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                                  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 June 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 
 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 8 pages. The Exhibit Index is located on page 7.


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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements



                  YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                             June 30,         December 31,
                                                               1997               1996
                                                            ----------         ----------
   ASSETS                                                   (Unaudited)          (Note)

CURRENT ASSETS
<S>                                                         <C>                <C>       
 Cash and cash equivalents                                  $   76,336         $  103,036
 Accounts receivable, tenant                                    26,028             91,224
 Prepaid expenses                                                4,766              2,200
 Securities available for sale                                 189,031            190,380
                                                            ----------         ----------

        Total current assets                                   296,161            386,840
                                                            ----------         ----------

INVESTMENTS AND NONCURRENT RECEIVABLES
 Properties on operating leases and properties held
   for lease, net of accumulated depreciation
   1997 $1,363,048;  1996 $1,244,020                         7,256,815          7,371,229
 Accrued rent receivable                                        38,536             44,785

OTHER ASSETS
 Deferred charges, net of accumulated amortization
   1997 $15,582; 1996 $11,282                                    6,518             10,818
 Deferred leasing commissions, net of accumulated
   amortization 1997 $38,409; 1996 $31,476                      47,509             50,435
                                                            ----------         ----------

                                                            $7,645,539         $7,864,107
                                                            ==========         ==========

   LIABILITIES AND PARTNERS' EQUITY

CURRENT LIABILITIES
 Note payable, bank                                         $1,000,000         $  942,483
 Current maturities of long-term debt                           58,029             68,868
 Accounts payable                                                4,745            109,107
 Accrued expenses                                               81,982            131,312
                                                            ----------         ----------

        Total current liabilities                            1,144,756          1,251,770
                                                            ----------         ----------

LONG-TERM DEBT, less current maturities                      3,978,969          4,059,909
                                                            ----------         ----------

COMMITMENT AND CONTINGENCY (Note 4)

PARTNERS' EQUITY
 General partners                                                1,918              2,199
 Limited partners                                            2,517,522          2,545,393
 Unrealized gain on investment securities                        2,374              4,836
                                                            ----------         ----------

                                                             2,521,814          2,552,428
                                                            ----------         ----------

                                                            $7,645,539         $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.



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<PAGE>   3



                  YAGER/KUESTER PUBLIC FUND LIMITED PARTNERSHIP
                       CONDENSED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                              Three Months Ended                    Six Months Ended
                                                   June 30,                             June 30,
                                       ----------------------------          ----------------------------
                                          1997               1996               1997               1996
                                       ---------          ---------          ---------          ---------
                                               (Unaudited)                            (Unaudited)

<S>                                    <C>                <C>                <C>                <C>      
Rental income                          $ 284,510          $ 280,337          $ 579,582          $ 597,800

Operating expenses:
 Wages and contract labor                 14,530              4,307             20,653              8,873
 Depreciation and amortization            65,223             45,678            130,260             91,136
 Repairs and maintenance                  44,347             35,204             80,869             64,688
 Management fees                          11,355             11,143             22,563             22,527
 Utilities                                35,872             36,137             74,297             71,573
 Professional fees                         8,756              4,892             19,957             22,414
 Property taxes                           22,095             22,020             44,190             44,040
 Miscellaneous                             5,425              4,355             10,564              9,839
                                       ---------          ---------          ---------          ---------

                                         207,603            163,736            403,353            335,090
                                       ---------          ---------          ---------          ---------

        Operating income                  76,907            116,601            176,229            262,710
                                       ---------          ---------          ---------          ---------

Nonoperating income (expense):
 Interest and dividend income              1,865              3,786              7,013              6,696
 Interest expense                       (107,012)          (103,073)          (212,280)          (207,300)
 Other                                        59               --                  885               --
                                       ---------          ---------          ---------          ---------

                                        (105,088)           (99,287)          (204,382)          (200,604)
                                       ---------          ---------          ---------          ---------

        Net income                     ($ 28,181)         $  17,314          ($ 28,153)         $  62,106
                                       =========          =========          =========          =========

        Net income per limited
          partnership unit             ($   4.42)         $    2.72          ($   4.42)         $    9.75
                                       =========          =========          =========          =========
</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>
                                                                       Six Months Ended
                                                                           June 30,
                                                                 ----------------------------
                                                                    1997               1996
                                                                 ---------          ---------
                                                                         (Unaudited)
<S>                                                              <C>                <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                       ($ 28,153)         $  62,106
 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                   130,260             91,136
   Gain on sale of securities available for sale                      (885)              --
 Change in assets and liabilities:
    Decrease (Increase) in prepaids, deferrals and                  68,879            (36,939)
      other receivables
   (Decrease) in accounts payable and accrued expenses            (153,692)           (90,596)
                                                                 ---------          ---------

        Net cash provided by operating activities                   16,409             25,707
                                                                 ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Sale of securities available for sale                             116,119               --
 Purchase of securities available for sale                        (116,346)              --
 Improvements in investment property                                (4,613)          (679,371)
 Disbursements for deferred leasing commissions                     (4,007)              --
                                                                 ---------          ---------

        Net cash provided (used) in investing activities            (8,847)          (679,371)

CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payments on long-term borrowings                        (91,779)           (67,633)
 Proceeds from note payable                                         57,517            665,200
                                                                 ---------          ---------

        Net cash (used) provided in financing activities           (34,262)           597,567

        Net (decrease) in cash and cash equivalents                (26,700)           (56,097)

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

 Ending                                                          $  76,336          $  83,833
                                                                 =========          =========
</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 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, 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.


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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

There have not been any significant changes in financial condition from December
31, 1996 to June 30, 1997. Accounts receivable has decreased since year end due
to the receipt of payment from the IRS for certain reimburseable items on their
upfit. 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.


Liquidity and Capital Resources

During the quarter ended June 30, 1997, the Partnership continued to fund
working capital requirements, and the working capital deficit was reduced by
approximately $16,300 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 is down for the first quarter of 1997 compared to the same period of
the prior year by approximately $90,200. Rental income, as compared to the prior
year, is down by $18,000. This decrease is primarily due to the decrease in
common area maintenance ("CAM") charges as provided in the leases at the UCB
building. Operating expenses for the first six months of 1997 are up by
approximately $68,000. 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 can be attributed to the increase in
expenses for the quarter ended June 30, 1997. Occupancy rate is currently 100%
at the UCB building and 98% at the EastPark building.


Status of Sales Efforts; Future Matters

The General Partners at this time have decided not to renew the listing
agreements with the Charlotte-based real estate broker in order to focus efforts
on lengthening the leases with the current tenants. The General Partners believe
that if longer-term leases are obtained, possibilities would be greater in
obtaining the current asking price of the facilities.

The General Partners agreed to an amendment of the management agreement with FSK
Properties, f/k/a Kuester Properties. (FSK Properties is an affiliate of FSK
Limited, one of the General Partners). Per the agreement, responsibilities of
FSK Properties will be to focus on management of the properties and also
participation in the leasing and selling efforts. FSK Properties would perform
these duties at a reduced management fee of 3%. Financial management and
accounting will be provided by ISC Management, a division of Internet Services
Corporation, at a fee based upon actual time expended. (Interest Services
Corporation is an affiliate of Dry Limited, one of the General Partners).



                                       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
               ------      --------------   -------------------                                                    ------

                 <C>            <C>         <S>                                                                      <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
                                            (United Carolina Bank Building)

                 5             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 June 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    08/14/97               By: /s/ Dexter R. Yager, Sr.
     -------------------------     ---------------------------------------
                                   Dexter R. Yager, Sr.
                                   General Partner


Date    08/14/97               By: /s/ Jerry R. Haynes
     -------------------------     ---------------------------------------
                                   Jerry R. Haynes
                                   Chief Financial Officer




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