FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                             PATTEN TOWERS, L.P., II

                                DECEMBER 31, 2001















<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>



                          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, 2001, 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, 2001, 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, 2001,
primarily as a result of a failure to make principal  payments  during 2001. 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
April 15, 2002

                                      -3-
<PAGE>



                             Patten Towers, L.P., II

                                  BALANCE SHEET

                                December 31, 2001
<TABLE>
<CAPTION>

                                     ASSETS
<S>                                                                                                   <C>
INVESTMENT IN RENTAL PROPERTY
 Land                                                                                                 $  290,000
 Building and improvements                                                                            10,478,502
 Furniture, fixtures and equipment                                                                       125,081
                                                                                                      -----------
                                                                                                      10,893,583
Less accumulated depreciation                                                                          2,302,836
                                                                                                      -----------
                                                                                                       8,590,747
OTHER ASSETS
 Cash                                                                                                    209,585
 Restricted cash                                                                                         789,126
 Accounts receivable - tenants                                                                            14,625
 Accounts receivable - other                                                                              35,800
 Accounts receivable - HUD                                                                                   327
 Tenant security deposits held in trust                                                                    6,226
 Prepaid expenses                                                                                         14,431
 Due from affiliate                                                                                          134
 Bond issuance cost, net of accumulated amortization of $70,445                                          241,627
 Tax credit monitoring fee, net of accumulated amortization of $9,761                                     23,389
                                                                                                      -----------
                                                                                                      $9,926,017
                                                                                                      ===========
                        LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
 Promissory note payable                                                                              $6,452,522
 Accounts payable and accrued liabilities                                                                111,584
 Accounts payable-construction                                                                             7,176
 Accrued management fees                                                                                  23,667
 Accrued oversight fees                                                                                   43,701
 Tenant security deposits                                                                                 20,304
 Prepaid rents                                                                                             2,409
 Miscellaneous liabilities                                                                                14,072
 Mortgage payable                                                                                         10,000
 Accrued interest payable                                                                                175,489
 Accrued property taxes                                                                                  168,019
 Deferred developer's fee                                                                                905,000
                                                                                                       ---------
                                                                                                       7,933,943
CONTINGENCY                                                                                                    -

 PARTNERS' CAPITAL                                                                                     1,992,074
                                                                                                      -----------
                                                                                                      $9,926,017
                                                                                                      ===========
</TABLE>

                       See notes to financial statements
                                      -4-
<PAGE>



                             PATTEN TOWERS, L.P., II

                             STATEMENT OF OPERATIONS

                          Year ended December 31, 2001
<TABLE>
<CAPTION>


<S>                                                                                                    <C>
Revenue
 Rental                                                                                                $1,504,593
 Other                                                                                                     49,069
                                                                                                       -----------
  Total revenue                                                                                         1,553,662
                                                                                                       -----------
Expenses
 Depreciation                                                                                             416,550
 Amortization                                                                                              12,613
 Interest                                                                                                 415,520
 Administrative                                                                                           133,397
 Property management fees                                                                                  18,900
 Repairs and maintenance                                                                                  212,142
 Property insurance                                                                                        57,049
 Real estate taxes                                                                                        134,296
 Salaries and wages                                                                                        58,954
 Bad debt                                                                                                   9,689
 Utilities                                                                                                283,350
 Miscellaneous operating                                                                                   31,997
 Financial                                                                                                  1,108
 Miscellaneous taxes and insurance                                                                         20,480
                                                                                                       -----------
  Total expenses                                                                                        1,806,045
                                                                                                       -----------
  NET LOSS                                                                                             $ (252,383)
                                                                                                       ===========
</TABLE>
                        See notes to financial statements
                                      -5-
<PAGE>



                             Patten Towers, L.P., II

                         STATEMENT OF PARTNERS' CAPITAL

                          Year ended December 31, 2001
<TABLE>
<CAPTION>

<S>                                                                                                     <C>
Partners' capital, December 31, 2000                                                                    $2,244,457

Net loss                                                                                                  (252,383)
                                                                                                        -----------
Partners' capital, December 31, 2001                                                                    $1,992,074
                                                                                                        ===========
</TABLE>
                        See notes to financial statements
                                      -6-
<PAGE>


                             Patten Towers, L.P., II
                             STATEMENT OF CASH FLOWS
                          Year ended December 31, 2001
<TABLE>
<CAPTION>


<S>                                                                                                      <C>
Cash flows from operating activities
 Net loss                                                                                                $  (252,383)
 Adjustments to reconcile net loss to net cash
 provided by operating activities
  Depreciation                                                                                               416,550
  Amortization                                                                                                12,613
  (Increase) decrease in assets
  Accounts receivable - tenants                                                                              (14,625)
  Accounts receivable - other                                                                                (28,827)
  Prepaid expenses                                                                                            15,620
  Due from affiliates                                                                                           (134)
 Increase (decrease) in liabilities
  Accounts payable and accrued liabilities                                                                    52,367
  Accrued management fees                                                                                      2,801
  Accrued oversight fees                                                                                       8,739
  Tenant security deposits, net                                                                               12,996
  Prepaid rents                                                                                                2,409
  Accrued property taxes                                                                                      39,784
                                                                                                         ------------
    Net cash provided by operating activities                                                                267,910
Cash flows from investing activities                                                                     ------------
 Restricted cash held by Bond Trustee                                                                        215,524
                                                                                                         ------------
    Net cash provided by investing activities                                                                215,524
Cash flows from financing activities                                                                     ------------
 Development fee                                                                                            (232,522)
 Refinancing fee                                                                                              28,500
 Principal payments on mortgage payable                                                                     (142,478)
 Principal payments on note payable                                                                           10,000
                                                                                                         ------------
    Net cash used in financing activities                                                                   (336,500)
                                                                                                         ------------
    NET INCREASE  IN CASH                                                                                    146,934

Cash, beginning                                                                                               62,651
                                                                                                         ------------
Cash, ending                                                                                             $   209,585
Supplemental disclosure of cash flow information                                                         ============
  Cash paid during the year for interest                                                                 $   415,520
                                                                                                         ============
</TABLE>

                        See notes to financial statements
                                       -7-
<PAGE>


                             Patten Towers, L.P., II

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001



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 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 amount
     of revenue and expenses  during the reporting  period.  Actual  results may
     differ from those estimates.

     Investment in Operating Property
     --------------------------------

     Investment  in  operating  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

                                      -8-
<PAGE>


                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2001


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

     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, 2001


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

     During 2001, the Partnership  failed to make principal payments of $232,522
     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,  2001,  the bonds are fully
     payable under the events of default.

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, 2001

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 provide for the costs 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  for the amounts held by the Trustee
     are subject to limitations.

     The balances in the funds at December 31, 2001, are as follows:

      Bond insurance/tax fund                               $  100,223
      Debt service fund                                        358,384
      Maintenance and replacement fund                          14,146
      Seriew A fund                                             71,279
      Seriew B fund                                             10,255
      Surplus fund                                                  10
      Transition fund                                           97,664
      Exempt interest fund                                      98,752
      Bond revenue find                                         38,413
                                                            -----------
                                                            $  789,126

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

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.

                                      -11-
<PAGE>

                             Patten Towers, L.P., II

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 2001


NOTE H - CONCENTRATION OF CREDIT RISK

     The  Partnership  maintains its cash balances in one bank.  The balances in
     the bank are insured by the Federal  Deposit  Insurance  Corporation  up to
     $100,000.  As of  December  31,  2001,  the  uninsured  portion of the cash
     balances was $109,585.


                                      -12-