<PAGE>   1


                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q


   (Mark one)
   [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934


   For Quarter Ended            September 30, 1996
                    ------------------------------------------------------------

                                     or
   [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

   For the transition period from                     to
                                  -------------------     ----------------------


Commission File Number:              0-18444
                        --------------------------------------------------------

                YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
--------------------------------------------------------------------------------
           (Exact name of registrant as specified in its charter)


      North Carolina                                            56-1560476
--------------------------------------------------------------------------------
(State or other jurisdiction of                             (I.R.S. Employer  
incorporation or organization)                            Identification Number)

12201 Steele Creek Road     Charlotte,  North Carolina             28273
--------------------------------------------------------------------------------
(Address of principal executive office)                          (Zip code)



                                 (704) 588-4074
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last
                                   report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                          Yes [X]       No  [ ]

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                    PROCEEDINGS DURING THE PAST FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
                                          Yes [ ]       No  [ ]

                     APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

This document contains 12 pages.  The Exhibit Index is located on page 7.


<PAGE>   2

PART I -- FINANCIAL INFORMATION
                                                                              2
Item 1. Financial Statements

                YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                           CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           September 30,  December 31,
                                                                               1996          1995
                                                                           -------------  ------------
           ASSETS                                                           (Unaudited)     (Note)
<S>                                                                        <C>             <C>
CURRENT ASSETS                                                                     
 Cash and cash equivalents                                                 $   94,522      $  139,930       
 Accounts receivable, tenant                                                   38,203          37,565       
 Prepaid expenses                                                               3,376           1,100       
                                                                           ----------      ----------       
        Total current assets                                                  136,101         178,595       
                                                                           ----------      ----------       
INVESTMENTS AND NONCURRENT RECEIVABLES                                         
 Securities available for sale                                                172,858         135,050       
 Properties on operating leases and properties held                            
   for lease, net of accumulated depreciation                                  
   1996 $1,182,050;  1995 $1,018,404                                        7,488,018       6,774,759       
 Accrued rent receivable                                                       47,909          57,283       
                                                                               
OTHER ASSETS                                                                   
 Deferred charges, net of accumulated amortization                             
   1996 $40,377; 1995 $34,434                                                   5,723          10,180       
 Deferred leasing commissions, net of accumulated                              
   amortization 1996 $28,178; 1995 $15,512                                     53,734          59,014       
                                                                           ----------      ----------       
                                                                           $7,904,343      $7,214,881       
                                                                           ==========      ==========       
   LIABILITIES AND PARTNERS' EQUITY                                            

CURRENT LIABILITIES                                                            
 Note payable, bank                                                        $  942,483      $  219,783       
 Current maturities of long-term debt                                       2,898,901       2,931,715       
 Accounts payable                                                             151,615         128,472       
 Accrued expenses                                                             102,952         127,880       
                                                                           ----------      ----------       
        Total current liabilities                                           4,095,951       3,407,850       
                                                                           ----------      ----------       
LONG-TERM DEBT, less current maturities                                     1,228,306       1,288,753       
                                                                           ----------      ----------       
COMMITMENT AND CONTINGENCY (Note 4)                                            
                                                                               
PARTNERS' EQUITY                                                               
 General partners                                                               2,493           1,793       
 Limited partners                                                           2,574,497       2,505,239       
 Unrealized gain(loss) on investment securities                                 3,096          11,246       
                                                                           ----------      ----------       
                                                                            2,580,086       2,518,278       
                                                                           ----------      ----------       
                                                                           $7,904,343      $7,214,881       
                                                                           ==========      ==========       
</TABLE>

Note: The Condensed Balance Sheet at December 31, 1995 has been taken from the 
      audited financial statements at that date.  See Notes to Condensed 
      Financial Statements.


<PAGE>   3

                                                                              3

                YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                      CONDENSED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>                                      
                                      Three Months Ended             Nine Months Ended
                                         September 30,                  September 30,
                                     --------------------           --------------------
                                     1996            1995           1996            1995
                                     ----            ----           ----            ----
                                         (Unaudited)                    (Unaudited)
<S>                                  <C>         <C>                <C>         <C>
Rental income                        $276,205    $280,397           $874,005    $891,472
                                                    
Operating expenses:                                 
 Wages and contract labor               4,008      11,690             12,881      32,257
 Depreciation and amortization         45,851      45,063            136,987     134,718       
 Repairs and maintenance               35,378      35,286            100,066      99,475       
 Management fees                       12,783      11,073             35,310      34,592       
 Utilities                             43,247      42,297            114,820     116,862       
 Professional fees                      5,675      13,687             28,089      52,107       
 Property taxes                        22,020      22,095             66,060      66,905       
 Miscellaneous                          3,366       8,572             13,205      23,464       
                                     --------    --------           --------    --------                                       
                                      172,328     189,763            507,418     560,380       
                                     --------    --------           --------    --------      
        Operating income              103,877      90,634            366,587     331,092       
                                     --------    --------           --------    --------      
Nonoperating income (expense):                                         
 Interest and dividend income           4,396       2,505             11,092       6,233
 Interest expense                    (102,306)   (105,236)          (309,606)   (317,421)    
 Other                                  1,885           0              1,885      (5,409)     
                                     --------    --------           --------    --------      
                                     (96,025)    (102,731)          (296,629)   (316,597)     
                                     --------    --------           --------    --------      
        Net income                      7,852     (12,097)            69,958      14,495     
                                     ========    ========           ========    ========                         
        Net income per limited                                                 
          partnership unit           $   1.23    $  (1.90)          $  10.98    $   2.28      
                                     ========    ========           ========    ========      
</TABLE>
                                                                           
See Notes to Condensed Financial Statements.


<PAGE>   4

                                                                             4
                YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                      CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                            Nine Months Ended
                                                                              September 30,
                                                                           -------------------
                                                                           1996           1995
                                                                           ----           ----
                                                                               (Unaudited)
<S>                                                                        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                 $ 69,958   $ 14,495
 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                            136,987    134,718
   (Gain) Loss on sale of securities available for sale                      (1,884)     5,409
 Change in assets and liabilities:                                                      
    Decrease (Increase) in prepaids, deferrals and                            6,460    (27,343)                    
      other receivables                                                                                            
   (Decrease) increase in accounts payable and accrued expenses              (1,785)     5,470                     
                                                                           --------   --------                             
        Net cash provided by operating activities                           209,736    132,749                     
                                                                           --------   --------                             
CASH FLOWS FROM INVESTING ACTIVITIES                                                                               
 Sale of securities available for sale                                       15,685    105,152                     
 Purchase of securities available for sale                                  (59,759)  (148,804)                    
 Disbursements for deferred leasing commissions                             -----       (3,138)                    
 Improvements in investment property                                       (840,509)   (59,746)                    
                                                                           --------   --------                             
        Net cash (used) in investing activities                            (884,583)  (106,536)                    
                                                                                                                   
CASH FLOWS FROM FINANCING ACTIVITIES                                                                               
 Principal payments on long-term borrowings                                 (93,261)   (86,140)                    
 Proceeds from note payable                                                 722,700     -----                      
                                                                           --------   --------                             
        Net cash provided (used) in financing activities                    629,439    (86,140)                    
                                                                                                                   
        Net (decrease) in cash and cash equivalents                         (45,408)   (59,927)                    
                                                                                                                   
Cash and cash equivalents:                                                                                         
 Beginning                                                                  139,930    107,906                     
                                                                           --------   --------                                     
 Ending                                                                    $ 94,522   $ 47,979                     
                                                                           ========   ========
</TABLE>


See Notes to Condensed Financial Statements.


<PAGE>   5





                 YAGER/KUESTER PUBLIC FUND  LIMITED PARTNERSHIP
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)



1.  Nature of Business:

    The Partnership was formed in July 1986 to acquire, operate, hold for
    investment and sell real estate.  The two properties currently owned are the
    UCB Building in Greenville, South Carolina, and the EastPark Executive
    Center in Charlotte, North Carolina.

2.  Opinion of Management:

    In the opinion of management, the accompanying unaudited condensed financial
    statements contain all adjustments (all which were normal recurring
    accruals) necessary for a fair presentation.  The results of operations for
    the interim periods are not necessarily indicative of the results which may
    be expected for an entire year.

3.  Statement of Cash Flows:

    For purposes of reporting the statements of cash flows, the Limited
    Partnership includes all cash accounts, which are not subject to withdrawal
    restrictions or penalties, and all highly liquid debt instruments purchased
    with a maturity of three months or less as cash and cash equivalents on the
    accompanying condensed balance sheets.

4.  Priority Return:

    At December 31, 1995, the cumulative unpaid priority return to the unit
    holders was $1,681,265 compared to $1,438,481 one year prior. This increase
    resulted from no distributions being made to partners during the year and
    the pro rata share due partners pursuant to the Limited Partnership
    Agreement.  Based on the current and projected commercial real estate market
    conditions, the General Partners believe that it is reasonably unlikely that
    a sale of the Partnership properties would produce net sale proceeds
    sufficient to pay the priority return. Furthermore, the General Partners
    believe that it is reasonably unlikely that the Partnership's operating
    income or any refinancing of Partnership debt would generate sufficient
    funds to pay any portion of the priority return.



                                      5
<PAGE>   6



                 YAGER/KUESTER PUBLIC FUND  LIMITED PARTNERSHIP
          MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS



Changes in financial condition

There have not been any significant changes in financial condition from
December 31, 1995 to September 30, 1996, except for the additional draw on the
increased line of credit of approximately $722,000 (see "Liquidity and Capital
Resources" below). Accrued expenses, as well as cash and cash equivalents, have
decreased from year end due to the payment of the 1995 real property taxes in
January 1996.  The Partnership continues to accrue monthly for the 1996 real
property taxes to be paid in January 1997; therefore accrued expenses will
continue to increase each quarter of 1996.

Liquidity and Capital Resources

During the quarter ended September 30, 1996, the Partnership continued to fund
working capital requirements, although the working capital deficit increased
from ($3,229,255) at December 31, 1995 to ($3,959,850) at September 30, 1996.
This significant working capital deficiency is primarily a result of the
reclassification of the UCB building debt from long-term debt to current
liabilities due to the balloon payment of approximately $2,817,000 in December
1996. The General Partners have secured a written commitment from First Union
Bank of North Carolina to refinance this loan.  The refinancing will be in the
form of a line of credit for $2,840,000, repayable in monthly payments of
accrued interest only until December 31, 1997 when all remaining principal and
interest shall be due.  If the UCB building is not sold by this time (See
"Status of Sales Efforts"  below), the loan can be renewed for an additional
year to expire on December 31, 1998. An increase in current liabilities can
also be attributed to an additional line of credit secured by the Partnership
in connection with the upfitting costs of the GSA space at the EastPark
Executive Center, of which $942,483 was outstanding at September 30, 1996.  In
April 1996, the General Partners were able to secure an increase in this line
of credit from $750,000 to $1,000,000 to cover substantially all of the GSA
upfit costs. This line of credit matures on April 1997.  The  upfitting of the
GSA space is scheduled for completion in October 1996.  The final estimate of
costs on the upfit are approximately $1,130,000.  The additional cost of the
upfit was funded out of current operating funds. No distributions were paid to
the limited partners this quarter, resulting in an increase to their cumulative
unpaid priority return. (See note 4 of the condensed financial statements.)


Results of operations

Net income from operations for the nine months ended September 30, 1996 is up
approximately $35,000 compared to the same period of the prior year.  Rental
income decreased by approximately $17,000 primarily due to the decrease in CAM
reimbursements provided to the Metropolitan Life Insurance Company at the UCB
facility.  Operating expenses for the first nine months of 1996 are down by
approximately $52,000.  This is primarily due to the decrease in expenses
relating to professional fees and contract labor.  These same factors can be
attributed to the decrease in expenses for the quarter ended September 30,
1996.  Occupancy rates are currently 96% at the UCB building and 95% at the
EastPark building.

Status of Sales Efforts; Future Matters

The General Partners entered into separate listing agreements for both
properties with a Charlotte-based commercial real estate broker at the
beginning of the third quarter.  The General Partners believe that the focus of
the Partnership should be towards selling the two Partnership properties
separately now that the GSA upfit at the EastPark Executive Center is almost
complete.








                                      6

<PAGE>   7





PART II.   OTHER INFORMATION


<TABLE>
<S>      <C>
Item 1.  Legal Proceedings
         -----------------

         The Partnership is not engaged in any legal proceedings of a material 
         nature at the present time.

Item 6.  Exhibit Index
         -------------

         (a)  Exhibits:

</TABLE>

<TABLE>
<CAPTION>

         Designation
         Number Under
Exhibit  Item 601 of                                                                                         Page
Number   Regulation S-K  Exhibit Description                                                                 Number
-------  --------------  -------------------                                                                 ------
  <S>         <C>        <C>                                                                                   <C>
  1.          4          Instrument defining rights of security holders - set forth in the
                         Limited Partnership Agreement which is contained in the

                         Prospectus of the Partnership, dated December 1, 1987,
                         Registration Number 33-07056-A (hereinafter "Prospectus")
                         and incorporated herein by reference.

  2.          10         Limited Partnership Agreement - contained in the Prospectus
                         incorporated herein by reference.

  3.          10.1       Listing Agreement of Property for Sale-United Carolina Bank Building -
                         attached on Partnership's 10-Q filed on August 14, 1996.


  4.          10.2       Listing Agreement of Property for Sale-EastPark Executive Center -
                         attached on Partnership's 10-Q filed on August 14, 1996.


  5.          10.3       Loan Commitment Agreement with First Union National Bank
                         of  North Carolina for refinancing of the UCB Building.                               9
</TABLE>


         (b)  Reports on Form 8-K:

         No reports on Form 8-K have been filed during the three months ended
         September 30, 1996.





                                      7

<PAGE>   8


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      YAGER/KUESTER PUBLIC FUND
                                      LIMITED PARTNERSHIP
                                      (Registrant)


                                      By: DRY Limited Partnership,
                                      General Partner of Registrant


Date  11/13/96                        By: /s/ Dexter R. Yager, Sr.
      ----------------                    ------------------------------
                                              Dexter R. Yager, Sr.
                                              General Partner

Date  11/13/96                        By: /s/ Alison L. Hawk
      ----------------                    ------------------------------
                                              Alison L. Hawk
                                              Controller





                                      8