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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
|- | ---------------------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
|- | ----------------------------------------------------------------------------------------------------------



For the transaction period from
 to



Commission File Number 0-15571



CAROLINA INVESTMENT PARTNERS, LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|North Carolina                                                |  | 56-1494619                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)



|                                                       |  |           
|------------------------------------------------------ |  | ----------
|Suite 100, 4000 Blue Ridge RoadRaleigh, North Carolina |  | 27612     
|(Address of principal executive offices)               |  | (Zip Code)



Registrants
telephone number, including area code (919) 781-1700



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



Securities registered pursuant to Section 12(g) of the Act: 5,900 Units of Limited Partnership Interests.



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the
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.



Market Value of 5,875 Units held by nonaffiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: $2,621,000 (based upon the offering price of $1,000 less
the amount distributed per Unit).



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



Indicate the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date: 5,900 Units outstanding as of March 31, 2005.



The Exhibit Index appears on Page 11.



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PART I



|Item 1. | Business.
|------- | ---------



Carolina Investment Partners, Limited Partnership (the Registrant) is a limited partnership organized in 1985 under the North Carolina Uniform Limited Partnership Act. The Registrant was formed for the
purpose of investing in certain unimproved real properties located in Cary, North Carolina. The Registrant acquired these properties, commonly known as the Martin Parcel and the Wellington Parcel, in 1986. See Properties. The Registrant
has the option to develop the Martin Parcel for office and institutional uses or hold it for resale. The only option for the Wellington Parcel was to hold it for resale. At this time the Registrant is not developing the Martin Parcel and is
attempting to sell it. However, the Registrant will consider its options with respect to development of the Martin Parcel and is formulating a plan for development of the Martin Parcel. As of April 9, 1998 all of the Wellington Parcel was sold.



On November 1, 2002, the Registrant entered into a contract of purchase and
sale for the sell of approximately two and half (2.5) gross acres of the Martin Parcel for $5.00 per square foot. The contract also contains a one-year option for the buyer to purchase the remainder of the nine-acre tract of land at a price of $4.50
per square foot. The buyer may extend this option for up to two additional years by paying the Registrant $30,000 for each year extended. The prices for the second and third option years are $4.75 and $5.00 per square foot, respectively. The options
will end no later than December 31, 2005. Upon the completion of the sale, the Registrant will pay a brokers commission of two percent (2%) to the Buyers agent. As of March 31, 2005, the sale has not been completed and the buyer has not
extended the options.



|Item 2. | Properties.
|------- | -----------



The Martin Parcel is located in the southern portion of Cary, North Carolina, a rapidly expanding community to the immediate southwest of Raleigh, North Carolina. Cary is part of a region in central North Carolina
known as the Research Triangle area, which includes Raleigh, Durham, Chapel Hill and the Research Triangle Park. The Martin Parcel is located near the residential single family subdivisions known as Ridgepath, Wellington Park, MacGregor Downs,
Lochmere, Kildaire Farms, Wimbledon, and McDonald Woods. The map below shows the locations of the Martin Parcel in Cary.



[MAP]



2



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The Martin Parcel contains approximately 25.1 acres of unimproved land, which is divided into two tracts by the Cary
Parkway. The tract lying to the west of the Cary Parkway contains 15.76 acres of land, while the tract lying to the east of the Cary Parkway contains 9.34 acres of land. The Martin Parcel is located immediately to the north of the interchange.



Upon the sale of the Martin Parcel, the General Partner is entitled to a
broker-listing fee under some circumstances. See Item 11 Executive Compensation. In addition to the broker-listing fee, in the event the parcel is sold by a broker unaffiliated with the General Partner, the Registrant may pay the
unaffiliated broker a 2.5% broker-referral fee.



|Item 3. | Legal Proceedings.
|------- | ------------------



No material legal proceedings are pending against the Registrant or its properties.



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



No matters were submitted to a vote by the limited partners of the Registrant during the fourth quarter of 2004.



PART II



|Item 5. | Market for the Registrants Common Equity and Related Stockholder Matters.
|------- | --------------------------------------------------------------------------



(a) The Registrant has no common stock. There is no established public trading market for the Units.



(b) The Registrant had 994 Limited Partners holding 5,900 Units as of March
31, 2005. The number of Limited Partners was determined by the Partnerships records maintained by the General Partner. An affiliate of the General Partner owns 25 of these 5,900 units.



(c) Until the Limited Partners have received distributions of cash from the
Registrant of an aggregate amount equal to 100% of the Capital Contributions of the Limited Partners, plus an additional return equivalent to 10% per annum simple interest on their Unreturned Capital Contributions, the Limited Partners
will receive at least 99% of all distributions of cash, which will be distributed and allocated among them in the ratio which the number of Units owned by each of them bears to the total number of Units outstanding. Thereafter, the Registrants
distributions will be allocated 90% to the Limited Partners and 10% to the General Partner. Unreturned Capital Contribution means the Capital Contribution of a Limited Partner less any distributions of cash made by the Registrant to such
Limited Partner.



3



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|Item 6. | Selected Financial Data.
|------- | ------------------------



|                                       |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                       |  | 2004 |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|Summary of Operations:                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Gain on Sale of Land                   |  | $    | -0-       |   |      | $ | -0-       |      |  | $ | -0-       |   |  | $    | -0-       |   |  | $ | -0-       |  
|Other Income                           |  |      | 872       |   |      |   | 1,885     |      |  |   | 1,719     |   |  |      | 3,555     |   |  |   | 8,748     |  
|Expenses                               |  |      | 72,961    |   |      |   | 52,977    |      |  |   | 51,676    |   |  |      | 58,319    |   |  |   | 56,466    |  
|Net Loss                               |  |      | (72,089   | ) |      |   | (51,092   | )    |  |   | (49,957   | ) |  |      | (54,764   | ) |  |   | (47,718   | )
|Net Loss per limited partnership unit: |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|From gain on sale of land              |  |      | -0-       |   |      |   | -0-       |      |  |   | -0-       |   |  |      | -0-       |   |  |   | -0-       |  
|From other operations                  |  |      | (12.37    | ) |      |   | (8.66     | )    |  |   | (8.47     | ) |  |      | (9.28     | ) |  |   | (8.08     | )
|                                       |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total per unit                         |  |      | (12.37    | ) |      |   | (8.66     | )    |  |   | (8.47     | ) |  |      | (9.28     | ) |  |   | (8.08     | )
|Distribution per unit                  |  |      | -0-       |   |      |   | -0-       |      |  |   | -0-       |   |  |      | -0-       |   |  |   | -0-       |  
|                                       |  |      |           |   |     
|Selected Balances:                     |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Cash and Short-Term Investments        |  |      | 4,559     |   |      |   | 95,214    |      |  |   | 168,822   |   |  |      | 213,842   |   |  |   | 273,220   |  
|Land held for Investment               |  |      | 3,594,592 |   |      |   | 3,594,592 |      |  |   | 3,594,592 |   |  |      | 3,594,592 |   |  |   | 3,594,592 |  
|Total Assets                           |  |      | 3,603,255 |   |      |   | 3,694,070 |      |  |   | 3,767,514 |   |  |      | 3,812,502 |   |  |   | 3,871,751 |  
|Long term obligations                  |  |      | -0-       |   |      |   | -0-       |      |  |   | -0-       |   |  |      | -0-       |   |  |   | -0-       |  
|General Partners equity               |  |      | -0-       |   |      |   | -0-       |      |  |   | -0-       |   |  |      | -0-       |   |  |   | -0-       |  
|Limited Partners equity               |  |      | 3,512,311 |   |      |   | 3,584,400 |      |  |   | 3,635,492 |   |  |      | 3,685,449 |   |  |   | 3,740,213 |  



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



The Registrants operations resulted in a net loss of $72,089 during 2004, compared to
a net loss of $51,092 during 2003 and a net loss of $49,957 in 2002. The primary differences between 2004 in comparison to 2003 and 2002 were:



2004 vs. 2003



| |  |  | Accounting and legal fees paid in 2004 totaled $29,809 compared to $18,837 paid in 2003. Also, general and administrative expenses paid in 2004 totaled $35,762 compared to $25,516
paid in 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



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| |  |  | Interest received by the Registrant from investment in a money market account totaled $106 in 2004 compared to $363 in 2003 due to higher balances in the account during 2003.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2004 vs. 2002



| |  |  | Accounting and legal fees paid in 2004 totaled $29,809 compared to $19,580 paid in 2002. Also, general and administrative expenses paid in 2004 totaled $35,762 compared to $25,192
paid in 2002.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest received by the Registrant from investment in a money market account totaled $106 in 2004 compared to $1,019 in 2002 due to higher balances in the account during 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of meetings with representatives of the Town of Cary
and the North Carolina Department of Transportation, a new transportation agreement has been entered into with the Town of Cary. This agreement calls for the Town of Cary to complete certain improvements to the adjacent interchange of US 1 and 64
and the Cary Parkway. These changes will, in the opinion of the registrant, enhance the marketability of the property. The changes require payments to be made to the Town upon the extension of building permits of the site. It is the intention of the
registrant to pass these fees on to the developers of the property.



Development of real property in the Research Triangle Area is highly competitive. Factors which affect competition include price, financing terms, economics, location, social and demographic conditions in the surrounding areas, roads,
sewers, utilities and other items of infrastructure, zoning and similar governmental regulations which affect the cost of development and the uses of the property. Many of these factors are beyond the control of the Registrant. These competitive
conditions may affect the Registrants ability to locate purchasers for, or develop the property at prices acceptable to the Registrant. The Registrant believes, however, that the proximity of the property to the full access highway interchange
and overpass which connects the Cary Parkway and U.S. Highway 1 and 64 (the Interchange) enhances their marketability and minimizes the effects of competition.



As of March 31, 2005, the Registrant has $4,559 in cash and short-term investments. The cost of improvements payable to the Town of Cary
will be approximately $160,500. The Registrant believes that this amount will be due in the near future. As described above, the Registrant has a contract to sell 2.5 acres. The Registrant believes that the closing of this contract would provide to
the Registrant approximately $525,000 after estimated closing costs. If the closing does not occur before the assessment becomes due, or does not close at all, the Registrant believes that it will be successful in borrowing funds to finance the
assessment and the Registrants current operations. There can be no assurances that the Registrant will be able to obtain such financing or, if so, upon what terms the Registrant will be able to obtain such financing.



The Registrant maintains its excess funds in a money market account at RBC Centura. The
General Partner believes the account is an appropriate investment of the Registrants funds. Until the Martin Parcel is sold, placed into development and/or refinanced, the Registrant anticipates deficits from operations and administrative
expenses.



RECENT DEVELOPMENTS



During the 4thquarter of 2004 and since December 31, 2004, the Registrant has obtained loans from Alton L. Smith, III, and C. Stephen Smith, each of whom is a general
partner of the General Partner, for $10,423 and $1,158, respectively, to finance the Registrants current operating expenses. These loans, which are payable upon demand, accrue interest monthly at the prime interest rate. The Registrant
anticipates that the loans will be repaid upon the sale of 2.5 acres, as describe above.



5



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Cautionary Statement Identifying Important Factors That Could Cause the Registrants Actual Results to Differ
From Those Projected in Forward Looking Statements.



In connection with
the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, readers of this document, and any document incorporated by reference herein, are advised that this document and documents incorporated by reference into
this document contain both statements of historical facts and forward looking statements. Forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the
forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure and other financial items,
(ii) statements of the plans and objectives of the Registrant or its management, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Registrant or its business.



This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those
indicated by the forward looking statements. These risks and uncertainties include uncertainties about whether real estate sales under contract will close, the ability of the Registrant to sell its other real estate assets, the price of real estate
sales, environmental and similar liabilities, future operating expenses and the adequacy of capital resources to meet future operating expenses, which are described herein and/or in documents incorporated by reference herein.



The cautionary statements made pursuant to the Private Securities Litigation Reform Act of
1995 above and elsewhere by the Registrant should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Registrant prior to the effective date of such Act. Forward looking statements are beyond the
ability of the Registrant to control and in many cases the Registrant cannot predict what factors would cause actual results to differ materially from those indicated by the forward looking statements.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.
|-------- | -----------------------------------------------------------



The Registrant does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure
under this item. The Registrants cash is held in checking accounts or highly liquid investments with original maturities of three months or less.



|Item 8. | Financial Statements and Supplementary Data.
|------- | --------------------------------------------



Registrants financial statements are included elsewhere herein. See List of Financial Statements.



|Item 9. | Changes in and Disagreements with Accountant on Accounting and Financial Disclosure.
|------- | ------------------------------------------------------------------------------------



None.



6



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|Item 9A. | Controls and Procedures
|-------- | -----------------------



An evaluation of the Registrants disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act) was carried out under
the supervision and with the participation of the Registrants management, including the general partner of Walsmith Associates Two, which is the general partner of the Registrant, within the 90 days preceding the filing of this Annual Report
on Form 10-K. Based on that evaluation, the general partner has concluded that the Registrants disclosure controls and procedures were effective as of the end of the annual period covered by this report (December 31, 2004), in ensuring that
material information relating to the Registrant required to be disclosed by the Registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms, including ensuring that such material information is accumulated and communicated to the Registrants management, including the Registrants general partner, as appropriate to allow timely
decisions regarding required disclosure.



There were no significant changes in
the Registrants internal controls over financial reporting during the Registrants most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Registrants internal control over
financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



None.



PART III



|Item 10. | Directors and Executive Officers of the Registrant.
|-------- | ---------------------------------------------------



The Registrant has no directors or executive officers. The Registrant is managed, and its investment decisions are made, by the general partners of the General Partner.
The General Partner is Walsmith Associates Two, a North Carolina general partnership. Except as expressly provided in the Partnership Agreement, the General Partner has the power to do any and all things necessary or incident to the conduct of the
Registrants business. The general partners of the General Partner are:



|                    |  |     |  |                                                                                                                                                                               
|------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NAME                |  | AGE |  | Business Experience During Past Five Years, Family Relationships and Directorships in Public Companies                                                                        
|Donald F. Walston   |  | 62  |  | President since 1982, and founder of Howard Perry & Walston Realty, Inc., a residential real estate brokerage company located in the Research Triangle area of North
Carolina.
|                    |  |    
|Alton L. Smith, III |  | 55  |  | Mr. Smith is an officer and director of Trademark Properties, Inc. Mr. Smith is the brother of C. Stephen Smith                                                               
|                    |  |    
|C. Stephen Smith    |  | 54  |  | Mr. Smith is an independent commercial real estate broker. Mr. Smith is the brother of Alton L. Smith, III                                                                    



To the knowledge of the Registrant, no
person is the beneficial owner of more than 590 units, 10% of the outstanding Units.



|Item 11. | Executive Compensation.
|-------- | -----------------------



The Agreement of Limited Partnership of the Registrant (the Partnership Agreement) governs the amount of compensation payable to Walsmith Associates, Two, the
General Partner of the Registrant.



Each year any portion of the properties of
the Registrant remain undeveloped, the Registrant pays the General Partner an annual $3,000 management fee.



7



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If any portion of the Registrants properties is developed by the Registrant, the Registrant will pay the General
Partner a 3% development fee based upon the cost of improvements, net of land. No amounts were paid to the General Partner as a development fee during the year ended December 31, 2004.



The Registrant may also pay personnel engaged by or on its behalf to coordinate or supervise development, construction and operational
activities, including partners and employees of its General Partner. The Registrant has hired an outside accounting firm for all other record keeping such as securities law filings and maintenance of the partnership database.



The Partnership Agreement calls for the General Partner to be allocated a minimum of 1% of
the gain from the sale of property. The General Partner receives cash to the extent it is allocated income. The General Partner has been allocated no net income for 2004. (See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.)



Upon the sale of the Martin Parcel
the General Partner will be paid a broker listing fee of up to five (5%) percent of the sales price if the sale is to a party unaffiliated with the General Partner. If the property is sold by a broker unaffiliated with the General Partner, the
Registrant may also pay the unaffiliated broker a two and one-half (21⁄2%) percent broker-reallowance fee. The Registrant paid no broker listing fees during the year ended December 31, 2004.



No other amounts were paid for services during the year ended December 31, 2004 to the
General Partner or any of its partners or employees.



If the Registrant
operates developed projects, the General Partner will receive standard leasing commissions and standard property management fees. No amounts were paid during the year ended December 31, 2004.



The General Partner receives cash to the extent it is allocated income. Pursuant to the
Partnership Agreement, the General Partner is allocated 1% of each material item of Partnership income, gain, loss, deduction, or credit. Otherwise all distributions are to the limited partners until such time as these distributions equal their
original capital contributions plus an additional return of 10% per annum simple interest on their outstanding capital contribution (original contributions as reduced by any prior distributions). Thereafter, Partnership distributions will be
allocated 10% to the General Partner and 90% to the limited partners.



Information about comparative five-year return on investment in the Registrant compared to market indexes has not been included herein because there is no public market in Units of the Registrant. The limited partnership agreement of the
Registrant places substantial restrictions on transfer of Units of the Registrant. Accordingly, the Registrant believes comparisons to indexes of publicly traded securities would not be meaningful disclosure for investors.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management.
|-------- | ---------------------------------------------------------------



(a) As of March 31, 2005, no person was known by the Registrant to beneficially own more than 5% of the Units. The table set forth below indicates the
ownership of units by certain general partners of the General Partner as of March 31, 2005:



|                         |  |                                                    |  |                   |  |                 
|------------------------ |  | -------------------------------------------------- |  | ----------------- |  | ----------------
|Title                    |  | Name & Address                                     |  | Amount and Nature |  | Percent of Class
|Limited Partnership Unit |  | Alton L. Smith III 4000 Blue Ridge Road, Suite
100 |  | 25 units (1)      |  | *               
|                         |  | Raleigh, NC 27612                                  |  |                   |  |                 



|* | Indicates less than 1%.
|- | -----------------------



|(1) | Held in trust for Mr. Smiths children. Mr. Smith serves as trustee of the trust.
|--- | ---------------------------------------------------------------------------------



8



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(b) As a limited partnership, the Registrant has no officers and directors, although Alton L. Smith, III,
a general partner of the General Partner, serves the Registrant in the role of its principal financial officer. The General Partner has contributed $1,000 to the Registrants capital account; however, this contribution is not
treated as the equivalent of a Unit of limited partnership interest. The General Partners contribution constitutes less than 1% of the total capital contributed to the Registrant. Messrs. Walston, Smith and Smith are general partners of the
General Partner. Alton L. Smith III beneficially owns 25 units through a trust, for which he serves as trustee. Neither Mr. Walston nor Mr. C. Stephen Smith beneficially owns any units of the Registrant.



|Item 13. | Certain Relationships and Related Transactions.
|-------- | -----------------------------------------------



See Item 11 Executive Compensation.



During the 4thquarter of 2004 and
since December 31, 2004, the Registrant has obtained loans from Alton L. Smith, III, and C. Stephen Smith, each of whom is a general partner of the General Partner, for $10,423 and $1,158, respectively, to finance the Registrants current
operating expenses. These loans, which are payable upon demand, accrue interest monthly at the prime interest rate. The Registrant anticipates that the loans will be repaid upon the sale of 2.5 acres, as describe above.



|Item 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------



The following table presents fees for professional audit services rendered by Lynch & Howard, P.A., for the audit of the Registrants annual
financial statements for 2003 and 2004, fees billed for tax and other services rendered by Thomas, Judy & Tucker, P.A., and general accounting services rendered by Mary Ann Orr.



|                       |  |      |       |      |   |      
|---------------------- |  | ---- | ----- | ---- | - | -----
|                       |  | 2003 |       | 2004
|Audit fees             |  | $    | 6,700 |      | $ | 6,550
|Audit related fees (1) |  | $    | -0-   |      | $ | -0-  
|Tax fees (2)           |  | $    | 2,000 |      | $ | 1,500
|All other fees         |  | $    | 4,701 |      | $ | 7,548



|(2) | Tax fees consisted primarily of amounts billed for preparation of the annual tax return.
|--- | ----------------------------------------------------------------------------------------



9



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PART IV



|Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
|-------- | -----------------------------------------------------------------



| | (a) | The following documents are filed as part of this report:
| | --- | ---------------------------------------------------------



| | (1) | List of Financial Statements:
| | --- | -----------------------------

| |  | See List of Financial Statements.
| |  | -----------------------------------



| | (2) | List of Financial Statement Schedules: All schedules are omitted as they are not applicable or the required information is shown in the financial statements or the notes thereto.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Exhibit Index. All exhibits are incorporated by reference.
| | --- | ----------------------------------------------------------



| | (b) | No Current Report on Form 8-K was filed during the quarter ended December 31, 2004.
| | --- | -----------------------------------------------------------------------------------



10



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| | (c) | The following exhibits have been filed by the Registrant with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (File Number 0-15571) and are
incorporated herein by reference:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                 |  |                                                                                                                                                                                                                                                                                                                   
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. 3.1  |  | Amended Agreement of Limited Partnership of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrants Annual Report filed on Form 10-K for the year ended December 31,
1986).                                                                                                                  
|                 | 
|Exhibit No. 10.1 |  | Purchase Agreement between Registrant and Walsmith Associates regarding the Martin Parcel (incorporated by reference to Exhibit 10.1 to the Registrants Annual Report filed on Form 10-K
for the year ended December 31, 1986).                                                                                  
|                 | 
|Exhibit No. 10.2 |  | Offer to Purchase and Contract for the Sale and Purchase of Real Estate, dated as of January 24, 1986, between Wellington Park Associates and the Registrant (incorporated by reference to
Exhibit 6A to the Registrants Quarterly Report filed on Form 10-Q for the period ended June 30, 1989).                
|                 | 
|Exhibit No. 10.3 |  | Agreement between the North Carolina Department of Transportation and Walsmith Associates (incorporated by reference to Exhibit 10.3 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 1986).                                                                                        
|                 | 
|Exhibit No. 10.4 |  | Assignment and Assumption Agreement between the Registrant and Walsmith Associates (incorporated by reference to Exhibit 10.4 to the Registrants Annual Report on Form 10-K for the year
ended December 31, 1986).                                                                                               
|                 | 
|Exhibit No. 10.5 |  | Amendment to Offer to Purchase and Contract for the Sale and Purchase of Real Estate, dated as of February 1, 1990, between Wellington Park Associates and the Registrant (incorporated by
reference to Exhibit 10.6 to the Registrants Annual Report filed on Form 10-K for the period ended December 31, 1989).
|                 | 
|Exhibit No. 10.6 |  | Agreement for the Purchase and Sale of Real Estate, dated as of April 20, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by
reference to Exhibit C to the Registrants Current Report filed on Form 8-K, dated April 20, 1995).                       
|                 | 
|Exhibit No. 10.7 |  | First Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of August 9, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit C to the Registrants Current Report filed on Form 8-K, dated August 9, 1995).



11



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|                  |  |                                                                                                                                                                                                                                                                                                                                                          
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. 10.8  |  | Second Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of April 19, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit 28.5 to the Registrants Quarterly Report filed on Form 10-Q for the period ended March 31, 1996).                  
|                  | 
|Exhibit No. 10.9  |  | Third Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 10, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit 10.1 to the Registrants Current Report filed on Form 8-K, dated September 25, 1996).                            
|                  | 
|Exhibit No. 10.10 |  | Fourth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit 10.2 to the Registrants Current Report filed on Form 8-K, dated September 25, 1996).                              
|                  | 
|Exhibit No. 10.11 |  | Fifth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 27, 1996, between Wellington Center Associates,
LLC, ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.3 to the Registrants Current Report filed on Form
8-K, dated September 25, 1996).                  
|                  | 
|Exhibit No. 10.12 |  | Sixth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 12, 1997, between Wellington Center Associates, LLC, ADA Corporation of North Carolina, and
the Registrant (incorporated by reference to Exhibit 10.12 to the Registrants Quarterly Report filed on Form 10-Q for the period ended September 30, 1997).
|                  | 
|Exhibit No. 10.13 |  | Letter Agreement to amend the Agreement for the Purchase and Sale of Real Estate, dated December 12, 1997 between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit 10.13 to the Registrants Quarterly Report filed on Form 10-Q for the period ended March 31, 1998).               
|                  | 
|Exhibit No. 10.14 |  | Eighth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated March 24, 1998 between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant
(incorporated by reference to Exhibit 10.14 to the Registrants Quarterly Report filed on Form 10-Q for the period ended March 31, 1998).                        



12



---

|                  |  |                                                                                                                        
|----------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. 10.15 |  | Agreement of Purchase and Sale, dated October 29, 2002, between Valterra Holdings, LLC and the Registrant.             
|                  | 
|Exhibit No. 31.1  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|                  | 
|Exhibit No. 31.2  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|                  | 
|Exhibit No. 32.1  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|                  | 
|Exhibit No. 32.2  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.



| | (d) | All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements attached hereto or notes thereto.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---



ANNUAL REPORT ON FORM 10-K



ITEMS 8 AND 14 (a) (1)



FINANCIAL STATEMENTS



LIST OF FINANCIAL STATEMENTS



YEAR ENDED DECEMBER 31, 2004



CAROLINA INVESTMENT PARTNERS, LIMITED PARTNERSHIP



RALEIGH, NORTH CAROLINA



14



---

Form 10-KItems, 8, 14 (a) (1) and (2) and (d)



CAROLINA INVESTMENT PARTNERS, LIMITED PARTNERSHIP



December 31, 2004



LIST OF FINANCIAL STATEMENTS



The following
financial statements of Carolina Investment Partners, Limited Partnership are included in Item 8:



|                                                                                        |  |    
|--------------------------------------------------------------------------------------- |  | ---
|Independent Auditors Report                                                             |  | F-1
|                                                                                        | 
|Balance SheetsDecember 31, 2004 and 2003                                               |  | F-2
|                                                                                        | 
|Statements of OperationsYears Ended December 31, 2004, 2003 and 2002                   |  | F-3
|                                                                                        | 
|Statements of Changes in Partners EquityYears Ended December 31, 2004, 2003, and 2002 |  | F-4
|                                                                                        | 
|Statements of Cash FlowsYears Ended December 31, 2004, 2003, and 2002                  |  | F-5
|                                                                                        | 
|Notes to Financial Statements                                                           |  | F-6



Schedules to the financial statements
for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are inapplicable or the required information is included in the financial statements or the notes thereto.



15



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Partners

Carolina Investment Partners Limited Partnership

Raleigh, North Carolina



We have audited the
accompanying balance sheets of Carolina Investment Partners Limited Partnership as of December 31, 2004 and December 31, 2003, and the related statements of operations, changes in partners equity and cash flows for each of the three years in
the period ended December 31, 2004. These financial statements are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (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 financial statements referred to above present fairly, in all material respects, the financial position of Carolina Investment Partners Limited Partnership as of December 31, 2004 and December 31, 2003, and the results
of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.



|                           
|---------------------------
|                           
|/s/    LYNCH & HOWARD,
P.A.
|Raleigh, North Carolina    



March 17, 2005



F-1



---

Exhibit A



CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

BALANCE SHEETS



|                                                                         |  |             |           |      |   |          
|------------------------------------------------------------------------ |  | ----------- | --------- | ---- | - | ---------
|                                                                         |  | December 31
|                                                                         |  | 2004        |           | 2003
|ASSETS                                                                   |  |             |           |      |   |          
|                                                                         |  |            
|ASSETS:                                                                  |  |             |           |      |   |          
|Cash                                                                     |  | $           | 4,297     |      | $ | 60,018   
|Short-term investments                                                   |  |             | 262       |      |   | 35,195   
|Land held for investment (Note 5)                                        |  |             | 3,594,592 |      |   | 3,594,592
|Accounts receivable - related party                                      |  |             | 4,104     |      |   | 4,102    
|Prepaid expense                                                          |  |             |          |      |   | 162      
|                                                                         |  |             |           |      |   |          
|                                                                         |  | $           | 3,603,255 |      | $ | 3,694,069
|                                                                         |  |             |           |      |   |          
|LIABILITIES AND PARTNERS EQUITY                                         |  |             |           |      |   |          
|                                                                         |  |            
|LIABILITIES:                                                             |  |             |           |      |   |          
|Accounts payable - trade                                                 |  | $           | 13,245    |      | $ | 12,626   
|Accounts payable - related party                                         |  |             | 10,423    |      |   |          
|Distributions not claimed by limited partners                            |  |             | 67,276    |      |   | 97,043   
|                                                                         |  |             |           |      |   |          
|Total Liabilities                                                        |  | $           | 90,944    |      | $ | 109,669  
|                                                                         |  |             |           |      |   |          
|PARTNERS EQUITY:                                                        |  |             |           |      |   |          
|General Partners equity                                                 |  | $           |          |      | $ |         
|Limited partners equity; 5,900 units authorized, issued and outstanding |  |             | 3,512,311 |      |   | 3,584,400
|                                                                         |  |             |           |      |   |          
|Total Partners Equity                                                   |  | $           | 3,512,311 |      | $ | 3,584,400
|                                                                         |  |             |           |      |   |          
|                                                                         |  | $           | 3,603,255 |      | $ | 3,694,069
|                                                                         |  |             |           |      |   |          



The Notes to Financial
Statements are an integral part of this statement.



F-2



---

Exhibit B



CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

STATEMENTS OF OPERATIONS



|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | Year Ended December 31 |        
|                                                                                                              |  | 2004                   |         |   | 2003 |   |         | 2002 | 
|REVENUES:                                                                                                     |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest and other income                                                                                     |  | $                      | 872     |   |      | $ | 1,885   |      |  | $ | 1,719   |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|OPERATING EXPENSES:                                                                                           |  |                        |         |   |      |   |         |      |  |   |         |  
|General and administrative expenses                                                                           |  | $                      | 69,961  |   |      | $ | 49,977  |      |  | $ | 48,676  |  
|Related party expenses (Note 4)                                                                               |  |                        | 3,000   |   |      |   | 3,000   |      |  |   | 3,000   |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Total Operating Expenses                                                                                      |  | $                      | 72,961  |   |      | $ | 52,977  |      |  | $ | 51,676  |  
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|NET LOSS                                                                                                      |  | $                      | (72,089 | ) |      | $ | (51,092 | )    |  | $ | (49,957 | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|ALLOCATION OF NET LOSS (Note 3):                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|To General Partner                                                                                            |  | $                      |        |   |      | $ |        |      |  | $ |        |  
|To limited partners                                                                                           |  |                        | (72,089 | ) |      |   | (51,092 | )    |  |   | (49,957 | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|                                                                                                              |  | $                      | (72,089 | ) |      | $ | (51,092 | )    |  | $ | (49,957 | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|NET LOSS PER LIMITED PARTNERSHIP UNIT:                                                                        |  |                        |         |   |      |   |         |      |  |   |         |  
|(Based on 5,900 weighted average limited partnership units outstanding during each year)From other operations |  | $                      | (12     | ) |      | $ | (9      | )    |  | $ | (8      | )
|                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  



The Notes to Financial
Statements are an integral part of this statement.



F-3



---

Exhibit C



CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

STATEMENTS OF CHANGES IN PARTNERS EQUITY

|                             |  |                          |  |                         |   |                         |   |           |       |  |   |           |  
|---------------------------- |  | ------------------------ |  | ----------------------- | - | ----------------------- | - | --------- | ----- |  | - | --------- | -
|                             |  | Limited PartnershipUnits |  | General PartnersEquity |   | Limited PartnersEquity |   |           | Total | 
|Balance at January 1, 2002   |  | 5,900                    |  | $                       |  |                         | $ | 3,685,449 |       |  | $ | 3,685,449 |  
|Net loss for 2002            |  |                         |  |                         |  |                         |   | (49,957   | )     |  |   | (49,957   | )
|                             |  |                          |  |                         |   |                         |   |           |       |  |   |           |  
|Balance at December 31, 2002 |  | 5,900                    |  | $                       |  |                         | $ | 3,635,492 |       |  | $ | 3,635,492 |  
|Net loss for 2003            |  |                         |  |                         |  |                         |   | (51,092   | )     |  |   | (51,092   | )
|                             |  |                          |  |                         |   |                         |   |           |       |  |   |           |  
|Balance at December 31, 2003 |  | 5,900                    |  | $                       |  |                         | $ | 3,584,400 |       |  | $ | 3,584,400 |  
|Net loss for 2004            |  |                         |  |                         |  |                         |   | (72,089   | )     |  |   | (72,089   | )
|                             |  |                          |  |                         |   |                         |   |           |       |  |   |           |  
|Balance at December 31, 2004 |  | 5,900                    |  | $                       |  |                         | $ | 3,512,311 |       |  | $ | 3,512,311 |  
|                             |  |                          |  |                         |   |                         |   |           |       |  |   |           |  



The Notes to Financial
Statements are an integral part of this statement.



F-4



---

Exhibit D



CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

STATEMENTS OF CASH FLOWS



|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                            |  | Year Ended December 31 |        
|                                                                            |  | 2004                   |         |   | 2003 |   |          | 2002 | 
|OPERATING ACTIVITIES:                                                       |  |                        |         |   |      |   |          |      |  |   |          |  
|Net loss                                                                    |  | $                      | (72,089 | ) |      | $ | (51,092) |      |  | $ | (49,957) |  
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                        |         |   |      |   |          |      |  |   |          |  
|Changes in operating assets and liabilities:                                |  |                        |         |   |      |   |          |      |  |   |          |  
|Accounts receivable - related party                                         |  |                        | (2      | ) |      |   | (2       | )    |  |   | (32      | )
|Prepaid expense                                                             |  |                        | 162     |   |      |   | (162     | )    |  |   |         |  
|Accounts payable - trade                                                    |  |                        | 619     |   |      |   | 245      |      |  |   | 288      |  
|Accounts payable - related party                                            |  |                        | 10,423  |   |      |   |         |      |  |   | (292     | )
|Distributions not claimed by limited partners                               |  |                        | (29,767 | ) |      |   | (22,598  | )    |  |   | 4,973    |  
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|Net Cash Used In Operating Activities                                       |  | $                      | (90,654 | ) |      | $ | (73,609  | )    |  | $ | (45,020  | )
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|NET DECREASE IN CASH                                                        |  | $                      | (90,654 | ) |      | $ | (73,609  | )    |  | $ | (45,020  | )
|                                                                            |  |                        |        
|CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                               |  |                        | 95,213  |   |      |   | 168,822  |      |  |   | 213,842  |  
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS - END OF YEAR                                     |  | $                      | 4,559   |   |      | $ | 95,213   |      |  | $ | 168,822  |  
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|Supplemental Disclosure of Cash Flows Information:                          |  |                        |         |   |      |   |          |      |  |   |          |  
|                                                                            |  |                        |        
|Cash and cash equivalents:                                                  |  |                        |         |   |      |   |          |      |  |   |          |  
|Cash                                                                        |  | $                      | 4,297   |   |      | $ | 60,018   |      |  | $ | 70,960   |  
|Short-term investments                                                      |  |                        | 262     |   |      |   | 35,195   |      |  |   | 97,862   |  
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  
|                                                                            |  | $                      | 4,559   |   |      | $ | 95,213   |      |  | $ | 168,822  |  
|                                                                            |  |                        |         |   |      |   |          |      |  |   |          |  



The Notes to Financial
Statements are an integral part of this statement.



F-5



---

CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

NOTES TO FINANCIAL STATEMENTS

December 31, 2004



|(1) | ORGANIZATION AND NATURE OF OPERATIONS
|--- | -------------------------------------



Carolina Investment Partners Limited Partnership (the Partnership) was organized in 1985 to invest in real property, which it will sell, or
lease undeveloped or develop into office or commercial projects. Walsmith Associates Two, a North Carolina General Partnership, is the general partner (General Partner). The Partnership has invested in real estate located in Gary, North
Carolina.



|(2) | BASIS OF PRESENTATION
|--- | ---------------------



The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of
the Partnership as a going concern. The Partnership reported losses of $72,089, $51,092 and $49,957 for the years ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004, the company reported cash and short-term investments of
$4,559 and land held for investment of $3,594,592. The Partnership reported liabilities of $90,944 and total partners equity of $3,512,311 as of December 31, 2004. As reported in Exhibit A, the land held for investment is owned without any
mortgages, notes, liens or liabilities. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations.



The Partnership has entered into an agreement with the Town of Cary to improve the interchange to provide better access to
the property (the Transportation Agreement). The cost of these improvements will be $160,500 and will be due upon issuance of the Certificate of Approved Traffic Analysis, which is issued upon the site plan approval from the Town of
Cary. Management believes this amount will be due in the near future and will be paid by the developer of the property.



As described in Note 5, the Partnership has a contract to sell 2.5 acres at $5.00 per square foot plus $10,000 per acre for the buyers portion of
the Transportation Agreement. Management believes that closing of this contract would provide the Partnership approximately $525,000 after estimated closing costs and expenses.



If the contract on the 2.5 acres does not close before the assessment is due or does not close at all, management believes
it will be successful in borrowing funds from a bank to finance the assessment and current operations of the Partnership. Management believes these actions will provide the financial resources for the Partnership to continue as a going concern.



F-6



---

CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

NOTES TO FINANCIAL STATEMENTS

December 31, 2004



|(3) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|--- | ------------------------------------------



Statement of Cash Flows



For the purposes of reporting cash flows, the Partnership considers cash equivalents to be cash on hand, cash in banks, and all highly liquid debt
instruments with a maturity of less than three months.



Land
Held for Investment



Land held for investment is stated at
contract cost plus highway interchange construction costs and capitalized appraisal, survey, and closing costs and adjusted for impairments as required by Financial Accounting Standards Board Statement No. 144. Management compares the cost of land
held to sales of similar property and obtains an independent appraisal to determine the potential for impairment. There are no material differences between the book and federal tax cost basis of the property.



Income Taxes



No provision has been made for income taxes since income or loss is
includable in the partners returns as they report to tax authorities in their respective capacities as partners.



Managements Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions.
These affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.



Concentrations of Credit
Risk



The Partnership may, from time to time, maintain
cash deposits in banks in excess of the federally insured amounts.



Allocation of Net Income or Net Loss



Pursuant
to the Partnership Agreement, the General Partner is allocated 1% of each material item of Partnership income, gain, loss, deduction or credit. The limited partners receive 99% of each material item of Partnership income, gain, loss, deduction or
credit until their original capital contributions plus interest have been distributed (see Cash Distribution Policybelow).



F-7



---

CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

NOTES TO FINANCIAL STATEMENTS

December 31, 2004



|(3) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
|--- | ------------------------------------------------------



Allocation of Net Income or Net Loss - Continued



Thereafter, the net income is allocated 10% to the General Partner and 90% to the limited partners.



Net loss is allocated 10% to the General Partner and 90% to the limited
partners. The Partnership Agreement provides that no partners capital account balance shall be less than zero. For purposes of the allocation, net income or net loss is the amount recognized by the Partnership for federal income tax purposes,
excluding gains or losses from the disposition of land. For the years ended December 31, 2004, 2003 and 2002 there were no material differences between net income (loss) as reported for financial statement and federal income tax purposes.



Cash Distribution Policy



The General Partner receives cash to the extent it is allocated income.
Otherwise, all distributions are to the limited partners until such time as these distributions equal 100% of their original capital contributions plus an additional return of 10% per annum simple interest on their outstanding capital contribution
(original contributions as reduced by any prior distributions). Thereafter, Partnership distributions will be allocated 10% to the General Partner and 90% to the limited partners.



Cash and Short-Term Investments



Cash and short-term investments consisted of cash in banks and money market funds. They are reported at current value.



|(4) | RELATED PARTY TRANSACTIONS
|--- | --------------------------



The Partnership Agreement allows the General Partner to receive a broker listing fee of 5% of the sales price for all properties sold by the Partnership
to unaffiliated buyers. There were no land sales during the years ended December 31, 2004, 2003 and 2002; therefore, no broker listing fees were paid.



F-8



---

CAROLINA INVESTMENT PARTNERS

LIMITED PARTNERSHIP

Raleigh, North Carolina

NOTES TO FINANCIAL STATEMENTS

December 31, 2004



|(4) | RELATED PARTY TRANSACTIONS - Continued
|--- | --------------------------------------



The Partnership Agreement allows the Partnership to pay the General Partner a $3,000 annual management fee while the properties are in an undeveloped
state. Amounts payable to related parties at December 31, 2004 and 2003 were $10,423 and $0, respectively.



Accounts receivable - related party included on Exhibit A consists of income taxes paid on behalf of out-of-state partners. This receivable will be offset
against the next cash distribution.



|(5) | LAND HELD FOR INVESTMENT
|--- | ------------------------



In June 1986, the Partnership purchased for approximately $3,080,200 an undeveloped 26.7 acre parcel of land in Cary, North Carolina, known as the Martin
Parcel, from an affiliate of the General Partner. An additional $514,392 was spent for highway interchange construction costs, capitalized appraisal, survey, and closing costs. Subsequent to the purchase of the land, approximately 1.6 acres was used
in the highway interchange and approximately 4.2 acres was designated as a buffer zone.



In November 2002, the Partnership entered into an agreement to sell approximately 2.5 acres of the Martin Parcel with an option to sell an additional 6.84 acres. An earnest money deposit was made in the form of a
letter of credit listing the seller as the beneficiary and is held in escrow by the sellers agent until the sale is closed. In the event that the contract is breached by the buyer, the earnest money deposit shall be forfeited to the seller.
The contract contained a provision allowing the buyer to terminate the contract without penalties during a designated due-diligence period. As of the date of this report, the property had not been sold and the due-diligence period has expired.



|(6) | SUBSEQUENT EVENTS
|--- | -----------------



On March 11, 2005 approximately 2 acres that was originally deeded to the North Carolina Department of Transportation for highway improvements was deeded
back to the Partnership.



F-9



---

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 on March 31, 2005.



CAROLINA INVESTMENT PARTNERSBy:

WALSMITH ASSOCIATES TWO, General
PartnerBy:

/s/    ALTON L. SMITH,
IIIAlton L. Smith, IIIGeneral Partner and Principal Financial Officer




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



|                            |  |                                                                               |  |               
|--------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                   |  | Capacity                                                                      |  | Date          
|                            |  |                                                                              
|/s/    DONALD F.
WALSTON    |  | General Partner of Walsmith Associates Two, general partner of the Registrant |  | March 31, 2005
|                            |  |                                                                              
|/s/    ALTON, L. SMITH,
III |  | General Partner of Walsmith Associates Two, general partner of the Registrant |  | March 31, 2005



Supplemental Information to be
Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.



No annual report or proxy statement has been or will be sent to the Limited Partners of the Registrant.