Financial Statements


                                       of


                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP



                                DECEMBER 31, 2002










<PAGE>











                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP


                                DECEMBER 31, 2002


                                Table of Contents



                                                                         Page

          Independent Accountant's Report                                   1


          Balance Sheet                                                   2-3

          Statement of Operations                                           4

          Statement of Changes in Partners' Capital                         5

          Statement of Cash Flows                                           6

          Notes to Financial Statements                                   7-9











<PAGE>


                                 THOMAS HANKINS
                           CERTIFIED PUBLIC ACCOUNTANT
                        2917 Old Greenwood Road, Suite 7
                              Fort Smith, AR 72903


Phone: (479) 646-6730                                       Fax:  (479) 646-2659





                         Independent Accountant's Report


Partners
McPherson Housing Associates
Limited Partnership


I have audited the accompanying  balance sheet of MCPHERSON  HOUSING  ASSOCIATES
LIMITED  PARTNERSHIP  as of December  31,  2002,  and the related  statement  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. My responsibility is to express an opinion on these statements based
on my audit.

I conducted my audit in accordance with generally  accepted auditing  standards.
Those standards  require that I 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.
I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material  respects,  the  financial  position of  MCPHERSON  HOUSING  ASSOCIATES
LIMITED  PARTNERSHIP  as of December 31, 2002, and the results of its operations
and its cash  flows  for the year  then  ended,  in  conformity  with  generally
accepted accounting principles.





February 17, 2003
Fort Smith, Arkansas




<PAGE>






                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                                  BALANCE SHEET

                                DECEMBER 31, 2002
<TABLE>
<CAPTION>








<S>                                                                                                             <C>


                                     ASSETS
                                     ------

        CURRENT ASSETS
            Cash                                                                                                $             884
            Accounts Receivable
                Security deposit                                                                                            3,824
                Other                                                                                                     250,435
            Prepaid expenses                                                                                                4,056
                                                                                                                  ----------------
                TOTAL CURRENT ASSETS                                                                                      259,199
                                                                                                                  ----------------

        RESTRICTED DEPOSITS
            Tenant security deposit fund                                                                                    6,450
                                                                                                                  ----------------

        PROPERTY, At Cost
            Land                                                                                                          200,000
            Buildings                                                                                                   3,086,326
            Furniture and equipment                                                                                       172,695
            Improvements                                                                                                  471,768
                                                                                                                  ----------------
                                                                                                                        3,930,789
            Less:  accumulated depreciation                                                                                83,503
                                                                                                                  ----------------
                                                                                                                        3,847,286
                                                                                                                  ----------------

                                                                                                                $       4,112,935
                                                                                                                  ================
</TABLE>

                        See Notes to Financial Statements
                                       -2-




<PAGE>



<TABLE>
<CAPTION>


                        LIABILITIES AND PARTNERS' CAPITAL
                        ---------------------------------


<S>                                                                                                             <C>
        CURRENT LIABILITIES
            Accrued expenses                                                                                    $              62
            Construction loan                                                                                           2,156,780
            Due to ERC Companies                                                                                          393,144
                                                                                                                  ----------------
                TOTAL CURRENT LIABILITIES                                                                               2,549,986
                                                                                                                  ----------------

        RESTRICTED DEPOSITS
            Security deposits                                                                                              10,274
                                                                                                                  ----------------

        PARTNERS' CAPITAL                                                                                               1,552,675
                                                                                                                  ----------------





                                                                                                                $       4,112,935
                                                                                                                  ================
</TABLE>


<PAGE>


                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                             STATEMENT OF OPERATIONS

                          YEAR ENDED DECEMBER 31, 2002
<TABLE>
<CAPTION>


<S>                                                                                                             <C>
        INCOME
            Rental                                                                                              $         198,988
                                                                                                                  ----------------

        OPERATING EXPENSES
            Advertising                                                                                                    33,879
            Depreciation                                                                                                   83,503
            Employee benefits                                                                                               3,426
            Insurance                                                                                                       6,052
            Office expense                                                                                                 18,457
            Other expense                                                                                                  14,393
            Payroll tax                                                                                                     3,624
            Professional fees                                                                                              15,558
            Property management                                                                                            14,835
            Real estate tax                                                                                                   381
            Repairs and maintenance                                                                                        40,653
            Salaries                                                                                                       38,108
            Telephone                                                                                                       4,880
            Training                                                                                                          737
            Utilities                                                                                                      16,796
                                                                                                                  ----------------
                                                                                                                          295,282
                                                                                                                  ----------------

        LOSS FROM OPERATIONS                                                                                              (96,294)
                                                                                                                  ----------------

        OTHER INCOME (EXPENSE)
            Interest expense                                                                                              (53,463)
            Other income                                                                                                    7,332
                                                                                                                  ----------------
                                                                                                                          (46,131)
                                                                                                                  ----------------

        NET LOSS                                                                                                $        (142,425)
                                                                                                                  ================
</TABLE>


                       See Notes to Financial Statements
                                       -4-
<PAGE>



                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                    STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                          YEAR ENDED DECEMBER 31, 2002
<TABLE>
<CAPTION>



                                                             GENERAL          LIMITED
                                                             PARTNER         PARTNERS          TOTAL
                                                           -------------   --------------   -------------
<S>                                                     <C>             <C>               <C>
       BALANCE,
           JANUARY 1, 2002                              $             0 $              0 $             0

       CAPITAL CONTRIBUTIONS                                        100        1,695,000       1,695,100

       NET LOSS FOR YEAR ENDING
           DECEMBER 31, 2002                                        (14)        (142,411)       (142,425)
                                                           -------------   --------------   -------------
       BALANCE,
           DECEMBER 31, 2002                            $            86 $      1,552,589 $     1,552,675
                                                           =============   ==============   =============
</TABLE>







                        See Notes to Financial Statements
                                       -5-





<PAGE>

                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                             STATEMENT OF CASH FLOWS

                          YEAR ENDED DECEMBER 31, 2002
<TABLE>
<CAPTION>


    CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                             <C>
        Net loss                                                                                                $        (142,425)
        Items not requiring cash:
            Depreciation                                                                                                   83,503
        Changes in:
            Accounts receivable - security deposit                                                                         (3,824)
            Accounts receivable - other                                                                                  (250,435)
            Prepaid expenses                                                                                               (4,056)
            Tenant security deposit fund                                                                                   (6,450)
            Accrued expenses                                                                                                   62
            Due to general partner                                                                                        393,144
            Restricted deposits held                                                                                       10,274
                                                                                                                  ----------------
                NET CASH PROVIDED BY OPERATING ACTIVITES                                                                   79,793
                                                                                                                  ----------------

        CASH FLOWS FROM INVESTING ACTIVITIES
            Purchase of property and equipment                                                                         (3,930,789)
                                                                                                                  ----------------
                NET CASH USED FOR INVESTING ACTIVITIES                                                                 (3,930,789)
                                                                                                                  ----------------

        CASH FLOWS FROM FINANCING ACTIVITIES
            Construction loan                                                                                           2,156,780
            Capital contributions                                                                                       1,695,100
                                                                                                                  ----------------
                NET CASH PROVIDED BY FINANCING ACTIVITIES                                                               3,851,880
                                                                                                                  ----------------

        NET INCREASE IN CASH                                                                                                  884

        CASH AT BEGINNING OF PERIOD                                                                                             0
                                                                                                                  ----------------

        CASH AT END OF PERIOD                                                                                   $             884
                                                                                                                  ================
</TABLE>





                       See Notes to Financial Statements
                                       -6-
<PAGE>


                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2002

         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ---------------------------------------------------

         Nature of Operations
         --------------------

         McPherson Housing  Associates  Limited  Partnership is a Kansas limited
         partnership  which was  organized in 2000 as a limited  partnership  to
         develop,  construct,  own,  maintain  and  operate a 72 unit  apartment
         development  for persons of low and moderate  income.  The rental units
         are located in the City of McPherson,  Kansas The  Partnership  has one
         general partner and two limited partners.

         Operating  profits and losses and tax credits are  allocated  99.99% to
         the limited  partners and .01% to the general  partner.  Profit or loss
         and cash  distributions  from sales of property  will be  allocated  as
         formulated in the partnership agreement.

         Property
         --------

         Property is recorded at cost which includes a fee paid to the project's
         developer who is also the general  partner and is depreciated  over the
         estimated useful life of 5 to 40 years. Annual depreciation is computed
         primarily using the straight-line method.

         Use of Estimates
         ----------------

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  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 revenues
         and expenses during the reporting  period.  Actual results could differ
         from those estimates.

         Income Taxes
         ------------

         No  provision  for  income  taxes  has  been  made in  these  financial
         statements, as income taxes are a liability of the partners rather than
         of the Partnership.

         NOTE B - CONSTRUCTION LOAN

        Construction loan consists of the following:
<TABLE>
<CAPTION>
<S>                                                                              <C>
            Construction  loan  payable to Fidelity  Bank,  bearing  interest at
            Prime  Rate  less  fifty  (50)  basis  points,  secured  by land and
            buildings, convertible into term loan at a later date                $       2,156,780
                                                                                ===================
</TABLE>







                                       -7-
<PAGE>



                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2002

   NOTE D - RELATED PARTY TRANSACTIONS

   The  Partnership's  general  partner  is ERC  Partners  of Kansas,  LLC.  ERC
   Properties,  Inc. is the sole member of ERC  Properties  of Kansas,  LLC. ERC
   Properties,  Inc., ERC Development  Group, LLC, ERC Construction  Group, LLC,
   and ERC Management Group, LLC, hereinafter referred to as "ERC Companies" are
   controlled through common ownership and provide general contracting and other
   services and functions to the Partnership.

   Management Fees
   ---------------

   The Partnership  paid ERC Companies  $59,110 in 2002 for  reimbursements  and
   services  rendered  in  connection  with the  leasing  and  operation  of the
   project.

   Development Fee
   ---------------

   The  Partnership  incurred  a  development  fee of  $331,144,  payable to ERC
   Companies  for  services  rendered  to the  partnership  for  overseeing  the
   construction of the project.  The development fee has been  capitalized  into
   the  basis  of the  building  and is  included  in the  account  "due  to ERC
   Companies" on the balance sheet.

   NOTE E - OTHER INFORMATION

   Security Deposit Fund
   ---------------------

   Security deposits collected from tenants are held in a separate bank account.
   The status of the account at December 31 is:

                Tenant security deposit fund                  $           6,450
                Accounts receivable - security deposit                    3,824
                Tenant security deposit liability                       (10,274)
                                                                ----------------

                Excess                                        $               0
                                                                ================

   Interest Cost
   -------------

   The  Partnership  capitalized  interest  cost as a  component  of the cost of
   construction  in  progress.  The  following  is a summary  of  interest  cost
   incurred:

                Interest cost capitalized                     $          27,666
                Interest cost expensed                                   53,463
                                                                ----------------


                Total interest cost incurred                  $          81,129
                                                                ================






                                       -8-
<PAGE>



                          MCPHERSON HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2002

     NOTE E - OTHER INFORMATION (CONTINUED)

     Reserve for Replacement Fund
     ----------------------------

     Under the  provisions  of the Amended  and  Restated  Agreement  of Limited
     Partnership dated February 20, 2000, the general partner agreed to guaranty
     $14,400  annually  through a monthly transfer of $1,200 to an Operating and
     Maintenance  Escrow.  As of December 31, 2002 no transfers had been made to
     the Operating and Maintenance Escrow.


     NOTE F - ADDITIONAL CASH FLOW INFORMATION

     Additional Cash Payment Information
     -----------------------------------

     Interest paid                                             $          53,463
                                                                ================






                                      -9-