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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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, 1998

                                       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)

1300 Altura Road       Fort Mill,  South Carolina     29715-9201
--------------------------------------------------------------------------------
(Address of principal executive office)               (Zip code)

                                 (803) 547-9100
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

         (Former Address: 12201 Steele Creek Road, Charlotte, NC 28273)

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.


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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements




                  YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                           September 30,        December 31,
                                                                1998                1997
                                                            -----------          ----------
                                                            (Unaudited)             (Note)
<S>                                                         <C>                  <C>       
                                     ASSETS

CURRENT ASSETS
 Cash and cash equivalents                                  $    74,817          $   92,544
 Accounts receivable, tenant                                     38,325              38,196
 Prepaid expenses                                                 4,483               7,053
 Securities available for sale                                  130,500             267,629
                                                            -----------          ----------

        Total current assets                                    248,125             405,422
                                                            -----------          ----------

INVESTMENTS AND NONCURRENT RECEIVABLES
 Properties on operating leases and properties held
   for lease, net of accumulated depreciation
   1998 $815,582;  1997 $1,482,902                            3,600,686           7,155,595
 Accrued rent receivable                                           --                29,683

OTHER ASSETS
 Deferred charges, net of accumulated amortization
   1998 $13,315; 1997 $12,190                                     1,685               2,810
 Deferred leasing commissions, net of accumulated
   amortization 1998 $23,749; 1997 $45,826                       21,734              40,092
                                                            -----------          ----------

                                                            $ 3,872,230          $7,633,602
                                                            ===========          ==========

   LIABILITIES AND PARTNERS' EQUITY

CURRENT LIABILITIES
 Note payable, bank                                         $   500,000          $1,000,000
 Current maturities of long-term debt                         1,160,043           2,834,990
 Accounts payable                                                 3,144              14,423
 Accrued expenses                                                47,777             137,552
                                                            -----------          ----------

        Total current liabilities                             1,710,964           3,986,965
                                                            -----------          ----------

LONG-TERM DEBT, less current maturities                               0           1,145,441
                                                            -----------          ----------

COMMITMENT AND CONTINGENCY (Note 4)

PARTNERS' EQUITY
 General partners                                                (1,602)              1,684
 Limited partners                                             2,169,088           2,494,411
 Unrealized gain on investment securities                        (6,220)              5,101
                                                            -----------          ----------

        Total partner's equity                                2,161,266           2,501,196
                                                            -----------          ----------

                                                            $ 3,872,230          $7,633,602
                                                            ===========          ==========
</TABLE>


Note:    The Condensed Balance Sheet at December 31, 1997 has been taken from
         the audited financial statements at that date. See Notes to Condensed
         Financial Statements.


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<PAGE>   3

                  YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                       CONDENSED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                       Three Months Ended                     Nine Months Ended
                                                           September 30,                        September 30,
                                                   ----------------------------          ----------------------------
<S>                                                   <C>                <C>                <C>                <C> 
                                                      1998               1997               1998               1997
                                                   ---------          ---------          ---------          ---------
                                                           (Unaudited)                           (Unaudited)

<S>                                                <C>                <C>                <C>                <C>      
Rental income                                      $ 125,755          $ 288,726          $ 559,530          $ 868,308

Operating expenses:
 Wages and contract labor                              1,575              3,300              6,975             23,953
 Depreciation and amortization                        39,416             65,145            180,559            195,405
 Repairs and maintenance                              27,733             44,069            107,519            124,938
 Management fees                                       3,769              8,760             17,571             31,323
 Utilities                                            25,030             46,433             91,099            120,730
 Professional fees                                    10,363             11,990             59,541             31,947
 Property taxes                                        9,318             22,095             44,425             66,285
 Miscellaneous                                           969              3,648             10,607             14,212
                                                   ---------          ---------          ---------          ---------

                                                     118,173            205,440            518,296            608,793
                                                   ---------          ---------          ---------          ---------

        Operating income                               7,582             83,286             41,234            259,515
                                                   ---------          ---------          ---------          ---------

Nonoperating income (expense):
 Interest and dividend income                          2,985              5,439             13,818             12,452
 Interest expense                                    (41,555)          (107,477)          (207,879)          (319,757)
 Other                                                (1,012)               502                198              1,387
 Loss on sale of properties held for lease              (268)              --             (175,980)              --
                                                   ---------          ---------          ---------          ---------

                                                     (39,850)          (101,536)          (369,843)          (305,918)
                                                   ---------          ---------          ---------          ---------

        Net income                                 $ (32,268)         $ (18,250)         $(328,609)         $ (46,403)
                                                   =========          =========          =========          =========

        Net income per limited
          partnership unit                         $   (5.07)         $   (2.87)         $  (51.59)         $   (7.28)
                                                   =========          =========          =========          =========
</TABLE>


See Notes to Condensed Financial Statements.


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<PAGE>   4


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



<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                         September 30,
                                                                 ------------------------------
                                                                     1998               1997
                                                                 -----------          ---------
                                                                           (Unaudited)
<S>                                                              <C>                  <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                       $  (328,609)         $ (46,403)
 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                     180,559            195,405
   (Gain) on sale of securities available for sale                      (198)            (1,387)
   Loss on sale of properties held for lease                         175,980               --
 Change in assets and liabilities:
  Decrease in prepaids, deferrals and                                 32,124             55,166
      other receivables
  (Decrease) in accounts payable and accrued expenses               (101,054)           (94,224)
                                                                 -----------          ---------

        Net cash (used) provided by operating activities             (41,198)           108,557
                                                                 -----------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Sale of securities available for sale                               461,782            170,881
 Purchase of securities available for sale                          (335,776)          (209,408)
 Proceeds from sale of properties held for lease                   3,240,946               --
 Improvements in investment property                                  (2,659)           (21,497)
 Disbursements for deferred leasing commissions                      (20,434)            (4,007)
                                                                 -----------          ---------

        Net cash provided (used) in investing activities           3,343,859            (64,031)

CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payments on long-term borrowings                       (3,320,388)          (119,893)
 Proceeds from note payable                                             --               57,517
                                                                 -----------          ---------

        Net cash (used) in financing activities                   (3,320,388)           (62,376)

        Net (decrease) in cash and cash equivalents                  (17,727)           (17,850)

Cash and cash equivalents:
 Beginning                                                            92,544            103,036
                                                                 -----------          ---------

 Ending                                                          $    74,817          $  85,186
                                                                 ===========          =========
</TABLE>


See Notes to Condensed Financial Statements.



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<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 Partnership currently owns the
         EastPark Executive Center in Charlotte, North Carolina. On April 24,
         1998, the Partnership sold the BB&T building facilities (formerly the
         UCB building) in Greenville, South 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, 1997, the cumulative unpaid priority return to the unit
         holders was $2,166,833 compared to $1,924,049 one year prior. This
         increase resulted from no distributions being made to partners during
         the year. 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 remaining Partnership property would
         produce net sale proceeds sufficient to pay any of such 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.



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<PAGE>   6


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



Changes in Financial Condition

As a result of the sale of the BB&T building (See "Results of Operations"
below), properties held for lease as well as total long-term debt has decreased
since year end. The long-term portion of the debt has been reclassified to
current maturities, as this loan on the EastPark facility matures on June 30,
1999 (See "Liquidity and Capital Resources" below). The Partnership continues to
accrue monthly for the 1998 real property taxes to be paid in January 1999;
therefore accrued expenses will continue to increase each quarter of 1998.


Liquidity and Capital Resources

During the quarter ended September 30,1998, the Partnership continued to fund
working capital requirements, and the working capital deficit was reduced by
$2,118,704 from December 31,1997. This reduction in the working capital deficit
is mainly attributable to the use of the proceeds from the sale of the BB&T
Building to payoff the First Union note on this property as well as to pay down
$500,000 on the First Union line of credit for the upfit of the EastPark
facility. The two loans on the EastPark facility mature on June 30, 1999. The
General Partners are not considering refinance options at this time, in the
anticipation of a sale before the maturity date. The General Partners believe
that refinancing on acceptable terms could be obtained if the EastPark Facility
was not sold before the maturity dates. 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, 1998 is down
approximately $282,000 compared to the same period of the prior year. The main
factor for this decrease is the $175,000 loss on the sale of the BB&T building
in April. Net income form operations for the third quarter is down as compared
to the same period of the prior year by approximately $14,000. Rental revenue is
down $163,000 for the third quarter and operating expenses for the third quarter
of 1998 are down by approximately $88,000, all of which relate to the
disposition of the BB&T building. The occupancy rate at the EastPark facility is
currently 80.2%. A lease signed in the third quarter for approximately 3,800
square feet will bring the occupancy to 90%. This three-year lease will commence
in January 1999, with an initial rental per square foot of $13.80 escalating to
$14.64 in year three. As a condition of the lease, approximately $40,000 in
upfit costs will be incurred.


Status of East Park Facility

The General Partners are continuing to focus on selling the EastPark facility
and continue to have it listed with a Charlotte-based real estate broker. The
General Partners are also working on increasing the occupancy at EastPark (See
"Results of Operations" above). The General Partners believe that the higher
occupancy would support a higher asking price for the EastPark facility.



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<PAGE>   7


Risks Associated with Year 2000

The Partnership, in its day to day operations, relies upon various computer
software and hardware that may be adversely affected by the change in the
millennium, from 1999 to 2000. In general, information systems experts have
predicted that a wide variety of problems, from systems failures to data entry
and transfer errors, will result from the turn of the century. Repeated systems
failures, data entry and transfer errors and similar computer problems would
result in a material adverse effect on the Partnership and its operations.
However, the Partnership has examined its computer hardware and software and,
based on such examination, does not reasonably anticipate any significant
internal problems as a result of the change in millennium. The Partnership may,
however, be materially and adversely affected by external systems problems,
problems over which the Partnership has minimal control.



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:

                   Designation
                   Number Under
       Exhibit     Item 601 of                                             Page
       Number      Regulation S-K     Exhibit Description                 Number
       ------      --------------     -------------------                 ------

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

         5                27          Financial Data Schedule (for SEC use only)


           (b) Reports on Form 8-K:

                      No reports on Form 8-K have been filed during the three
                      months ended September 30, 1998.

----------

*   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 of the Partnership's Form 10-K for
    the year ended December 31, 1995.

*** Incorporated by reference to Exhibit 4 of the Partnership's Form 10-Q for
    the quarter ended September 30, 1997.



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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     11/13/98                  By: /s/ Dexter R. Yager, Sr.
                                       ---------------------------------
                                           Dexter R. Yager, Sr.
                                           General Partner

Date      11/13/98                 By: /s/ Jerry R. Haynes
                                       ---------------------------------
                                           Jerry R. Haynes
                                           Chief Financial Officer



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