FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                             PATTEN TOWERS, L.P., II

                                DECEMBER 31, 2003

<PAGE>

                             Patten Towers, L.P., II

                                TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                   3

FINANCIAL STATEMENTS

      BALANCE SHEET                                                            4

      STATEMENT OF OPERATIONS                                                  5

      STATEMENT OF CHANGES IN PARTNERS' CAPITAL                                6

      STATEMENT OF CASH FLOWS                                                  7

      NOTES TO FINANCIAL STATEMENTS                                            8


<PAGE>

Reznick Fedder & Silverman                         Two Hopkins Plaza, Suite 2100
Certified Public Accountants -                     Baltimore, MD 21201
A Professional Corporation                         410-783-4900 Phone
                                                   410-727-0460 Fax
                                                   WWW.RFS.COM


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Patten Towers, L.P., II

      We have audited the accompanying balance sheet of Patten Towers, L.P., II,
as of December 31, 2003, and the related  statements of  operations,  changes in
partners'  capital,  and cash  flows for the year then  ended.  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 audit.

      We conducted our audit in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 financial position of Patten Towers, L.P., II, as
of  December  31,  2003,  and the  results  of its  operations,  the  changes in
partners'  capital,  and its cash flows for the year then ended,  in  conformity
with accounting principles generally accepted in the United States of America.

      The accompanying financial statements have been prepared assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note C to the
financial statements,  the Partnership is in default on certain covenants of its
bond agreements at December 31, 2003, primarily as a result of a failure to make
principal payments during 2002 and 2003. The lenders may demand repayment of the
bonds.  No such demand has been made.  Negotiations  are presently  under way to
obtain  revised  debt  agreements  to permit the  realization  of assets and the
liquidation of liabilities in the ordinary  course of business.  The Partnership
cannot predict what the outcome of the  negotiations  will be. These  conditions
raise substantial  doubt about the Partnership's  ability to continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.




/s/ Reznick Fedder & Silverman
------------------------------

Baltimore, Maryland
January 31, 2004


                                      -3-

          ATLANTA  -  BALTIMORE  -  BETHESDA  -  CHARLOTTE  -  SACRAMENTO


<PAGE>
<TABLE>
<CAPTION>
                                 Patten Towers, L.P., II

                                      BALANCE SHEET

                                    December 31, 2003


                                          ASSETS
<S>                                                                       <C>
INVESTMENT IN RENTAL PROPERTY
  Land                                                                    $      290,000
  Building and improvements                                                   10,699,853
  Furniture, fixtures and equipment                                              125,081
                                                                          --------------
                                                                              11,114,934
  Less accumulated depreciation                                                3,140,885
                                                                          --------------
                                                                               7,974,049

OTHER ASSETS
  Cash                                                                            18,497
  Restricted cash                                                                478,333
  Accounts receivable - tenants                                                   18,847
  Accounts receivable - other                                                     11,137
  Tenant security deposits held in trust                                          39,998
  Prepaid expenses                                                                 4,683
  Bond issuance cost, net of accumulated amortization of $91,249                 220,823
  Tax credit monitoring fee, net of accumulated amortization of $14,181           18,969
                                                                          --------------
                                                                          $    8,785,336
                                                                          ==============

                            LIABILITIES AND PARTNER' CAPITAL

LIABILITIES
  Promissory note payable                                                 $    6,025,000
  Accounts payable and accrued liabilities                                       102,094
  Accrued management fees                                                         85,731
  Accrued oversight fees                                                          43,701
  Tenant security deposits                                                        40,513
  Prepaid rents                                                                   82,118
  Miscellaneous liabilities                                                       12,405
  Due to affiliates                                                              132,473
  Accrued interest - affiliate                                                    18,496
  Accrued interest - third-party                                                 255,632
  Accrued property taxes                                                         123,797
  Deferred developer's fee                                                     1,137,522
                                                                          --------------
                                                                               8,059,482

CONTINGENCY                                                                            -

PARTNERS' CAPITAL                                                                725,854
                                                                          --------------

                                                                          $    8,785,336
                                                                          ==============

                            See notes to financial statements

                                           -4-
</TABLE>

<PAGE>

                             Patten Towers, L.P., II

                             STATEMENT OF OPERATIONS

                          Year ended December 31, 2003

Revenue
  Rental                                                         $   1,412,926
  Other                                                                 39,236
                                                                 --------------

    Total revenue                                                    1,452,162
                                                                 --------------

Expenses
  Depreciation                                                         420,668
  Amortization                                                          12,612
  Interest                                                             390,133
  Administrative                                                        55,993
  Property management fees                                              79,560
  Repairs and maintenance                                              190,073
  Property insurance                                                    57,771
  Real estate taxes                                                    109,069
  Salaries and wages                                                   188,815
  Bad debts                                                             24,983
  Utilities                                                            304,843
  Miscellaneous operating                                               32,684
  Financing                                                              2,915
  Miscellaneous taxes and insurance                                     88,112
                                                                 --------------

    Total expenses                                                   1,958,231
                                                                 --------------

    NET LOSS                                                     $    (506,069)
                                                                 ==============



                        See notes to financial statements

                                      -5-
<PAGE>

                             Patten Towers, L.P., II

                    STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                          Year ended December 31, 2003


Partners' capital, December 31, 2002                             $   1,231,923

Net loss                                                              (506,069)
                                                                 -------------

Partners' capital, December 31, 2003                             $     725,854
                                                                 =============








                        See notes to financial statements

                                       -6-
<PAGE>

                             Patten Towers, L.P., II

                             STATEMENT OF CASH FLOWS

                          Year ended December 31, 2003

Cash flows from operating activities
  Net loss                                                        $    (506,069)
  Adjustments to reconcile net loss to net cash
  provided by operating activities
    Depreciation                                                        420,668
    Amortization                                                         12,612
    Bad debts                                                            24,983
    (Increase) decrease in assets
       Accounts receivable - tenants                                    (40,432)
       Accounts receivable - HUD                                         27,405
       Accounts receivable - other                                      (11,137)
       Prepaid expenses                                                     369
    Increase (decrease) in liabilities
       Accounts payable and accrued liabilities                          (5,490)
       Accrued interest - affiliate                                      13,247
       Accrued interest - third-party                                    61,811
       Tenant security deposits, net                                      9,162
       Prepaid rents                                                     81,089
       Miscellaneous liabilities                                        (24,798)
       Accrued property taxes                                           (12,983)
                                                                 ---------------

           Net cash provided by operating activities                     50,437
                                                                 ---------------
Cash flows from investing activities
Restricted cash held by Bond Trustee                                    (40,043)
                                                                 ---------------

           Net cash used in investing activities                        (40,043)
                                                                 ---------------

           NET INCREASE IN CASH                                          10,394

Cash, beginning                                                           8,103
                                                                 ---------------

Cash, ending                                                      $      18,497
                                                                 ===============
Supplemental disclosure of cash flow information
  Cash paid during the year for interest                          $     315,075
                                                                 ===============


                        See notes to financial statements

                                      -7-
<PAGE>

                             Patten Towers, L.P., II

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2003

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Patten  Towers,  L.P.,  II (the  Partnership),  was organized as a limited
      partnership under the laws of the State of Tennessee during November 1995.
      The  Partnership  was  formed  to  acquire,  own,  develop,  rehabilitate,
      maintain,  and  operate a  221-unit  rental  housing  project  located  in
      Chattanooga, Tennessee, called Patten Towers Apartments (the Project).

      During November 2001, the Partnership  agreement was amended to remove the
      old general  partner and admit the new general  partner,  Patten  Towers -
      Yarco, LLC as 1 percent general partner and WNC Housing Tax Credit Fund V,
      L.P., Series 3, as 99 percent limited partner.

      Each building of the Project has qualified and been  allocated  low-income
      housing tax credits  pursuant to Internal Revenue Code Section 42 (Section
      42), which regulates the use of the Project as to occupant eligibility and
      unit gross rent,  among other  requirements.  Each building of the Project
      must  meet  the  provisions  of  these  regulations   during  each  of  15
      consecutive years in order to remain qualified to receive the tax credits.
      In  addition,  the  Partnership  has  executed a  declaration  of land use
      restrictive  covenants  which  requires  the  utilization  of the  Project
      pursuant to Section 42 for a minimum of 30 years,  even if the Partnership
      disposes of the Project.

      USE OF ESTIMATES

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  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  revenue  and  expenses  during the  reporting  period.  Actual
      results may differ from those estimates.

      ACCOUNTS RECEIVABLE AND BAD DEBTS

      Tenant  receivables  are  charged  to  bad  debt  expense  when  they  are
      determined  to be  uncollectible  based  upon  a  periodic  review  of the
      accounts by management.  Accounting  principles  generally accepted in the
      United  States of America  require  that the  allowance  method be used to
      recognize  bad debts;  however,  the effect of using the direct  write-off
      method is not  materially  different from the results that would have been
      obtained under the allowance method.

                                      -8-
<PAGE>

                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2003

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      INVESTMENT IN RENTAL PROPERTY

      Investment in rental property is carried at cost. Depreciation is provided
      for in  amounts  sufficient  to relate the cost of  depreciable  assets to
      operations over their estimated  service lives using the straight-line and
      double-declining balance methods as follows:

           Building                                27.5 years
           Building improvements                   27.5 years
           Building equipment                       5-7 years

      AMORTIZATION

      Bond issuance costs consist of fees for obtaining the mortgage payable and
      are  being  amortized  over the  30-year  life of the  mortgage  using the
      straight-line method, which approximates the effective interest method.

      Tax credit monitoring fees are being amortized over the 15-year tax credit
      period.

      RENTAL INCOME

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
      received in advance are  deferred  until  earned.  All leases  between the
      Partnership and the tenants of the property are operating leases.

      INCOME TAXES

      Profit or loss of the  Partnership  is  allocated 1 percent to the general
      partner  and 99 percent to the  investor  limited  partner.  No income tax
      provision has been included in the  financial  statements  since income or
      loss of the  Partnership  is required  to be  reported  by the  respective
      partners on their income tax returns.

NOTE B - ACQUISITION AND REHABILITATION

      The financing of the  acquisition  and  rehabilitation  of the Project was
      provided by the  Industrial  Development  Board of the County of Hamilton,
      Tennessee  (the   Authority),   through  a  tax-exempt  bond  issue,   for
      $7,930,000.   Additional   equity   funding   was   provided   by  capital
      contributions from the investor limited partner.


                                      -9-
<PAGE>

                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2003

NOTE C - PROMISSORY NOTE PAYABLE

      A promissory  note  payable,  in the original  amount of  $7,930,000,  was
      funded with  proceeds  from the issuance of  Multifamily  Housing  Revenue
      Bonds (the Bonds), issued by the Authority. Repayment terms and conditions
      under the  mortgage  equal those of the Bonds.  The  interest  rate on the
      Tax-Exempt  1995A Bonds is 6.125 percent until August 1, 2007, 6.3 percent
      until August 1, 2026, and 6.375 percent until maturity. The interest rates
      for the  Taxable  1995  Bonds  and the  Tax-Exempt  1995B  Bonds are 6.250
      percent  and 7.125  percent,  respectively.  Principal  and  interest  are
      payable  semiannually  commencing  August 1, 1997, and continuing  through
      maturity  on August 1,  2026.  The  Partnership  failed to make  principal
      payments of $200,000  and  $420,000  in 2002 and 2003,  respectively.  The
      Partnership  is in default of its bond covenants and the property could be
      foreclosed on by the Trustee to satisfy its  obligations  under the bonds.
      Currently,  the  Partnership  is attempting to refinance the bonds.  As of
      December 31, 2003,  the bonds are fully payable on demand under the events
      of default. The principal balance was $6,025,000 at December 31, 2003.

      The  liability  of the  Partnership  under the  mortgage is limited to the
      underlying value of the real estate collateral.

NOTE D - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENT

      The U.S.  Department of Housing and Urban Development (HUD) has contracted
      with the  Partnership,  under  Section  8 of Title II of the  Housing  and
      Community  Development  Act of 1974, to make housing  assistance  payments
      (HAP) to the  Partnership  on behalf of qualified  tenants.  The agreement
      expires December 2007.

      The HAP  contract  is pledged as  collateral  under the  promissory  loan.
      Payments  received are required to be deposited  directly into the revenue
      fund  pursuant to the Trust  Indenture.  All  disbursements  are  strictly
      controlled by the Trustee.

NOTE E - RELATED PARTY TRANSACTIONS

      DEVELOPMENT AGREEMENT

      Pursuant to a development  agreement,  the  Partnership  agreed to pay the
      general partner a development fee of $1,333,163.  As of December 31, 2003,
      $1,137,522  remains  payable.  The unpaid  amount is payable  from  future
      capital  contributions  and cash flow in accordance  with the  Partnership
      agreement.

                                      -10-
<PAGE>

                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2003

NOTE E - RELATED PARTY TRANSACTIONS (Continued)

      NOTE PAYABLE - AFFILIATES

      During 2002, an affiliate of the limited partner entered into an unsecured
      note for $132,473. The note bears interest at 10% and matures August 2012.
      Accrued interest and interest expense on the note was $18,496 and $13,247,
      respectively for the year ended December 31, 2003.

      MANAGEMENT FEE

      The  property  is managed by an  affiliate  of the  general  partner.  The
      management  agreement  provides  for a  management  fee  of  5%  of  gross
      operating  revenue.  The  minimum  monthly  payment  to be made is $6,630.
      Management  fees  charged to  operations  for the year ended  December 31,
      2003, were $79,560. As of December 31, 2003, $85,731 remains due.

NOTE F - RESTRICTED CASH HELD BY BOND TRUSTEE

      Restricted cash is comprised of funds held by the Bond Trustee established
      at closing of the bond issue as required by the Trust Indenture. The funds
      were established to be used to complete the  rehabilitation of the Project
      and to remit the amounts required to pay for insurance,  taxes,  principal
      and interest when due and payable.  The debt service  reserve fund is used
      solely to make up any  deficiency in the bond fund relating to payments of
      interest and  principal on the bonds,  whether at maturity or upon earlier
      redemption.  Investments of the amounts held by the Trustee are subject to
      those options chosen by the Trustee.

      The balances in the funds at December 31, 2003, are as follows:

           Bond insurance/tax fund              $        7,420
           Debt service fund                           293,577
           Surplus fund                                      8
           General expenses fund                        79,664
           Transition fund                              97,664
                                                --------------
                                                $      478,333
                                                ==============

      The  Partnership  will  receive  any amounts  remaining  in the funds upon
      redemption of the bonds after payment of all fees and expenses.


                                      -11-
<PAGE>

                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2003

NOTE G - CONTINGENCY

      The Project's low-income housing tax credits are contingent on its ability
      to  maintain  compliance  with  applicable  sections  of Section 42 of the
      Internal  Revenue  Code.  Failure to maintain  compliance  with  occupancy
      eligibility,  and/or  gross  rent,  or to correct  noncompliance  within a
      specified  time period  could  result in  recapture  of tax  credits  plus
      interest.  In  addition,  such  potential  noncompliance  may  require  an
      adjustment to the contributed capital by the limited partner.





                                      -12-