<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, 1997

                                       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 Identification Number)
incorporation or organization)

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 16 pages. The Exhibit Index is located on page 7.



<PAGE>   2


PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


                 YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                            September 30,      December 31,
                                                               1997                1996
                                                            -------------      ------------
                                                             (Unaudited)          (Note)
<S>                                                         <C>                <C>       
   ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                  $   85,186         $  103,036
 Accounts receivable, tenant                                    44,347             91,224
 Prepaid expenses                                                4,326              2,200
 Securities available for sale                                 230,916            190,380
                                                            ----------         ----------

        Total current assets                                   364,775            386,840
                                                            ----------         ----------

INVESTMENTS AND NONCURRENT RECEIVABLES
 Properties on operating leases and properties held
   for lease, net of accumulated depreciation
   1997 $1,422,409;  1996 $1,244,020                         7,214,338          7,371,229
 Accrued rent receivable                                        34,370             44,785

OTHER ASSETS
 Deferred charges, net of accumulated amortization
   1997 $17,732; 1996 $11,282                                    4,368             10,818
 Deferred leasing commissions, net of accumulated
   amortization 1997 $42,042; 1996 $31,476                      43,876             50,435
                                                            ----------         ----------

                                                            $7,661,727         $7,864,107
                                                            ==========         ==========
   LIABILITIES AND PARTNERS' EQUITY

CURRENT LIABILITIES
 Note payable, bank                                         $1,000,000         $  942,483
 Current maturities of long-term debt                           59,049             68,868
 Accounts payable                                               40,604            109,107
 Accrued expenses                                              105,591            131,312
                                                            ----------         ----------

        Total current liabilities                            1,205,244          1,251,770
                                                            ----------         ----------

LONG-TERM DEBT, less current maturities                      3,949,835          4,059,909
                                                            ----------         ----------

COMMITMENT AND CONTINGENCY (Note 4)

PARTNERS' EQUITY
 General partners                                                1,735              2,199
 Limited partners                                            2,499,454          2,545,393
 Unrealized gain on investment securities                        5,459              4,836
                                                            ----------         ----------

                                                             2,506,648          2,552,428
                                                            ----------         ----------

                                                            $7,661,727         $7,864,107
                                                            ==========         ==========

</TABLE>

Note:    The Condensed Balance Sheet at December 31, 1996 has been taken from
         the audited financial statements at that date. See Notes to Condensed
         Financial Statements.

                                       2
<PAGE>   3





                  YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                       CONDENSED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                            Three Months Ended                     Nine Months Ended
                                               September 30,                         September 30,
                                       ----------------------------          -----------------------------
                                          1997               1996               1997               1996
                                       ---------          ---------          ---------          ---------
                                                (Unaudited)                          (Unaudited)
<S>                                    <C>                <C>                <C>                <C>      
Rental income                          $ 288,726          $ 276,205          $ 868,308          $ 874,005

Operating expenses:
 Wages and contract labor                  3,300              4,008             23,953             12,881
 Depreciation and amortization            65,145             45,851            195,405            136,987
 Repairs and maintenance                  44,069             35,378            124,938            100,066
 Management fees                           8,760             12,783             31,323             35,310
 Utilities                                46,433             43,247            120,730            114,820
 Professional fees                        11,990              5,675             31,947             28,089
 Property taxes                           22,095             22,020             66,285             66,060
 Miscellaneous                             3,648              3,366             14,212             13,205
                                       ---------          ---------          ---------          ---------

                                         205,440            172,328            608,793            507,418
                                       ---------          ---------          ---------          ---------

        Operating income                  83,286            103,877            259,515            366,587
                                       ---------          ---------          ---------          ---------

Nonoperating income (expense):
 Interest and dividend income              5,439              4,396             12,452             11,092
 Interest expense                       (107,477)          (102,306)          (319,757)          (309,606)
 Other                                       502              1,885              1,387              1,885
                                       ---------          ---------          ---------          ---------

                                        (101,536)           (96,025)          (305,918)          (296,629)
                                       ---------          ---------          ---------          ---------

        Net income                     $ (18,250)         $   7,852          $ (46,403)         $  69,958
                                       =========          =========          =========          =========

        Net income per limited
          partnership unit             $   (2.87)         $    1.23          $   (7.28)         $   10.98
                                       =========          =========          =========          =========

</TABLE>

See Notes to Condensed Financial Statements.

                                       3
<PAGE>   4



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



<TABLE>
<CAPTION>
                                                                        Nine Months Ended
                                                                          September 30,
                                                                 ----------------------------
                                                                    1997               1996
                                                                 ---------          ---------
                                                                          (Unaudited)
<S>                                                              <C>                <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                       $ (46,403)         $  69,958
 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                   195,405            136,987
   Gain on sale of securities available for sale                    (1,387)            (1,884)
 Change in assets and liabilities:
    Decrease in prepaids, deferrals and                             55,166              6,460
      other receivables
   (Decrease) in accounts payable and accrued expenses             (94,224)            (1,785)
                                                                 ---------          ---------

        Net cash provided by operating activities                  108,557            209,736
                                                                 ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Sale of securities available for sale                             170,881             15,685
 Purchase of securities available for sale                        (209,408)           (59,759)
 Improvements in investment property                               (21,497)          (840,509)
 Disbursements for deferred leasing commissions                     (4,007)              --
                                                                 ---------          ---------

        Net cash (used) in investing activities                    (64,031)          (884,583)

CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payments on long-term borrowings                       (119,893)           (93,261)
 Proceeds from note payable                                         57,517            722,700
                                                                 ---------          ---------

        Net cash (used) provided in financing activities           (62,376)           629,439

        Net (decrease) in cash and cash equivalents                (17,850)           (45,408)

Cash and cash equivalents:
 Beginning                                                         103,036            139,930
                                                                 ---------          ---------

 Ending                                                          $  85,186          $  94,522
                                                                 =========          =========

</TABLE>

See Notes to Condensed Financial Statements.


                                       4
<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 BB&T Building (formerly 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, 1996, the cumulative unpaid priority return to the unit
      holders was $1,924,049 compared to $1,681,265 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, 1996 to September 30, 1997. Accounts receivable has decreased since year end
due to the receipt of payment from the GSA for certain reimburseable items on
their upfit at the EastPark facility. Accrued expenses, as well as cash and cash
equivalents, have decreased from year end due to the payment of the 1996 real
property taxes in January 1997. The Partnership continues to accrue monthly for
the 1997 real property taxes to be paid in January 1998; therefore accrued
expenses will continue to increase each quarter of 1997. In the third quarter,
approximately $17,000 was expended for capital improvements. These capital
expenditures included parking lot improvements at both the EastPark and Branch,
Banking & Trust facility (formerly the UCB facility).


Liquidity and Capital Resources

During the quarter ended September 30, 1997, the Partnership continued to fund
working capital requirements, and the working capital deficit was reduced by
approximately $24,000 from December 31, 1996. The $1,000,000 line of credit with
First Union which was due and payable on April 30, 1997, was renewed on similar
terms for an additional year. 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 consolidated financial statements.)


Results of Operations

Net income from operations for the nine months ended September 30, 1997 is down
approximately $107,000 compared to the same period of the prior year. Net income
from operations for the third quarter is also down as compared to the same
period of the prior year by approximately $20,000. Rental income for the third
quarter is up $12,500 as compared to the same period of the prior year but
overall is down by $5,697 for the year. This decrease is primarily due to the
decrease in common area maintenance ("CAM") charges as provided in the leases at
the BB&T building. Operating expenses for the first nine months of 1997 are up
by approximately $101,000. This is primarily due to the increase in depreciation
expense as a result of the completion and capitalization of the IRS upfit at the
EastPark Executive Center. Expenses relating to repairs and maintenance are also
up for the year. These same factors also accounted for the increase in expenses
for the quarter ended September 30, 1997. Occupancy rate is currently 100% at
the BB&T building and 98% at the EastPark building.


Status of Sales/Leasing Efforts; Future Matters

The General Partners earlier this year decided to focus efforts on lengthening
the leases with the current tenants. To facilitate in these efforts, the General
Partners have executed a one-year listing agreement with a Charlotte-based real
estate broker. The General Partners believe that longer-term leases would
support a higher asking price for the facilities than would be the case with
short-term leases. The Partnership is currently in negotiation with BB&T
(successor to UCB) regarding an extension of the bank's lease at the BB&T
facility.


                                       6
<PAGE>   7


PART II.   OTHER INFORMATION

               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>
<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

                 2*           10            Limited Partnership Agreement

                 3**          10.1          Exclusive Leasing and Management Agreement
                                            dated October 1, 1994
                                            (EastPark Executive Center)

                 4**          10.2          Exclusive Leasing and Management Agreement
                                            dated October 1, 1994
                                            (Branch, Banking & Trust Building)

                 5            10.3          Listing Agreement of Property For Lease 
                                            and/or Sale (Branch, Banking & Trust Building)     9

                 6            10.4          Listing Agreement of Property For Lease 
                                            and/or Sale (EastPark Executive Center)           13

                 7            27            Financial Data Schedule 
                                            (for SEC use only)
</TABLE>


                           (b) Reports on Form 8-K:

                               No reports on Form 8-K have been filed during the
                               three months ended September 30, 1997.



*   Incorporated by reference to Exhibit A of the Partnership's Prospectus
    dated December 1, 1987, Registration Number 33-07056-A.

**  Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form
    10-K for the year ended December 31, 1995.



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<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    11/12/97                             By: /s/ Dexter R. Yager, Sr.
     --------------                              -------------------------------
                                                 Dexter R. Yager, Sr.
                                                 General Partner

Date    11/12/97                             By: /s/ Jerry R. Haynes
     --------------                              -------------------
                                                 Jerry R. Haynes
                                                 Chief Financial Officer






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