   
|                                             |                                                                                       |                                              |                                                         |                                           |        |        
|Cash flows from operating activities         |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             | Net income                                                                            |                                              | $                                                       | 10,128                                    |        |         | $      | 8,950   |       |        | $      | 8,444   |      
|                                             | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                              |                                                         |                                           |        |         |        |         |       |        |        |         |      
|                                             |                                                                                       | Depreciation of real estate properties       |                                                         |                                           | 7,133  |         |        |         | 6,512 |        |        |         | 5,342 |      
|                                             |                                                                                       | Other amortization                           |                                                         |                                           | 1,234  |         |        |         | 1,026 |        |        |         | 587   |      
|                                             |                                                                                       | Changes in operating assets and liabilities: |                                                         |                                           |        |         |        |         |       |        |        |         |       |      
|                                             |                                                                                       |                                              | Other assets                                            |                                           |        | (1,127  | )      |         |       | (1,091 | )      |         |       | (413  | )     
|                                             |                                                                                       |                                              | Accounts payable and accrued expenses                   |                                           |        | (32     | )      |         |       | 211    |        |         |       | (344  | )     
|                                             |                                                                                       |                                              | Deferred revenue                                        |                                           |        |        |        |         |       | (1,877 | )      |         |       | 188   |       
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             |                                                                                       |                                              |                                                         | Net cash provided by operating activities |        |         | 17,336 |         |       |        | 13,731 |         |       |       | 13,804 | 
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|Net cash used in investing activities        |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             | Acquisition of real estate properties                                                 |                                              |                                                         |                                          |        |         |        | (49,550 | )     |        |        | (15,251 | )    
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|Cash flows from financing activities        
|                                             | Distributions to shareholders                                                         |                                              |                                                         | (11,491                                   | )      |         |        | (10,498 | )     |        |        | (10,408 | )    
|                                             | Proceeds from exercise of stock options                                               |                                              |                                                         | 3,832                                     |        |         |        | 167     |       |        |        |        |      
|                                             | (Repayments) borrowings under revolving line of
    credit                            |                                              |                                                         | (6,000                                    | )      |         |        | (1,400  | )     |        |        | 12,200  |      
|                                             | Proceeds from issuance of bonds                                                       |                                              |                                                         |                                          |        |         |        | 57,535  |       |        |        |        |      
|                                             | Repayments on bonds                                                                   |                                              |                                                         | (695                                      | )      |         |        | (60     | )     |        |        |        |      
|                                             | Restricted cash                                                                       |                                              |                                                         | (32                                       | )      |         |        | (7,122  | )     |        |        |        |      
|                                             | Deferred financing costs                                                              |                                              |                                                         | (46                                       | )      |         |        | (1,840  | )     |        |        |        |      
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             |                                                                                       |                                              | Net cash (used in) provided by financing
    activities |                                           |        | (14,432 | )      |         |       | 36,782 |        |         |       | 1,792 |       
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             |                                                                                       |                                              | Net increase in cash and cash equivalents               |                                           |        | 2,904   |        |         |       | 963    |        |         |       | 345   |       
|Cash and cash equivalents, beginning of year |                                                                                       |                                              | 1,429                                                   |                                           |        |         | 466    |         |       |        | 121    |        
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|Cash and cash equivalents, end of year       |                                                                                       | $                                            | 4,333                                                   |                                           |        | $       | 1,429  |         |       | $      | 466    |        
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        
|                                             | Supplemental disclosure:                                                              |                                              |                                                         |                                           |        |         |        |         |       |        |        |         |      
|                                             |                                                                                       | Cash paid for interest                       |                                                         | $                                         | 10,574 |         |        | $       | 8,531 |        |        | $       | 6,920 |      
|                                             |                                                                                       |                                              |                                                         |                                           |        |         |        |         |       |        |        |        

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

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CORRECTIONAL PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


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. At December 31, 2002,
the Company owned thirteen facilities of which eleven were
leased to Wackenhut Corrections Corporation (together with its
subsidiaries, WCC) and two were leased to the State
of North Carolina. The Company operates in only one segment.

On April 28, 1998, the Company commenced
operations after completing its initial public offering (the
IPO). Simultaneous with the completion of the IPO,
the Company acquired the following eight correctional and
detention facilities (the Initial Facilities),
located in five states with an aggregate design capacity of
3,154 beds, from WCC for an aggregate purchase price of
$113,000,000 (collectively, the Formation
Transactions):

|       |  |                                                                            
|------ |  | ---------------------------------------------------------------------------
|(i)    |  | Aurora INS Processing Center (Aurora, Colorado);                           
|(ii)   |  | McFarland Community Correctional Facility
    (McFarland, California);     
|(iii)  |  | Queens Private Correctional Facility (New York,
    New York);             
|(iv)   |  | Central Valley Community Correctional Facility
    (McFarland, California);
|(v)    |  | Golden State Community Correctional Facility
    (McFarland, California);  
|(vi)   |  | Desert View Community Correctional Facility
    (Adelanto, California);    
|(vii)  |  | Broward County Work Release Center (Broward
    County, Florida); and      
|(viii) |  | Karnes County Correctional Center (Karnes County,
    Texas).              

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

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

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

On January 15, 1999, the Company completed
the acquisition of the 600-bed expansion of the Hobbs Facility
for approximately $20,000,000 and the Lawton Correctional
Facility (the Lawton Facility) for approximately
$46,000,000. WCC leased the Lawton Facility and the Hobbs
Facility from the Company for the same base rent and escalation
percentage as the Initial Facilities for an initial term of ten
years, with three additional renewal options for terms of five
years each. The renewal terms are to be determined by fair
market rental rates.

On January 7, 2000, the Company purchased
the Jena Juvenile Justice Center (the Jena Facility)
from WCC for approximately $15,300,000 using proceeds available
under the Bank Credit Facility (See Note 3). WCC has leased the
276-bed facility located in Jena, Louisiana at an initial lease
rate of 11% with 4% annual escalators for an initial term of ten
years, with three additional renewal options for terms of five
years each in length at fair market rental rates. The lease
provides for fixed rental payments to the Company without regard
for occupancy. WCC does not presently have a correctional
facility operating or management contract with a governmental
agency for the Jena Facility. However, WCC continues to make
rental payments to the

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Company as required under the terms of the lease.
As a result of the termination of the operating contract in
effect when the Company acquired the Jena Facility, the Jena
Facility is no longer included in the Companys pledge pool
Borrowing Base described in the Bank Credit Facility.

On March 16, 2001, the Company acquired the
Mountain View Correctional Facility (the Mountain View
Facility) in Spruce Pine, North Carolina, for
approximately $25,200,000, including transaction costs, from an
unrelated third party. The 576-cell, medium security prison is
leased to the State of North Carolina, and is subject to the
terms of an existing long-term, triple-net lease, which was
assigned by the previous facility owner to the Company. The
North Carolina Department of Correction operates the facility.
The initial lease on this facility, which became effective
December 1998, included cash rental of $2,768,700 during the
first year of the lease, payable monthly in arrears. On each
anniversary date, the rental payment escalates in accordance
with increases in the Consumer Price Index (CPI), with a minimum
increase of 3.5%, and a maximum of 4%. The current annual rent
is approximately $3,177,100. The initial term of the lease is
ten years, with two, ten-year renewals at the State of North
Carolinas option. The lessee has the option to acquire the
facility in December 2004, for approximately $26,200,000 and for
predetermined declining amounts at the end of each subsequent
lease year. The annual lease payment is subject to appropriation
by the North Carolina General Assembly. The Company acquired the
Mountain View Facility using the proceeds under the Bank Credit
Facility, which was amended to a total capacity of $110,000,000.

On June 28, 2001, the Company transferred
the Mountain View Facility, subject to its mortgage, to
Correctional Properties North Carolina Prison Finance LLC
(CP North Carolina), a newly formed and wholly owned
subsidiary of the Company. Concurrently, the Company refinanced
the Mountain View Facility using a portion of the proceeds from
the issuance of $57,535,000 of Taxable Mortgage Revenue Bonds,
Series 2001 (the Bonds)(See Note 4. Bonds).
This refinancing included repayment of the proceeds drawn under
the Bank Credit Facility to purchase the Mountain View Facility.

On June 28, 2001, CP North Carolina acquired
the Pamlico Correctional Facility (the Pamlico
Facility) in Bayboro, North Carolina for approximately
$24,300,000, including transaction costs, from an unrelated
third party. This 576-cell, medium-security prison is leased to
the State of North Carolina, and is subject to the terms of an
existing long-term, triple-net lease, which was assigned by the
previous facility owner to the Company. The North Carolina
Department of Correction operates the facility. The initial
lease on the Pamlico Facility, which became effective in August
of 1998, included annual cash rental payments of $2,664,300
during the first year of the lease, payable monthly in arrears.
On each anniversary date of the lease, the rental payment
escalates in accordance with increases in the CPI, with a
minimum increase of 3.5%, and a maximum of 4%. The current
annual rent is approximately $3,062,400. The initial term of the
lease is ten years, with two, ten-year renewals at the State of
North Carolinas option. The State of North Carolina has an
option to acquire the facility in August 2004, for approximately
$25,230,000. At the end of each lease year thereafter, it has an
option to purchase the facility for a predetermined declining
amount. The annual lease payment is subject to appropriation by
the North Carolina General Assembly. The Company acquired the
Pamlico Facility using a portion of the proceeds from the
issuance of the Bonds (See Note 4.).

CP North Carolina, which is a fully consolidated
entity of the Company for financial reporting purposes, is a
Delaware limited liability company formed solely to issue the
Bonds and acquire and own the Mountain View and Pamlico
Facilities. CP North Carolinas assets and credit are not
available to pay the debts or obligations of any other entity.
The Bonds are non-recourse to CP North Carolina and its sole
member, CPT Operating Partnership L.P. Therefore, CP North
Carolina and its sole member, CPT Operating Partnership L.P.,
are not liable on account of any deficiency in the event that
the Trust Estate created under the Trust Indenture for the Bonds
is insufficient to repay the Bonds or the other obligations of
CP North Carolina under the Bond Documents. As the sole member
of CP North Carolina, CPT Operating Partnership L.P. will have
availability on a quarterly basis of distributions of remaining
revenue proceeds of CP North Carolina, after payment of
principal and interest on the bonds, and funding of any
deficiencies in the various funds required under the Trust
Indenture.

41



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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.

Restricted Cash

Restricted cash consists of restrictive funds
held by the Trustee under the indenture agreement in connection
with the Bonds. Included in restricted cash is a debt service
reserve fund requirement equal to $5,753,500, which represents
10% of the initial principal amounts of the Bonds. The debt
service reserve fund may be used to pay principal of and
interest on the Bonds in the event there should be insufficient
funds to pay the principal and interest. The debt service
reserve fund requirement must be maintained throughout the life
of the Bonds and was required in order to obtain the bond
insurance policy and credit rating on the Bonds.

Deferred Financing Costs

Deferred financing costs, which include costs of
obtaining the Bank Credit Facility and the Bonds, are being
amortized on a straight-line basis over the respective term of
the debt. This method approximates the effective interest rate
method. Accumulated amortization of deferred financing costs at
December 31, 2002 and 2001 was approximately $2,523,000 and
$1,688,000, respectively.

Real Estate Properties

Real estate properties are recorded at cost.
Acquisition costs and transaction fees directly related to each
property are capitalized as a cost of the respective property.
The cost of real estate properties acquired is allocated between
land, buildings and improvements, and machinery and equipment
based upon cost at time of acquisition. Depreciation is provided
for on a straight-line basis over an estimated useful life
ranging from 27-40 years for buildings and improvements.

As of December 31, 2002 and 2001, the
Company had investments in thirteen leased real estate
properties. Components of these real estate investments at cost
are as follows (in thousands):

|                           |  |   |         | 
|-------------------------- |  | - | ------- | 
|Land and land improvements |  | $ | 9,157   | 
|Buildings and improvements |  |   | 262,833 | 
|                           |  |   |         | 
|                           |  | $ | 271,990 | 
|                           |  |   |         | 

Long-Lived Assets

Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, adopted by
the Company in 2002, requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset in question may
not be recoverable. If such changes or circumstances exist,
management will evaluate estimated undiscounted cash flows over
the remaining amortization period for the related long-lived
assets. If such undiscounted cash flow estimates are less than
the carrying values of the related assets, the Company would
measure impairment as the difference between fair value and the
net book value of the related asset.

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Leases and Rental Income

All leases are accounted for as operating leases.
Lease revenue is recognized on a straight-line basis over the
lease term including the impact of the scheduled rent increases
for any leases which are determinable in amount at the inception
of the lease. Any increases in the lease revenue due to
scheduled rent increases which were not determinable at the
inception of the lease will be recognized when determinable. The
annual minimum rent to be received for correctional and
detention facilities under non-cancelable operating leases as of
December 31, 2002 is as follows (in thousands):

|            |  |             |         | 
|----------- |  | ----------- | ------- | 
|Fiscal year |  | Annual Rent
|            |  |            
|2003        |  | $           | 29,819  | 
|2004        |  |             | 30,115  | 
|2005        |  |             | 30,422  | 
|2006        |  |             | 30,739  | 
|2007        |  |             | 31,069  | 
|Thereafter  |  |             | 23,918  | 
|            |  |             |         | 
|            |  | $           | 176,082 | 
|            |  |             |         | 

For the year December 31, 2002, the revenue
generated from WCC and the State of North Carolina represented
78% and 22%, respectively, of total rental revenue. For the year
ended December 31, 2001, the revenue generated from WCC and
the State of North Carolina represented 84% and 16%,
respectively, of total rental revenue. For the year ended
December 31, 2000, the revenue generated from WCC
represented 100% of total rental revenue.

Federal Income Taxes

The Company sought qualification as a Real Estate
Investment Trust (REIT) under the Internal Revenue
Code commencing with its taxable period ended December 31,
1998 and each subsequent year. The Company intends to continue
to seek to qualify as a REIT in future years. 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 90% of its taxable
income to its shareholders and complies with certain other
requirements. Accordingly, no provision has been made for
federal income taxes in the accompanying consolidated financial
statements.

If the Company fails to qualify as a REIT in any
taxable year, it would be subject to federal income tax on its
taxable income. Such an event could materially affect the
Companys net income. However, the Company believes that it
is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 2002,
2001 and 2000.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents,
accounts payable and accrued expenses, the Bonds and the
revolving line of credit approximate fair value. The fair value
of the Companys interest rate swaps at December 31,
2002 and December 31, 2001 was a liability of approximately
$2,619,000 and $3,737,000, respectively, and is included in
Accounts Payable and Accrued Expenses in the accompanying
Consolidated Balance Sheets.

Interest Rate Swaps

The Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and 138, on
January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or a
liability measured at its fair value. SFAS 133 requires that
changes in the derivatives fair value be recognized
currently in earnings unless specific hedge accounting criteria
are met. The Company utilizes interest rate swap derivative
instruments to manage changes in market conditions related to
interest rate payments on certain of its variable rate debt
obligations. As of December 31, 2002, the Company had
interest rate swap agreements for a total notional amount of $66
million, effectively fixing the rate on a like amount of
variable rate borrowings. Management of the Company determined
the interest rate swaps to be effective cash flow hedges. SFAS
133 requires the transition adjustment resulting from adoption
of SFAS 133 to be reported in net income or other comprehensive
income, as appropriate, as the cumulative effect of a change in
accounting principle. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative
transition

43



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adjustment upon adoption of approximately $1.5
million to increase Accumulated Other Comprehensive Loss to
recognize the fair value of its interest rate swap derivative
instrument as of the date of adoption.

The Company recognizes its derivatives on the
balance sheet at fair value, representing a liability of
approximately $2,619,000 and $3,737,000 at December 31, 2002 and
2001, respectively, which is included in Accounts Payable and
Accrued Expenses in the accompanying Consolidated Balance
Sheets. Changes in the fair value for the effective portion of
the gain or loss on a derivative that is designated as and meets
all the required criteria for a cash flow hedge are recorded in
Accumulated Other Comprehensive Loss. The Company expects to
reclassify $2,619,000 of net losses on its derivatives from
accumulated other comprehensive income to earnings in 2003.

Concentration of Credit Risk

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

Use of Estimates in the Preparation of
Financial Statements

The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could vary from those estimates.
Significant estimates include the useful lives and related
depreciation of real estate properties and the fair value of the
derivative financial instruments.

Employee Stock-Based Compensation
Plans

The Company accounts for stock-based compensation
utilizing the intrinsic value method in accordance with the
provisions of APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been
recognized for its employee stock plans because the exercise
prices of the stock options granted equal the market prices of
the underlying stock on the dates of grant. 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.

The following table represents the effect on net
income and earnings per share if the Company had applied the
fair value based method pursuant to SFAS No. 123, to employee
stock-based compensation plans. (In thousands except per share
amounts).

|                                                                                                         |  |      |        |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                                                         |  | 2002 |        | 2001 |  | 2000
|                                                                                                         |  |      |        |      |  |     
|Net income, as reported                                                                                  |  | $    | 10,128 |      |  | $    | 8,950 |   |  | $ | 8,444 |  
|Add: stock-based compensation expense included in
    net income as reported                             |  |      |       |      |  |      | 44    |   |  |   | 147   |  
|Deduct: stock-based compensation expense
    determined under the fair value based method for all awards |  |      | (89    | )    |  |      | (123  | ) |  |   | (352  | )
|                                                                                                         |  |      |        |      |  |      |       |   |  |   |       |  
|Pro forma net income                                                                                     |  | $    | 10,039 |      |  | $    | 8,871 |   |  | $ | 8,239 |  
|                                                                                                         |  |      |        |      |  |      |       |   |  |   |       |  
|                                                                                                        
|Net income per share                                                                                     |  |      |        |      |  |      |       |   |  |   |       |  
|Basic, as reported                                                                                       |  | $    | 1.41   |      |  | $    | 1.25  |   |  | $ | 1.18  |  
|Basic, pro forma                                                                                         |  | $    | 1.40   |      |  | $    | 1.24  |   |  | $ | 1.16  |  
|                                                                                                        
|Diluted, as reported                                                                                     |  | $    | 1.40   |      |  | $    | 1.25  |   |  | $ | 1.18  |  
|Diluted, pro forma                                                                                       |  | $    | 1.38   |      |  | $    | 1.24  |   |  | $ | 1.16  |  

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Comprehensive Income

The components of the Companys
comprehensive income are as follows (In thousands):

|                     |                                                                     |              |        |              |   |              |       |        |   |   |       |       | 
|-------------------- | ------------------------------------------------------------------- | ------------ | ------ | ------------ | - | ------------ | ----- | ------ | - | - | ----- | ----- | 
|                     |                                                                     | Year Ended   |        | Year Ended   |   | Year Ended  
|                     |                                                                     | December 31, |        | December 31, |   | December 31,
|                     |                                                                     | 2002         |        | 2001         |   | 2000        
|                     |                                                                     |              |        |              |   |             
|                     | Net income                                                          |              | $      | 10,128       |   |              | $     | 8,950  |   |   | $     | 8,444 | 
|                     | Cumulative effect of change in accounting
    principle             |              |        |             |   |              |       | (1,500 | ) |   |       |      | 
|                     | Unrealized loss on derivative instruments                           |              |        | (1,897       | ) |              |       | (3,660 | ) |   |       |      | 
|                     | Losses reclassified into earnings from other
    comprehensive loss |              |        | 3,015        |   |              |       | 1,423  |   |   |       |      | 
|                     |                                                                     |              |        |              |   |              |       |        |   |   |       |      
|Comprehensive income |                                                                     | $            | 11,246 |              |   | $            | 5,213 |        |   | $ | 8,444 |      
|                     |                                                                     |              |        |              |   |              |       |        |   |   |       |      

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145, among other things,
requires gains and losses on extinguishment of debt to be
classified as part of continuing operations rather than treated
as extraordinary, as previously required in accordance with SFAS
No. 4. SFAS No. 145 also modifies accounting for
subleases where the original lessee remains the secondary
obligor and requires certain modifications to capital leases to
be treated as a sale-leaseback transaction. The provisions SFAS
No. 145 related to the rescission of SFAS No. 4 is
effective in fiscal years beginning after May 15, 2002,
with early adoption permitted. The Company expects that the
adoption of SFAS 145 in fiscal 2003 will not have a material
impact on its consolidated financial position, results of
operations or cash flows.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that
it has issued. FIN No. 45 also clarifies requirements for
the recognition of guarantees at the onset of an arrangement.
The initial recognition and measurement provisions of FIN
No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirements of FIN No. 45 are effective for interim or
annual financial statements after December 15, 2002. The
Company expects that the adoption of FIN No. 45 in fiscal
2003 will not have a material impact on its consolidated
financial position, results of operations or cash flows.

In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS 148 amends the transition and disclosure
provisions of SFAS No. 123. The Company is currently
evaluating SFAS No. 148 to determine if it will adopt SFAS
No. 123 to account for employee stock options using the
fair value method. The Company has adopted early the disclosure
provisions of SFAS No. 148.

3.     BANK CREDIT
FACILITY

The Company currently has a $110 million secured
line of credit (the Bank Credit Facility) which may
be used to finance the acquisition of correctional and detention
facilities from WCC and others, to expand current facilities and
for general working capital requirements.

The Companys ability to borrow under the
Bank Credit Facility, which matures on October 1, 2003, is
subject to the Companys ongoing compliance with several
covenants including a cash flow covenant restricting
collateralized borrowings to not greater than 4.25 times
Adjusted EBITDA (as defined in the Bank Credit Facility). Prior
to September 30, 2002, the covenant previously restricted
collateralized borrowings to not greater than 4.5 times Adjusted
EBITDA. Additionally, the Bank Credit Facility is secured by
eleven of the Companys thirteen facilities at
December 31, 2002. As of December 31, 2002,
$74,000,000 had been drawn on the Bank Credit Facility at an
overall average rate of 8.21% based upon LIBOR plus an
applicable margin taking into account the swap agreements. The
Company has initiated the process of obtaining a new bank credit
facility to replace the existing Bank Credit Facility, and
believes it will be successful in this process. However, there
can be no assurance that a new

45



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bank credit facility will be completed by the
expiration date of the current Bank Credit Facility on terms
acceptable to the Company.

As of December 31, 2002, the Company had $36
million available borrowing capacity under its Bank Credit
Facility, including $5 million available to be drawn on the
swing line component of the Bank Credit Facility for general
working capital requirements. All borrowers under the Bank
Credit Facility are subject to the Companys compliance
with several restrictive covenants prior to any such amounts
being drawn to finance the acquisition of correctional and
detention facilities and/or to expand the Facilities and for
general working capital requirements. In order to fully utilize
the total capacity available under the Bank Credit Facility, it
may be necessary for the Company to issue additional equity.

The Company has a total of $66 million of
notional amount cash flow interest rate swaps outstanding. The
swap agreements provide that floating rate LIBOR payments on $45
million of indebtedness will be exchanged for fixed payments at
a rate of 7.035% per annum and floating rate LIBOR payments on
$21 million of indebtedness will be exchanged for fixed payments
at a rate of 4.995% per annum. In addition, the Company will be
obligated for the EuroDollar Rate Margin described in the
amended Bank Credit Facility which was 2.25% at
December 31, 2002. The Eurodollar Rate Margin is determined
based upon the ratio of Consolidated Total Indebtedness to
Consolidated Adjusted EBITDA and ranges from 1.75% to 2.50%.

The absence of a correctional service operating
or management contract between a governmental agency and a
qualified operator may cause a facility securing the Bank Credit
Facility, to become ineligible for inclusion in the Pledge Pool
Borrowing Base under the Bank Credit Facility. WCC does not
presently have a correctional facility operating or management
contract with a governmental agency for the Jena Facility.
However, WCC continues to make rental payments to the Company as
required under the terms of the non-cancelable lease. As a
result of the termination of the operating contract in effect
when the Company acquired the Jena Facility, the Jena Facility
is no longer included in the Companys pledge pool
Borrowing Base described in the Bank Credit Facility.

4.     BONDS
PAYABLE

On June 28, 2001, CP North Carolina, which
is a fully consolidated entity of the Company for financial
reporting purposes, issued $57,535,000 in Taxable Mortgage
Revenue Bonds, Series 2001. The proceeds from the Bonds
were used to complete the acquisition of the Pamlico Facility,
to refinance the Mountain View Correctional Facility, provide a
debt service reserve fund of approximately $5,754,000, establish
a working capital fund of $750,000, and pay the costs of the
transaction, including the one time premium for a bond insurance
policy. The Bonds, which have a fixed-rate coupon of 7.15%, were
privately placed at par value on a negotiated basis to qualified
institutional buyers as defined under Rule 144A of the
Securities Act of 1933.

Quarterly payments of principal and interest on
the Bonds began in October 2001, with the final payment due in
January 2017. The Bonds are non-recourse obligations and are
secured by a deed of trust and a security agreement on the
Mountain View Facility and Pamlico Facility, as well as an
assignment to a trustee of the lease payments to be made by the
State of North Carolina under each of the facility leases. The
scheduled annual principal payments due on the bonds as of
December 31, 2002 is as follows (in thousands):

|            |  |                    |        | 
|----------- |  | ------------------ | ------ | 
|            |  | Scheduled         
|Fiscal year |  | Principal Payments
|            |  |                   
|2003        |  | $                  | 925    | 
|2004        |  |                    | 1,185  | 
|2005        |  |                    | 1,490  | 
|2006        |  |                    | 1,840  | 
|2007        |  |                    | 2,210  | 
|Thereafter  |  |                    | 49,130 | 
|            |  |                    |        | 
|            |  | $                  | 56,780 | 
|            |  |                    |        | 

46



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##### 



In the event of the exercise of the purchase
option on the Mountain View Facility, and/or the Pamlico
Facility by the State of North Carolina prior to January of 2017
as provided in the respective leases, CP North Carolina is
obligated to redeem all or a portion of the Bonds at a
redemption price equal to 100% of the principal amount of the
Bonds to be redeemed, plus accrued interest to the redemption
date. If both of the Mountain View and Pamlico Facilities are
purchased, CP North Carolina is obligated to redeem all of the
Bonds. If only one of the Mountain View or Pamlico Facilities is
purchased, CP North Carolina is obligated to redeem a principal
amount of Bonds equal to the purchase price of the facility
purchased, net of closing costs, pro rations and adjustments.

5. SHARE OPTION AND INCENTIVE
PLANS

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

In conjunction with the IPO, the Company granted
options with respect to an aggregate of 590,000 common shares to
officers, employees and trustees. The exercise price for such
options is the IPO price of $20.00. The term of such options is
ten years from the date of grant. In general, one-fourth of the
aggregate of 565,000 options granted to executive officers and
employees vested immediately and the remaining shares vested
ratably on the first, second, and third anniversary of the date
of grant, respectively. The options granted to the non-employee
trustees in the aggregate of 25,000 shares vested in full at the
date of grant. The value of options granted to non-employees in
the aggregate of 240,000 shares is being charged to compensation
expense over the life of the options. The amount of related
compensation expense recognized during the year ended
December 31, 2002, 2001 and 2000, respectively, was
approximately $0, $44,000 and $147,000.

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

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

On January 17, 2001, the Company granted
50,000 options for common shares to officers and employees and
16,000 options for common shares to non-employee trustees. Such
options were granted at an exercise price of $11.00 per share,
the fair market value of a share at the date of the grant. In
addition, on May 29, 2001, the Company granted 5,000 options at
an exercise price of $12.62 per share, which was the fair market
value of a share at the date of grant, to an officer of the
Company. The term of these options is ten years from the date of
grant. The options granted to officers vest immediately as to
one-fourth of the shares subject thereto and vest ratably as to
the remaining shares on the first, second and third
anniversaries of the grant date. The options granted to the
trustees vested in full on the date of the grant.

On January 23, 2002, the Company granted
50,000 options for common shares to officers and employees and
16,000 options for common shares to trustees. Such options were
granted at an exercise price of $18.13 per share, the fair
market value of a share at the date of the grant. The term of
these options is ten years from the date of grant. The options
granted to officers vest immediately as to one-fourth of the
shares subject thereto and vest ratably as to the remaining
shares on the first, second and third anniversaries of the grant
date. The options granted to the trustees vested in full on the
date of the grant.

47



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##### 



A summary of the status of the Companys
stock option plans, including their weighted average option
exercise price, as of December 31, 2002, 2001 and 2000,
respectively, is presented below:

|                                 |  |        |          |           |  |        |       |           |  |        |         |           |  |   |       |  |  |  |         |  |  |   |       | 
|-------------------------------- |  | ------ | -------- | --------- |  | ------ | ----- | --------- |  | ------ | ------- | --------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                                 |  |        |          |           |  |       
|                                 |  | 2002   |          | 2001      |  | 2000  
|                                 |  |        |          |           |  |       
|                                 |  |        |          | Weighted- |  |        |       | Weighted- |  |        |         | Weighted-
|                                 |  |        |          | Average   |  |        |       | Average   |  |        |         | Average  
|                                 |  |        |          | Exercise  |  |        |       | Exercise  |  |        |         | Exercise 
|                                 |  | Shares |          | Price     |  | Shares |       | Price     |  | Shares |         | Price    
|                                 |  |        |          |           |  |        |       |           |  |        |         |          
|Outstanding at beginning of year |  |        | 761,750  |           |  | $      | 18.44 |           |  |        | 757,000 |           |  | $ | 18.55 |  |  |  | 651,000 |  |  | $ | 19.75 | 
|Options granted                  |  |        | 66,000   |           |  | $      | 18.13 |           |  |        | 71,000  |           |  | $ | 11.11 |  |  |  | 106,000 |  |  | $ | 11.19 | 
|Options exercised                |  |        | (204,650 | )         |  | $      | 18.73 |           |  |        | (15,000 | )         |  | $ | 11.13 |  |  |  |        |  |  |   |      | 
|Options forfeited                |  |        |         |           |  |        |      |           |  |        | (51,250 | )         |  | $ | 12.01 |  |  |  |        |  |  |   |      | 
|                                 |  |        |          |           |  |        |       |           |  |        |         |           |  |   |       |  |  |  |         |  |  |   |       | 
|Outstanding at end of year       |  |        | 623,100  |           |  | $      | 18.32 |           |  |        | 761,750 |           |  | $ | 18.44 |  |  |  | 757,000 |  |  | $ | 18.55 | 
|                                 |  |        |          |           |  |        |       |           |  |        |         |           |  |   |       |  |  |  |         |  |  |   |       | 
|Exercisable at end of year       |  |        | 559,850  |           |  | $      | 18.65 |           |  |        | 703,000 |           |  | $ | 18.98 |  |  |  | 525,750 |  |  | $ | 19.16 | 

Significant option groups outstanding at
December 31, 2002, and related weighted average exercise
price and remaining life information, are as follows:

|           |         |             |  |                 |         |             |  |                 |       |                |  |  |         |  |  |   |       |  |  |  |           | 
|---------- | ------- | ----------- |  | --------------- | ------- | ----------- |  | --------------- | ----- | -------------- |  |  | ------- |  |  | - | ----- |  |  |  | --------- | 
|           |         |             |  | Exercise Price/ |         |             |  | Exercise Price/ |       |               
|           |         |             |  | Weighted        |         |             |  | Weighted        |       |               
|           |         |             |  | Average         |         |             |  | Average         |       | Remaining Life
|Grant Date |         | Outstanding |  | Exercise Price  |         | Exercisable |  | Exercise Price  |       | Outstanding   
|           |         |             |  |                 |         |             |  |                 |       |               
|           | 4/28/98 |             |  |                 | 423,100 |             |  | $               | 20.00 |                |  |  | 423,100 |  |  | $ | 20.00 |  |  |  | 1.5 years | 
|           | 1/21/99 |             |  |                 | 44,000  |             |  | $               | 17.31 |                |  |  | 44,000  |  |  | $ | 17.31 |  |  |  | 6.1 years | 
|           | 4/25/00 |             |  |                 | 45,000  |             |  | $               | 11.19 |                |  |  | 36,750  |  |  | $ | 11.19 |  |  |  | 7.3 years | 
|           | 1/17/01 |             |  |                 | 42,000  |             |  | $               | 11.00 |                |  |  | 27,000  |  |  | $ | 11.00 |  |  |  | 8.1 years | 
|           | 5/29/01 |             |  |                 | 5,000   |             |  | $               | 12.62 |                |  |  | 2,500   |  |  | $ | 12.62 |  |  |  | 8.4 years | 
|           | 1/23/02 |             |  |                 | 64,000  |             |  | $               | 18.13 |                |  |  | 26,500  |  |  | $ | 18.13 |  |  |  | 9.1 years | 
|           |         |             |  |                 |         |             |  |                 |       |                |  |  |         |  |  |   |       |  |  |  |           | 
|           |         |             |  |                 | 623,100 |             |  | $               | 18.32 |                |  |  | 559,850 |  |  | $ | 18.65 |  |  |  |           | 
|           |         |             |  |                 |         |             |  |                 |       |                |  |  |         |  |  |   |       |  |  |  |           | 

Included in the 623,100 options outstanding at
December 31, 2002, are 315,600 options, which expire on
April 27, 2003. These options were granted on
April 28, 1998 with an exercise price of $20.00 per share.

As of December 31, 2002, the Company had
options with respect to an aggregate of 202,250 common shares
available for grant. The Company applies APB Opinion No. 25
and related interpretations in accounting for its employee
stock-based compensation plans. Accordingly, no compensation
cost has been recognized for its employee stock plans. Had
compensation for the Companys stock-based compensation
plans been determined pursuant to SFAS No. 123,
Accounting for Stock-Based Compensation, the
Companys net income and earnings per share would have
decreased accordingly. The Companys pro forma information
regarding net income and net income per share, as disclosed in
Note 2, has been determined using the Black-Scholes
option-pricing model based on the following assumptions:

|                                               |  |      |      |      |  |      |      |   |  |  |       |  
|---------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ----- | -
|                                               |  | 2002 |      | 2001 |  | 2000
|                                               |  |      |      |      |  |     
|Weighted average fair value of options granted |  |      | 2.14 |      |  |      | 0.17 |   |  |  | 0.04  |  
|Risk-free interest rate                        |  |      | 5.00 | %    |  |      | 5.00 | % |  |  | 6.50  | %
|Expected life (years)                          |  |      | 8    |      |  |      | 10   |   |  |  | 10    |  
|Expected volatility                            |  |      | 32.5 | %    |  |      | 21.3 | % |  |  | 11.8  | %
|Quarterly dividend rate                        |  |      | 8.8  | %    |  |      | 13.2 | % |  |  | 12.51 | %

48



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##### 



6. EARNINGS PER SHARE

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

|                                  |  |              |        |              |  |              |       |  |  |   |       | 
|--------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ----- |  |  | - | ----- | 
|                                  |  | Year Ended   |        | Year Ended   |  | Year Ended  
|                                  |  | December 31, |        | December 31, |  | December 31,
|                                  |  | 2002         |        | 2001         |  | 2000        
|                                  |  |              |        |              |  |             
|Net income                        |  | $            | 10,128 |              |  | $            | 8,950 |  |  | $ | 8,444 | 
|Weighted average shares  basic   |  |              | 7,188  |              |  |              | 7,140 |  |  |   | 7,130 | 
|Per share  basic                 |  | $            | 1.41   |              |  | $            | 1.25  |  |  | $ | 1.18  | 
|Effect of dilutive stock options  |  |              | 71     |              |  |              | 24    |  |  |   |      | 
|Weighted average shares  diluted |  |              | 7,259  |              |  |              | 7,164 |  |  |   | 7,130 | 
|Per share  diluted               |  | $            | 1.40   |              |  | $            | 1.25  |  |  | $ | 1.18  | 

As of December 31, 2002, all outstanding
options to purchase shares of the Companys stock were
included in the computation of diluted EPS.

As of December 31, 2001, outstanding options
to purchase 644,750 shares of the Companys stock, with
exercise prices ranging from $17.31 to $20.00 per share and
expiration dates between 2003 and 2009, were not included in the
computation of diluted EPS because their effect would be
anti-dilutive.

As of December 31, 2000, outstanding options
to purchase 757,000 shares of the Companys stock, with
exercise prices ranging from $11.19 to $20.00 per share and
expiration dates between 2008 and 2010, were not included in the
computation of diluted EPS because their effect would be
anti-dilutive.

7. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

Lease Commitments

The Company leases office space and data
processing equipment under non-cancelable operating leases
expiring through 2005. Rent expense for the years ended
December 31, 2002, 2001 and 2000 was $43,000, $42,000, and
$42,000 respectively.

The minimum remaining commitments under these
obligations are as follows:

|      |  |   |         | 
|----- |  | - | ------- | 
|Year  |  |  
|      |  |  
|2003  |  | $ | 45,000  | 
|2004  |  |   | 47,000  | 
|2005  |  |   | 20,000  | 
|      |  |   |         | 
|Total |  | $ | 112,000 | 
|      |  |   |         | 

49



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##### 



8. SAVINGS AND RETIREMENT PLANS

The Company has a 401(k) retirement plan (the
401(k) Plan) covering all of the officers and
employees of the Company. The 401(k) Plan permits participants
to contribute, until termination of employment with the Company,
up to a maximum of 25% of their compensation to the 401(k) Plan.
Contributions of participants are not matched by the Company.
For the years ended December 31, 2002, 2001 and 2000, the
Company incurred costs of approximately $1,800, $1,000 and
$1,200 respectively, in connection with the 401(k) Plan.

The Board of Trustees approved and adopted a
Senior Executive Retirement Plan. The Chief Executive Officer of
the Company is currently the only eligible participant. The plan
is a defined benefit plan and, subject to certain maximum and
minimum provisions, bases pension benefits on a percentage of
the employees final average annual salary, not including
bonus (earned during the employees last five years of
credited service) times the employees years of credited
service. Benefits under the plan are offset by social security
benefits. Currently, the plan is not funded. The assumptions for
the discount rate and average increase in compensation used in
determining the pension expense are 6% and 7%, respectively. For
the years ended December 31, 2002, 2001 and 2000, the
Company recorded pension expense of approximately $75,000,
$100,000, and $0, respectively.

9. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED) (In thousands, except per share data)

|                              |  |                                |         |               |  |               |         |         |  |   |         |  |  |   |         |  | 
|----------------------------- |  | ------------------------------ | ------- | ------------- |  | ------------- | ------- | ------- |  | - | ------- |  |  | - | ------- |  | 
|                              |  |                               
|                              |  | As of or for the period ended:
|                              |  |                               
|                              |  | 1st                            |         | 2nd           |  | 3rd           |         | 4th    
|                              |  | Quarter                        |         | Quarter       |  | Quarter       |         | Quarter
|                              |  |                                |         |               |  |               |         |        
|                              |  |                                |         | (As Restated) |  | (As Restated) |         |        
|2002                          |  |                                |         |               |  |               |         |         |  |   |         |  |  |   |         | 
|Real estate properties, net   |  | $                              | 251,579 |               |  | $             | 249,860 |         |  | $ | 248,171 |  |  | $ | 246,229 | 
|Total assets                  |  |                                | 268,675 |               |  |               | 268,140 |         |  |   | 267,850 |  |  |   | 262,589 | 
|Revenue                       |  |                                | 7,508   |               |  |               | 7,551   |         |  |   | 7,575   |  |  |   | 7,570   | 
|Net income                    |  |                                | 2,448   |               |  |               | 2,542   |         |  |   | 2,665   |  |  |   | 2,473   | 
|Net income per share, diluted |  |                                | 0.34    |               |  |               | 0.35    |         |  |   | 0.37    |  |  |   | 0.34    | 
|Funds from operation          |  |                                | 4,231   |               |  |               | 4,262   |         |  |   | 4,353   |  |  |   | 4,415   | 
|Cash distribution per share   |  |                                | 0.40    |               |  |               | 0.40    |         |  |   | 0.40    |  |  |   | 0.40    | 
|                             
|2001                          |  |                                |         |               |  |               |         |         |  |   |         |  |  |   |         | 
|Real estate properties, net   |  | $                              | 234,167 |               |  | $             | 256,929 |         |  | $ | 255,146 |  |  | $ | 253,362 | 
|Total assets                  |  |                                | 237,911 |               |  |               | 268,981 |         |  |   | 269,196 |  |  |   | 266,847 | 
|Revenue                       |  |                                | 5,824   |               |  |               | 6,622   |         |  |   | 7,489   |  |  |   | 7,496   | 
|Net income                    |  |                                | 2,112   |               |  |               | 2,214   |         |  |   | 2,305   |  |  |   | 2,319   | 
|Net income per share, diluted |  |                                | 0.30    |               |  |               | 0.31    |         |  |   | 0.32    |  |  |   | 0.32    | 
|Funds from operation          |  |                                | 3,487   |               |  |               | 3,784   |         |  |   | 4,088   |  |  |   | 4,103   | 
|Cash distribution per share   |  |                                | 0.365   |               |  |               | 0.365   |         |  |   | 0.365   |  |  |   | 0.375   | 

The selected quarterly financial data for the
quarters ended June 30, 2002 and September 30, 2002
has been restated from which was reported in the Form 10-Q as
the result of the Jena Facility no longer being held for sale
and reported as a discontinued operation effective in the fourth
quarter of 2002. As a result, $14,371,000 was reclassified from
asset held for sale into real estate properties, net, and
$505,000 for each of the quarters was reclassified from income
from operations of discontinued facility to rental revenue as
compared to what was reported in the Form 10-Q. The
reclassification was for financial statement presentation
purposes only, and does not effect net income or cash flows for
each of the quarters.

10. SUBSEQUENT EVENTS

On January 23, 2003, the Board of Trustees
declared a distribution of $0.40 per share for the quarter ended
December 31, 2002, to shareholders of record on
February 14, 2003. The distribution will be paid on
March 4, 2003 and represents a distribution for the period
from October 1, 2002 through December 31, 2002.

50



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##### 



PART III

The information required by Items 10, 11, 12 and
13 of Part III of Form 10-K is set forth in the definitive Proxy
Statement of the Company relating to the 2003 Annual Meeting of
Shareholders and is incorporated herein by reference.

Item 14. Controls and
Procedures.

(a) Within 90 days prior to the date of
this report, the principal executive officer and principal
financial officer evaluated the companys controls and
procedures related to its reporting and disclosure obligations.
These officers have concluded that these disclosure controls and
procedures are sufficient to provide that (i) material
information relating to the Company is known to these officers,
particularly material information related to the period for
which this periodic report is being prepared; and (ii) this
information is recorded, processed, summarized, evaluated and
reported, as applicable, within the time periods specified in
the rules and forms promulgated by the Securities and Exchange
Commission.

(b) Within 90 days prior to the date of
this report, the principal executive officer and principal
financial officer evaluated the Companys internal
controls. There have been no significant changes in the
Companys internal controls or in other factors that could
significantly affect these internal controls subsequent to the
date of their evaluation.

51



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##### 



PART IV

Item 15. 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  Ernst & Young LLP                                                      
|
| | Report of Independent Certified Public
    Accountants  Arthur Andersen LLP                                                    
|
| | Consolidated Balance Sheets at December 31,
    2002 and December 31, 2001                                                      
|
| | Consolidated Statement of Income for the years
    ended December 31, 2002, December 31, 2001 and
    December 31, 2000         
|
| | Consolidated Statement of Shareholders Equity for
    years ended December 31, 2002, December 31, 2001 and
    December 31, 2000
|
| | Consolidated Statement of Cash Flows for the
    years ended December 31, 2002, December 31, 2001 and
    December 31, 2000     
|
| | Notes to Consolidated Financial Statements.                                                                                     

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



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Schedule III  Real Estate and
    Accumulated Depreciation as of December 31, 2002

(3) See Exhibit Index included
elsewhere herein.

(b) Reports on Form 8-K:

None.

52



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##### 



Correctional Properties Trust


Schedule III  Real Estate and
Accumulated Depreciation as of December 31, 2002


(dollars in thousands)


|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  |              |       |      |  |              |         |  |  |   |   |  |  |   |   |  |  |   |       |  |  |   |         | 
|-- |  | ----------- | ----------------------- | -------- |  | ------------ | ------------------ | --------------- |  | ---------------- | --- | ------------------- |  | ------------ | ----- | ---- |  | ------------ | ------- |  |  | - | - |  |  | - | - |  |  | - | ----- |  |  | - | ------- | 
|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  |             
|   |  |             |                         |          |  |              |                    |                 |  | Cost Capitalized |     | Gross Amount       
|   |  |             |                         |          |  |              |                    | Initial Cost to |  | Subsequent to    |     | Carried at Close of
|   |  |             |                         |          |  |              |                    | Company         |  | Acquisition      |     | Period 12/31/2002  
|   |  |             |                         |          |  | Encumbrances |                    |                 |  |                  |     |                    
|   |  |             |                         |          |  | at           |                    |                 |  | Building and     |     |                     |  | Building and |       |      |  | Building and
|   |  | Description |                         | Location |  | 12/31/2002   |                    | Land            |  | Improvements     |     | Land                |  | Improvements |       | Land |  | Improvements
|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  |              |       |      |  |             
|1  |  |             | Aurora Facility         |          |  |              | Aurora, CO         |                 |  |                  | (1) |                     |  | $            | 669   |      |  |              | 7,160   |  |  | $ |  |  |  | $ |  |  |  | $ | 669   |  |  | $ | 7,160   | 
|  
|2  |  |             | McFarland Facility      |          |  |              | McFarland, CA      |                 |  |                  | (1) |                     |  |              | 333   |      |  |              | 6,687   |  |  |   |  |  |  |   |  |  |  |   | 333   |  |  |   | 6,687   | 
|  
|3  |  |             | Queens Facility         |          |  |              | New York, NY       |                 |  |                  | (1) |                     |  |              | 1,436 |      |  |              | 13,296  |  |  |   |  |  |  |   |  |  |  |   | 1,436 |  |  |   | 13,296  | 
|  
|4  |  |             | Central Valley Facility |          |  |              | McFarland, CA      |                 |  |                  | (1) |                     |  |              | 526   |      |  |              | 17,066  |  |  |   |  |  |  |   |  |  |  |   | 526   |  |  |   | 17,066  | 
|  
|5  |  |             | Golden State Facility   |          |  |              | McFarland, CA      |                 |  |                  | (1) |                     |  |              | 956   |      |  |              | 16,599  |  |  |   |  |  |  |   |  |  |  |   | 956   |  |  |   | 16,599  | 
|  
|6  |  |             | Desert View Facility    |          |  |              | Adelanto, CA       |                 |  |                  | (1) |                     |  |              | 452   |      |  |              | 16,413  |  |  |   |  |  |  |   |  |  |  |   | 452   |  |  |   | 16,413  | 
|  
|7  |  |             | Broward County Facility |          |  |              | Broward County, FL |                 |  |                  | (1) |                     |  |              | 3,192 |      |  |              | 11,935  |  |  |   |  |  |  |   |  |  |  |   | 3,192 |  |  |   | 11,935  | 
|  
|8  |  |             | Karnes Facility         |          |  |              | Karnes County, TX  |                 |  |                  | (1) |                     |  |              | 500   |      |  |              | 15,820  |  |  |   |  |  |  |   |  |  |  |   | 500   |  |  |   | 15,820  | 
|  
|9  |  |             | Lawton Facility         |          |  |              | Lawton, OK         |                 |  |                  | (1) |                     |  |              | 371   |      |  |              | 45,389  |  |  |   |  |  |  |   |  |  |  |   | 371   |  |  |   | 45,389  | 
|  
|10 |  |             | Hobbs Facility          |          |  |              | Hobbs, NM          |                 |  |                  | (1) |                     |  |              |      |      |  |              | 48,389  |  |  |   |  |  |  |   |  |  |  |   |      |  |  |   | 48,389  | 
|  
|11 |  |             | Jena Facility           |          |  |              | Jena, LA           |                 |  |                  | (1) |                     |  |              | 55    |      |  |              | 15,196  |  |  |   |  |  |  |   |  |  |  |   | 55    |  |  |   | 15,196  | 
|  
|12 |  |             | Mountain View Facility  |          |  |              | Spruce Pine, NC    |                 |  |                  | (2) |                     |  |              | 303   |      |  |              | 24,915  |  |  |   |  |  |  |   |  |  |  |   | 303   |  |  |   | 24,915  | 
|  
|13 |  |             | Pamlico Facility        |          |  |              | Bayboro, NC        |                 |  |                  | (2) |                     |  |              | 364   |      |  |              | 23,968  |  |  |   |  |  |  |   |  |  |  |   | 364   |  |  |   | 23,968  | 
|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  |              |       |      |  |              |         |  |  |   |   |  |  |   |   |  |  |   |       |  |  |   |         | 
|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  | $            | 9,157 |      |  | $            | 262,833 |  |  | $ |  |  |  | $ |  |  |  | $ | 9,157 |  |  | $ | 262,833 | 
|   |  |             |                         |          |  |              |                    |                 |  |                  |     |                     |  |              |       |      |  |              |         |  |  |   |   |  |  |   |   |  |  |   |       |  |  |   |         | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|   |  |       |         |              |  |               |         |          |  |             |      |  |  |  |           |   |  |  |    | 
|-- |  | ----- | ------- | ------------ |  | ------------- | ------- | -------- |  | ----------- | ---- |  |  |  | --------- | - |  |  | -- | 
|   |  |       |         |              |  | Date of       |         |          |  |            
|   |  |       |         | Accumulated  |  | Construction/ |         | Date     |  | Depreciable
|   |  | Total |         | Depreciation |  | Renovation    |         | Acquired |  | Lives      
|   |  |       |         |              |  |               |         |          |  |            
|1  |  |       | 7,829   |              |  |               | (840    | )        |  |             | 1997 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|2  |  |       | 7,020   |              |  |               | (782    | )        |  |             | 1988 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|3  |  |       | 14,732  |              |  |               | (1,554  | )        |  |             | 1997 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|4  |  |       | 17,592  |              |  |               | (1,995  | )        |  |             | 1997 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|5  |  |       | 17,555  |              |  |               | (1,940  | )        |  |             | 1997 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|6  |  |       | 16,865  |              |  |               | (1,918  | )        |  |             | 1997 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|7  |  |       | 15,127  |              |  |               | (1,395  | )        |  |             | 1998 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|8  |  |       | 16,320  |              |  |               | (1,849  | )        |  |             | 1996 |  |  |  | 4/28/1998 |   |  |  | 40 | 
|9  |  |       | 45,760  |              |  |               | (4,496  | )        |  |             | 1999 |  |  |  | 1/15/1999 |   |  |  | 40 | 
|10 |  |       | 48,389  |              |  |               | (4,911  | )        |  |             | 1998 |  |  |  | (3        | ) |  |  | 40 | 
|11 |  |       | 15,251  |              |  |               | (1,133  | )        |  |             | 1999 |  |  |  | 1/7/2000  |   |  |  | 40 | 
|12 |  |       | 25,218  |              |  |               | (1,613  | )        |  |             | 1998 |  |  |  | 3/16/2001 |   |  |  | 28 | 
|13 |  |       | 24,332  |              |  |               | (1,335  | )        |  |             | 1998 |  |  |  | 6/28/2001 |   |  |  | 27 | 
|   |  |       |         |              |  |               |         |          |  |             |      |  |  |  |           |   |  |  |    | 
|   |  | $     | 271,900 |              |  | $             | (25,761 | )        |  |             |      |  |  |  |           |   |  |  |    | 
|   |  |       |         |              |  |               |         |          |  |             |      |  |  |  |           |   |  |  |    | 



|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This facility is held as security for the Bank
    Credit Facility, which had an outstanding balance of $74,000,000
    at December 31, 2002.                                                                         
|(2) | This facility is held as security for the Bonds,
    which had an outstanding balance of $56,780,000 at
    December 31, 2002.                                                                                        
|(3) | In October 1998, the Company acquired the 600-bed
    Hobbs Facility. Subsequently, the Company acquired the 600-bed
    expansion of the Hobbs Facility in January 1999, and an
    industries building in July 1999.

53



---



##### 



A summary of activity of real estate and
accumulated depreciation is as follows: (Dollars in Thousands)

|                               |                               |                                  |         |         |   |      |         |         |        |   |         |         |        | 
|------------------------------ | ----------------------------- | -------------------------------- | ------- | ------- | - | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                               |                               |                                 
|                               |                               | For the years ended December 31,
|                               |                               |                                 
|                               |                               | 2002                             |         | 2001    |   | 2000
|Real Estate                    |                               |                                  |         |         |   |     
|Balance at beginning of period |                               | $                                | 271,990 |         |   | $    | 222,440 |         |        | $ | 207,189 |        
|                               | Additions during period:      |                                  |         |         |   |      |         |         |        |   |         |         |       
|                               |                               | Acquisitions                     |         |         |  |      |         |         | 49,550 |   |         |         | 15,251 | 
|                               |                               | Improvements                     |         |         |  |      |         |         |       |   |         |         |       | 
|                               |                               | Other                            |         |         |  |      |         |         |       |   |         |         |       | 
|                               | Deductions during the period: |                                  |         |         |   |      |         |         |        |   |         |         |       
|                               |                               | Cost of real estate sold         |         |         |  |      |         |         |       |   |         |         |       | 
|                               |                               | Other                            |         |         |  |      |         |         |       |   |         |         |       | 
|                               |                               |                                  |         |         |   |      |         |         |        |   |         |        
|                               | Balance at close of period    |                                  | $       | 271,990 |   |      | $       | 271,990 |        |   | $       | 222,440 |       
|                               |                               |                                  |         |         |   |      |         |         |        |   |         |        

|                               |                               |                                  |         |         |        |      |         |         |        |   |        |         |        |  
|------------------------------ | ----------------------------- | -------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------ | ------- | ------ | -
|                               |                               |                                 
|                               |                               | For the years ended December 31,
|                               |                               |                                 
|                               |                               | 2002                             |         | 2001    |        | 2000
|Accumulated Depreciation       |                               |                                  |         |         |        |     
|Balance at beginning of period |                               | $                                | (18,628 | )       |        | $    | (12,116 | )       |        | $ | (6,774 | )      
|                               | Additions during period:      |                                  |         |         |        |      |         |         |        |   |        |         |       
|                               |                               | Depreciation                     |         |         | (7,133 | )    |         |         | (6,512 | ) |        |         | (5,342 | )
|                               |                               | Other                            |         |         |       |      |         |         |       |   |        |         |       |  
|                               | Deductions during the period: |                                  |         |         |        |      |         |         |        |   |        |         |       
|                               |                               | Real estate sold                 |         |         |       |      |         |         |       |   |        |         |       |  
|                               |                               | Other                            |         |         |       |      |         |         |       |   |        |         |       |  
|                               |                               |                                  |         |         |        |      |         |         |        |   |        |        
|                               | Balance at close of period    |                                  | $       | (25,761 | )      |      | $       | (18,628 | )      |   | $      | (12,116 | )     
|                               |                               |                                  |         |         |        |      |         |         |        |   |        |        

54



---



##### 



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 12, 2003 |  | CORRECTIONAL PROPERTIES TRUST
    (Registrant)                                                 
|                    
|                     |  | By: /s/ CHARLES R. JONESCharles 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 as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities,
to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.

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

|                                             |  |                                                                                                |  |      |                | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ---- | -------------- | 
|Signature                                    |  | Title                                                                                          |  | Date
|                                             |  |                                                                                                |  |     
|/s/ ROBERT R. VEACH, JR.Robert R. Veach, Jr. |  | Chairman of the Board                                                                          |  |      | March 11, 2003 | 
|                                            
|/s/ RICHARD R. WACKENHUTRichard R. Wackenhut |  | Vice-Chairman of the Board                                                                     |  |      | March 12, 2003 | 
|                                            
|/s/ GEORGE R. WACKENHUTGeorge R. Wackenhut   |  | Trustee                                                                                        |  |      | March 12, 2003 | 
|                                            
|/s/ ANTHONY P. TRAVISONOAnthony P. Travisono |  | Trustee                                                                                        |  |      | March 11, 2003 | 
|                                            
|/s/ CLARENCE E. ANTHONYClarence E. Anthony   |  | Trustee                                                                                        |  |      | March 13, 2003 | 
|                                            
|/s/ JAMES D. MOTTAJames D. Motta             |  | Trustee                                                                                        |  |      | March 11, 2003 | 
|                                            
|/s/ WILLIAM M. MURPHYWilliam M. Murphy       |  | Trustee                                                                                        |  |      | March 11, 2003 | 
|                                            
|/s/ DAVID J. OBERNESSERDavid J. Obernesser   |  | Vice President, Chief Financial Officer,
    Secretary, Treasurer and Chief Accounting Officer |  |      | March 12, 2003 | 

55



---



##### 









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     |                         |  | 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 2000 Stock Option
    Plan (6)+                                                                                                                                                                                                                                
|      
|       | 10.10    |                         |  | Correctional Properties Trust 2002 Stock Option
    Plan (11)+                                                                                                                                                                                                                               
|      
|       | 10.11    |                         |  | Agreement of Sale and Purchase dated
    October 30, 1998 between Wackenhut Corrections Corporation
    and CPT Operating Partnership L.P. (3)                                                                                                                                               
|      
|       | 10.12    |                         |  | Credit Agreement dated October 2, 1998 by
    and among CPT Operating Partnership, L.P., Correctional
    Properties Trust, NationsBank, N.A., NationsBanc Montgomery
    Securities LLC, the Bank of Nova Scotia and the Lenders parties
    thereto from time to time (5)                  
|      
|       | 10.12(a) |                         |  | Amendment Agreement No. 1 to Credit
    Agreement, dated March 10, 2000, by and among CPT Operating
    Partnership, L.P., Correctional Properties Trust, Bank of
    America, N.A. (successor by merger to NationsBank, N.A), as
    Agent for the Lenders party to the Credit Agreement (8)
|      
|       | 10.12(b) |                         |  | Amendment Agreement No. 2 to Credit
    Agreement, dated March 16, 2001, by and among CPT Operating
    Partnership, L.P., Correctional Properties Trust, Bank of
    America, N.A. (successor by merger to NationsBank, N.A), as
    Agent for the Lenders party to the Credit Agreement (9)



---



##### 



|       |          |                         |  |                                                                                                                                                                                                                                                                                              
|------ | -------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |          | Description of Exhibits
|       |          |                        
|       | 10.12(c) |                         |  | Amendment Agreement No. 3 to Credit
    Agreement, dated March 16, 2001, by and among CPT Operating
    Partnership, L.P., Correctional Properties Trust, Bank of
    America, N.A. (successor by merger to NationsBank, N.A), as
    Agent for the Lenders party to the Credit Agreement (9)
|      
|       | 10.12(d) |                         |  | Amendment Agreement No. 4 to Credit
    Agreement, dated June 28, 2001, by and among CPT Operating
    Partnership, L.P., Correctional Properties Trust, Bank of
    America, N.A. (successor by merger to NationsBank, N.A), as
    Agent for the Lenders party to the Credit Agreement (10)
|      
|       | 10.13    |                         |  | Agreement of Sale and Purchase dated
    January 15, 1999 between Wackenhut Corrections Corporation
    and CPT Operating Partnership LP (7)                                                                                                                                                 
|      
|       | 10.14    |                         |  | Agreement of Sale and Purchase dated
    January 7, 2000 between Wackenhut Corrections Corporation
    and CPT Operating Partnership LP (7)                                                                                                                                                  
|      
|       | 10.15    |                         |  | The Agreement of Sale dated March 1, 2001
    (Mountain View Correctional Facility), by and between
    Corrections Corporation of America, a Maryland corporation, and
    CPT Operating Partnership, L.P.,a Delaware limited
    partnership (9)                                           
|      
|       | 10.16    |                         |  | The Agreement of Sale dated March 10, 2001
    (Pamlico Correctional Facility), by and between Corrections
    Corporation of America, a Maryland corporation, and CPT
    Operating Partnership, L.P.,a Delaware limited
    partnership (10)                                               
|      
|       | 21.1     |                         |  | List of Subsidiaries of Correctional Properties
    Trust (4)                                                                                                                                                                                                                                
|      
|       | 23.1     |                         |  | Consent of Ernst & Young LLP (2)                                                                                                                                                                                                                                                             
|      
|       | 99.1     |                         |  | Chief Executive Officers certification
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002(2)                                                                                                                                  
|      
|       | 99.2     |                         |  | Chief Financial Officers certification
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002(2)                                                                                                                                  

---

| |     |  |  |                                                                                                                                                                            
| | --- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | +   |  |  | 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) |  |  | Filed herewith this Annual Report on
    Form 10-K for the fiscal year ended December 31, 2002.                                                                            
|
| | (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.



---



##### 



|       |      |                         |  |                                                                                                                                              
|------ | ---- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Number |      | Description of Exhibits
|       |      |                        
|       | (6)  |                         |  | Incorporated by reference to Appendix A to
    Registrants Definitive Proxy Statement filed with the
    Commission on March 30, 2000.      
|      
|       | (7)  |                         |  | Incorporated by reference to Registrants
    Form 10-K for the year ended December 31, 1999 filed
    with the Commission on March 31, 2000.
|      
|       | (8)  |                         |  | Incorporated by reference to Registrants
    Form 10-K for the year ended December 31, 2000 filed
    with the Commission on April 2, 2001. 
|      
|       | (9)  |                         |  | Incorporated by reference to Registrants
    Form 8-K filed with the Commission on April 2, 2001.                                           
|      
|       | (10) |                         |  | Incorporated by reference to Registrants
    Form 8-K filed with the Commission on July 13, 2001.                                           
|      
|       | (11) |                         |  | Incorporated by reference to Appendix 2 to
    Registrants Definitive Proxy Statement filed with the
    Commission on March 14, 2002.      



---



##### 



CERTIFICATION

I, Charles R. Jones, Chief Executive Officer of
Correctional Properties Trust, certify that:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of Correctional Properties Trust;                                                                                                                                                                                                                                                       
|
| | 2. Based on my knowledge, this annual report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this annual
    report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this annual report whether
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                     |  |                                                                                                                                
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|Date: March 12, 2003 |  | /s/ CHARLES R. JONES
    -----------------------------------------------------
    Charles R. Jones
    Chief Executive Officer



---



##### 



CERTIFICATION

I, David J. Obernesser, Chief Financial Officer
of Correctional Properties Trust, certify that:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of Correctional Properties Trust;                                                                                                                                                                                                                                                       
|
| | 2. Based on my knowledge, this annual report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this annual
    report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this annual report whether
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                     |  |                                                                                                                                      
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|Date: March 12, 2003 |  | /s/ DAVID J. OBERNESSER
    -----------------------------------------------------
    David J. Obernesser
    Chief Financial Officer