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                         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, 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-

                 ATLANTA  -  BALTIMORE  -  BETHESDA  -  CHARLOTTE
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<TABLE>
<CAPTION>
                                    Patten Towers, L.P., II

                                         BALANCE SHEET

                                       December 31, 2002


                                            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                                                       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                                                                                 -

PARTNERS' CAPITAL                                                                   1,231,923
                                                                               ---------------
                                                                               $    9,166,900
                                                                               ===============


                               See notes to financial statements

                                              -4-
<PAGE>

                             Patten Towers, L.P., II

                             STATEMENT OF OPERATIONS

                          Year ended December 31, 2002

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)
                                                                ================


                        See notes to financial statements

                                       -5-
<PAGE>

                             Patten Towers, L.P., II

                    STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                          Year ended December 31, 2002


Partners' capital, December 31, 2001                          $       1,992,074

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

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






                        See notes to financial statements

                                       -6-
<PAGE>

                             Patten Towers, L.P., II

                             STATEMENT OF CASH FLOWS

                          Year ended December 31, 2002

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
                                                                   =============

                        See notes to financial statements

                                       -7-
</TABLE>

<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:

           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, 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.

      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
                                                ==============

      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-