FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                             PATTEN TOWERS, L.P., II

                                DECEMBER 31, 2002
































<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
     Certified Public Accountants  A Professional Corporation


                                                   Two Hopkins Plaza, Suite 2100
                                                   Baltimore, MD 21201
                                                   410-783-4900 Phone
                                                   410-727-0460 Fax
                                                   www.rfs.corn



                          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, 2002, 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,  2002,  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,  as shown in the financial statements,  the Partnership is
in default on certain  covenants  of its bond  agreements  at December 31, 2002,
primarily as a result of a failure to make principal  payments  during 2002. 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
February 27, 2003


                                      -3-
<PAGE>


                             Patten Towers, L.P., II

                                 BALANCE SHEET

                               December 31, 2002


                                     ASSETS
<TABLE>
<CAPTION>

<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                                                                           2,720,217
                                                                                             ---------------------

                                                                                                        8,394,717
OTHER ASSETS
 Cash                                                                                                       8,103
 Restricted cash                                                                                          438,290
 Accounts receivable - tenants                                                                              3,398
 Accounts receivable - HUD                                                                                 27,405
 Tenant security deposits held in trust                                                                    37,531
 Prepaid expenses                                                                                           5,052
 Bond issuance cost, net of accumulated amortization of $80,847                                           231,225
 Tax credit monitoring fee, net of accumulated amortization of $11,971                                     21,179
                                                                                             ---------------------
                                                                                             $          9,166,900
                                                                                             =====================

                                               LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
  Promissory note payable                                                                    $          6,025,000
  Accounts payable and accrued liabilities                                                                107,584
  Accrued management fees                                                                                  85,731
  Accrued oversight fees                                                                                   43,701
  Tenant security deposits                                                                                 28,884
  Prepaid rents                                                                                             1,029
  Miscellaneous liabilities                                                                                37,203
  Due to affiliates                                                                                       132,473
  Accrued interest - affiliate                                                                              5,249
  Accrued interest - third party                                                                          193,821
  Accrued property taxes                                                                                  136,780
  Deferred developer's fee                                                                              1,137,522
                                                                                             ---------------------

                                                                                                        7,934,977

CONTINGENCY                                                                                                     -
                                                                                                        1,231,923
PARTNERS' CAPITAL
                                                                                             ---------------------

                                                                                             $          9,166,900
                                                                                             =====================
</TABLE>
                        See notes to financial statements

                                      -4-
<PAGE>


                             Patten Towers, L.P., II

                             STATEMENT OF OPERATIONS

                          Year ended December 31, 2002
<TABLE>
<CAPTION>


<S>                                                                                            <C>
Revenue
 Rental                                                                                        $         1,190,317
 Other                                                                                                      45,734
                                                                                               --------------------
        Total revenue
                                                                                                         1,236,051
                                                                                               --------------------

Expenses
 Depreciation                                                                                              417,381
 Amortization                                                                                               12,612
 Interest                                                                                                  383,586
 Administrative                                                                                             86,546
 Property management fees                                                                                   79,560
 Repairs and maintenance                                                                                   264,531
 Property insurance                                                                                         69,594
 Real estate taxes                                                                                         120,676
 Salaries and wages                                                                                        185,310
 Bad debts                                                                                                  13,485
 Utilities                                                                                                 237,600
 Miscellaneous operating                                                                                    34,822
 Financing                                                                                                  14,912
 Miscellaneous taxes and insurance                                                                          75,587
                                                                                               --------------------

      Total expenses                                                                                     1,996,202
                                                                                               --------------------

      NET LOSS                                                                                 $          (760,151)
                                                                                               ====================
</TABLE>


                        See notes to financial statements

                                      -5-

<PAGE>


                             Patten Towers, L.P., II

                    STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                          Year ended December 31, 2002
<TABLE>
<CAPTION>


<S>                                                                                           <C>
Partners' capital, December 31, 2001                                                          $      1,992,074

Net loss                                                                                              (760,151)
                                                                                              ---------------------

Partners' capital, December 31, 2002                                                          $      1,231,923
                                                                                              =====================
</TABLE>


















                        See notes to financial statements

                                      -6-



<PAGE>


                             Patten Towers, L.P., II

                             STATEMENT OF CASH FLOWS

                          Year ended December 31, 2002
<TABLE>
<CAPTION>


<S>                                                                                            <C>
Cash flows from operating activities
 Net loss                                                                                      $         (760,151)
 Adjustments to reconcile net loss to net cash
 used in operating activities
    Depreciation                                                                                          417,381
    Amortization                                                                                           12,612
    (Increase) decrease in assets
      Accounts receivable - tenants                                                                        11,227
      Accounts receivable - other                                                                           8,722
      Prepaid expenses                                                                                      9,379
      Due from affiliates                                                                                     134
    Increase (decrease) in liabilities
      Accounts payable and accrued liabilities                                                             11,955
      Accrued management fees                                                                              62,064
      Accrued interest - affiliate                                                                          5,249
      Accrued interest - third party                                                                       18,332
      Tenant security deposits, net                                                                       (22,726)
      Prepaid rents                                                                                        (1,380)
      Accrued property taxes                                                                              (31,239)
                                                                                               --------------------

        Net cash used in operating activities                                                            (258,441)
                                                                                               --------------------

Cash flows from investing activities
 Purchase of rental property                                                                             (221,351)
 Restricted cash held by Bond Trustee                                                                     350,837
                                                                                               --------------------

        Net cash provided by investing activities                                                         129,486
                                                                                               --------------------

Cash flows from financing activities
 Principal payments on mortgage payable                                                                  (195,000)
 Increase in due to affiliates                                                                            122,473
                                                                                               --------------------

      Net cash used in financing activities                                                               (72,527)
                                                                                               --------------------

      NET DECREASE IN CASH                                                                               (201,482)

Cash, beginning                                                                                           209,585
                                                                                               --------------------

Cash, ending                                                                                                8,103
                                                                                               ====================

Supplemental disclosure of cash flow information
 Cash paid during the year for interest                                                        $          360,005
                                                                                               ====================

</TABLE>

                        See notes to financial statements

                                      -7-

<PAGE>


                             Patten Towers, L.P., II

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2002


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, 2002


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:
<TABLE>
<CAPTION>
<S>                                                                            <C>

                  Building                                                      27.5 years
                  Building improvements                                         27.5 years
                  Building equipment                                             5-7 years
</TABLE>
     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, 2002


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.  During  2002,  the  Partnership  failed to make  principal
     payments of $200,000 that were due during the year.  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, 2002,
     the bonds are fully  payable  on demand  under the events of  default.  The
     principal balance was $6,025,000 at December 31, 2002.

     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 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.  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, 2002


NOTE E - RELATED PARTY TRANSACTIONS (Continued)

     Note Payable - Affiliates
     -------------------------

     During the year ended  December  31,  2002,  an  affiliate  of the  limited
     partner  entered into a note for $132,473.  The note bears  interest at 10%
     and matures August 2012.  Accrued interest and interest expense on the note
     was $5,249 for the year ended December 31, 2002.

     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.  Management fees charged to operations for the year ended December
     31, 2002, were $79,560. As of December 31, 2002, $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
     limitations.
<TABLE>
<CAPTION>
<S>                                                                           <C>
     The balances in the funds at December 31, 2002, are as follows:
                    Bond insurance/tax fund                                   $           41,449
                    Debt service fund                                                    299,169
                    Surplus fund                                                               8
                    Transition fund                                                       97,664
                                                                              --------------------

                                                                              $          438,290
                                                                              --------------------

</TABLE>
     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, 2002


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-