UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                       ----------------------------------

                                    FORM 10-Q

           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                    For the transition period from________ to ______.

                         Commission File Number: 0-17150

                PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
                -------------------------------------------
          (Exact name of registrant as specified in its charter)

              Texas                                           76-0147579
              -----                                           ----------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification No.)

265 Franklin Street, Boston, Massachusetts                       02110
------------------------------------------                       -----
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code  (617) 439-8118
                                                    --------------

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|_|.

<PAGE>

                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                           CONSOLIDATED BALANCE SHEETS
                September 30, 1997 and March 31, 1997 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                               September 30     March 31
                                               ------------     --------

Operating investment properties:
   Land                                         $  18,190      $  18,190
   Buildings and improvements                      77,896         77,896
                                                ---------      ---------
                                                   96,086         96,086
   Less accumulated depreciation                  (29,383)       (28,077)
                                                 ---------      ---------
                                                   66,703         68,009

Cash and cash equivalents                           2,444          1,562
Restricted cash                                     3,255          3,628
Accounts receivable - affiliates                       23             21
Prepaid and other assets                                -             64
Deferred expenses, net                                639            658
                                                ---------      ---------
                                                $  73,064      $  73,942
                                                =========      =========

                        LIABILITIES AND PARTNERS' DEFICIT

Accounts payable and accrued expenses           $     160      $     287
Accrued interest and fees                           5,087          4,587
Tenant security deposits                              387            526
Equity in losses of unconsolidated joint
  venture in excess of investments and 
  advances                                          2,504          2,375
Mortgage loans payable                             94,333         95,028
Co-venturers' share of net assets of
  consolidated ventures                             1,108          1,140
Partners' deficit                                 (30,515)       (30,001)
                                                ---------      ---------
                                                $  73,064      $  73,942
                                                =========      =========







                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and six months ended September 30, 1997 and 1996 (Unaudited)
                      (In thousands, except per Unit data)

                                  Three Months Ended     Six Months Ended
                                     September 30,         September 30,
                                  ------------------    ------------------
                                   1997        1996      1997        1996
                                   ----        ----      ----        ----

Revenues:
   Rental income                 $2,633      $2,455     $5,282    $ 4,973
   Interest income                   61          66        121        130
   Other income                     136         113        267        346
                                 ------      ------     ------    -------
                                  2,830       2,634      5,670      5,449

Expenses:
   Property operating expenses    1,010         994      1,881      1,900
   Real estate taxes                234         249        468        497
   Interest expense               1,187       1,165      2,330      2,353
   Depreciation                     653         771      1,306      1,536
   General and administrative        57          29        120         77
                                 ------      ------     ------    -------
                                  3,141       3,208      6,105      6,363
                                 ------      ------     ------    -------

Operating loss                     (311)       (574)      (435)      (914)

Partnership's share of 
  unconsolidated venture's 
  loss                              (64)        (25)      (111)       (61)

Co-venturers' share of 
  consolidated ventures' 
  losses                             24          42         32         42
                                 ------      ------     ------    -------
Net loss                         $ (351)     $ (557)    $ (514)   $  (933)
                                 ======      ======     ======    =======

Net loss per Limited
  Partnership Unit               $(8.01)    $(12.71)   $(11.73)   $(21.28)
                                 ======     =======    =======    =======


      The above net loss per Limited  Partnership  Unit is based upon the 41,644
Limited Partnership Units outstanding for each period.




                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
        For the six months ended September 30, 1997 and 1996 (Unaudited)
                                 (In thousands)

                                                    General       Limited
                                                    Partners      Partners
                                                    --------      --------

Balance at March 31, 1996                           $(2,631)      $(26,322)
Net loss                                                (47)          (886)
                                                    -------       --------
Balance at September 30, 1996                       $(2,678)      $(27,208)
                                                    =======       ========

Balance at March 31, 1997                           $(2,683)      $(27,318)
Net loss                                                (26)          (488)
                                                    -------       --------
Balance at September 30, 1997                       $(2,709)      $(27,806)
                                                    =======       ========


























                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the six months ended September 30, 1997 and 1996
          Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)
                                                         1997       1996
                                                         ----       ----

Cash flows from operating activities:
   Net loss                                            $  (514)   $  (933)
   Adjustments to reconcile  net loss to net 
     cash provided by operating activities:
     Depreciation                                        1,306      1,536
     Amortization of deferred financing costs               30         55
     Amortization of deferred gain on forgiveness 
       of debt                                            (172)      (172)
     Partnership's share of unconsolidated
       venture's loss                                      111         61
     Co-venturers' share of consolidated ventures'
       losses                                              (32)       (42)
     Changes in assets and liabilities:
      Accounts receivable - affiliates                      (2)       (73)
      Prepaid and other assets                              64         12
      Deferred expenses                                    (11)         -
      Accounts payable and accrued expenses               (127)        48
      Accrued interest and fees                            500        601
      Tenant security deposits                            (139)       (24)
                                                        ------    -------
         Total adjustments                               1,528      2,002
                                                        ------    -------
         Net cash provided by operating activities       1,014      1,069
                                                        ------    -------

Cash flows from investing activities:
   Additions to buildings and improvements                   -       (518)
   Distribution from unconsolidated joint venture           18          -
                                                        ------    -------
         Net cash provided by (used in) 
           investing activities                             18       (518)
                                                        ------    -------

Cash flows from financing activities:
   Decrease (increase) in restricted cash                  373       (618)
   Repayment of principal on long-term debt               (523)         -
                                                        ------    -------
         Net cash used in financing activities            (150)      (618)
                                                        ------    -------

Net increase (decrease) in cash and cash equivalents       882        (67)

Cash and cash equivalents, beginning of period           1,562      1,390
                                                        ------    -------

Cash and cash equivalents, end of period                $2,444    $ 1,323
                                                        ======    =======

Cash paid during the period for interest                $1,972    $ 1,869
                                                        ======    =======


                             See accompanying notes.


<PAGE>

                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    General
      -------

      The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended March 31, 1997. In the opinion of
management, the accompanying financial statements,  which have not been audited,
reflect all adjustments  necessary to present fairly the results for the interim
period. All of the accounting  adjustments reflected in the accompanying interim
financial statements are of a normal recurring nature.

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which  requires  management to make  estimates and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  as of  September  30, 1997 and March 31, 1997 and revenues and
expenses for each of the three-and  six-month  periods ended  September 30, 1997
and 1996. Actual results could differ from the estimates and assumptions used.

2.    Related Party Transactions
      --------------------------

      Accounts  receivable - affiliates  as of September  30, 1997 and March 31,
1997  consist  of  investor  servicing  fees due from the  unconsolidated  joint
venture.

      Included in general and administrative  expenses for the six-month periods
ended  September  30,  1997  and  1996 is  $40,000  and  $34,000,  respectively,
representing  reimbursements to an affiliate of the Managing General Partner for
providing certain financial,  accounting and investor  communication services to
the Partnership.

      Also  included in general and  administrative  expenses for the  six-month
periods ended  September  30, 1997 and 1996 is $3,000 and $2,000,  respectively,
representing  fees  earned  by an  affiliate,  Mitchell  Hutchins  Institutional
Investors, Inc., for managing the Partnership's cash assets.

3.    Investment in Unconsolidated Joint Venture Partnership
      ------------------------------------------------------

      The  Partnership  has an  investment in one  unconsolidated  joint venture
which owns an operating  investment  property  (Lincoln Garden  Apartments),  as
discussed  further in the Annual  Report.  The  unconsolidated  joint venture is
accounted for by using the equity method because the Partnership does not have a
voting control interest in the venture.  Under the equity method, the investment
is carried at cost adjusted for the  Partnership's  share of the  unconsolidated
venture's  earnings,  losses and distributions.  The Partnership's  policy is to
recognize  its share of  unconsolidated  venture's  operations  three  months in
arrears.

    On September 18, 1997, the  Partnership  sold 75% of its position in Lincoln
Garden Apartments for $18,845 to its co-venture partner.  The remaining 25% will
be acquired by the co-venture partner for $6,155 on or after September 19, 1998.
Upon completion of this sale, the total net proceeds to the Partnership  will be
$25,000.  Management  does not  believe  that the  value of the  Lincoln  Garden
property has reached the point where it exceeds the  outstanding  first mortgage
loan balance.  Because  management does not foresee a potential for appreciation
in the value of the property over the near term,  the  Partnership  negotiated a
sale of its position to the  co-venture  partner for a nominal  payment.  During
recent years,  the operating  performance of the Lincoln  Garden  Apartments has
deteriorated,  as evidenced by declining  occupancy levels,  lower rental income
and an  inability  to generate  positive  cash flow.  Since its  inception,  the
Partnership  has not received cash flow from this  investment,  and no cash flow
from this asset is projected for the future.  The property is located in Tucson,
Arizona, which has experienced an abundance of new apartment construction during
recent years. These new apartment  developments have placed negative competitive
pressures on Lincoln  Garden which is an older  property  removed from  Tucson's
growing  residential  areas. The Partnership will recognize a gain for financial
reporting  purposes on the sale of its  interest in Lincoln  Garden  because the
equity method carrying value of the investment is negative, as prior year losses
have  exceeded  the amount of the  Partnership's  initial  investment.  The gain
related to the sale of the 75% portion of the  Partnership's  investment will be
reflected in the financial  statements  for the third quarter of fiscal 1998 due
to the Partnership's three-month reporting lag.
<PAGE>

     Summarized  operations of the unconsolidated joint venture, for the periods
indicated, are as follows:
                         Condensed Summary of Operations
            For the three and six months ended June 30, 1997 and 1996
                                 (in thousands)

                                 Three Months Ended      Six Months Ended
                                      June 30,                June 30,
                                --------------------   -------------------
                                    1997       1996        1997      1996
                                    ----       ----        ----      ----

    Rental revenues               $ 249       $ 284      $ 501      $ 559
    Interest and other income        15          16         31         31
                                  -----       -----      -----      -----
                                    264         300        532        590

    Property operating expenses     164         154        322        314
    Interest expense                132         119        247        242
    Depreciation and amortization    65          63        131        125
                                  -----       -----      -----      -----

                                    361         336        700        681
                                  -----       -----      -----      -----
    Net loss                      $ (97)      $ (36)     $(168)     $ (91)
                                  =====       =====      =====      =====
 
    Net loss:
      Partnership's share of
        net loss                  $ (63)      $ (24)     $(109)     $ (59)
      Co-venturer's share of 
        net loss                    (34)        (12)       (59)       (32)
                                  -----       -----      -----      -----

                                 $  (97)      $ (36)     $(168)     $ (91)
                                 ======       =====      =====      =====

               Reconciliation of Partnership's Share of Operations
         For the three and six months ended September 30, 1997 and 1996
                                 (in thousands)

                                  Three Months Ended     Six Months Ended
                                     September 30,         September 30,
                                  ------------------    ------------------
                                   1997        1996      1997        1996
                                   ----        ----      ----        ----
        
     Partnership's share of 
        operations, as shown 
        above                     $ (63)      $ (24)    $ (109)    $  (59)
     Amortization of excess 
        basis                        (1)         (1)        (2)        (2)
                                  -----       -----     ------     ------
     Partnership's share of 
       unconsolidated
       venture's loss            $  (64)     $  (25)    $ (111)    $  (61)
                                 ======      ======     ======     ======

<PAGE>
4.    Operating Investment Properties
      -------------------------------

      The  Partnership  consolidates  the  results  of  two  majority-owned  and
controlled joint ventures in its financial statements.  The Partnership's policy
is to report the operations of the consolidated  joint ventures on a three month
lag.

      On December 16, 1985, the Partnership  acquired an interest in 71st Street
Housing Partners,  Ltd., a joint venture formed to develop,  own and operate the
Harbour Pointe Apartments, a 234-unit two-story garden apartment complex located
in  Bradenton,  Florida.  Pursuant to an Amended and  Restated  Agreement of the
Limited  Partnership  dated August 4, 1989, the general partner interests of the
co-venturers were converted to limited partnership interests. As a result of the
amendment, the Partnership,  as the sole general partner, assumed control of the
operations of the property.

      The  Lakes  Joint  Venture  ("Venture")  was  formed  on May  30,  1985 in
accordance  with the  provisions of the laws of the State of California  for the
purpose of developing, owning and operating The Lakes at South Coast Apartments,
a 770-unit  apartment  complex located in Costa Mesa,  California.  As discussed
further in the Annual  Report,  on September  26, 1991,  in  conjunction  with a
refinancing  and  modification  of the  Venture's  long-term  indebtedness,  the
original   co-venture  partner  transferred  its  interest  in  the  Venture  to
Development  Partners,  Inc. ("DPI"), a Delaware  corporation and a wholly-owned
subsidiary of Paine Webber  Group,  Inc.,  and withdrew  from the Venture.  As a
result of the original co-venturer's withdrawal, the Partnership assumed control
over the operations of the Venture.

      The following is a combined summary of property operating expenses for the
Harbour Pointe  Apartments and The Lakes at South Coast Apartments for the three
and six months ended June 30, 1997 and 1996 (in thousands):

                                   Three Months Ended      Six  Months Ended
                                         June 30,               June 30,
                                   ------------------      -----------------
                                     1997      1996         1997      1996
                                     ----      ----         ----      ----
      Property operating expenses:
        Repairs and maintenance     $  272   $  288        $  457   $  500
        Utilities                      145      148           269      300
        Management fees                101       93           200      187
        Other operating and 
          administrative               492      465           955      913
                                    ------   ------        ------   ------

                                    $1,010   $  994        $1,881   $1,900
                                    ======   ======        ======   ======

5.    Long-term Debt
      --------------

      Long-term  debt on the  Partnership's  balance sheet at September 30, 1997
and March 31, 1997 consists of the following (in thousands):

                                                September 30      March 31
                                                ------------      --------
    Nonrecourse   mortgage   note
    payable     which     secures
    Manatee     County    Housing
    Finance   Authority   Revenue
    Refunding      Bonds.     The
    mortgage  loan is  secured by
    a deed to  secure  debt and a
    security  agreement  covering
    the   real    and    personal
    property   of   the   Harbour
    Pointe Apartments.                         $   9,125       $   9,125


    Developer     loan    payable
    which   secures   County   of
    Orange,            California
    Tax-Exempt          Apartment
    Development   Revenue  Bonds.
    The    mortgage    loan    is
    nonrecourse  and  is  secured
    by  a  first  deed  of  trust
    plus  all  future  rents  and
    income   generated   by   The
    Lakes    at    South    Coast
    Apartments.                                   75,600          75,600

    Nonrecourse  loan  payable to
    bank secured by a third deed 
    of trust plus all future rents 
    and income generated by The 
    Lakes at South Coast Apartments.               2,968           3,491
<PAGE>
    Prior indebtedness principal  
    payable  to  bank.      This  
    obligation is nonrecourse to  
    the   joint   venture.                         3,411           3,411

    Deferred        gain       on
    forgiveness  of debt  (net of
    accumulated  amortization  of
    $2,049  and  $1,877  at  June
    30,  1997  and  December  31,
    1996, respectively).                           3,229           3,401
                                                --------        --------
                                                $ 94,333        $ 95,028
                                                ========        ========

      Mortgage loan secured by the Harbour Pointe Apartments:
      -------------------------------------------------------

      Original  financing for construction of the Harbour Pointe  Apartments was
provided  through  $9,200,000 of Multi-Family  Housing  Mortgage  Revenue Bonds,
Series 1985 E due December 1, 2007 (the  original  Bonds)  issued by the Manatee
County  Housing  Finance  Authority  which bore  interest  at 8.25% plus a 1.25%
letter of credit fee. An amount of $75,000 was paid on the original  bonds prior
to the  refinancing.  The original bond issue was refinanced on May 1, 1990 with
$9,125,000 Weekly  Adjustable/Fixed  Rate Multi-Family Housing Revenue Refunding
Bonds,  Series 1990A, due December 1, 2007 (the Bonds). The interest rate on the
Bonds is adjusted  weekly to a minimum  rate that would be necessary to remarket
the Bonds in a secondary market as determined by a bank  remarketing  agent. The
Bonds are secured by the Harbour  Pointe  Apartments.  The fair market  value of
this debt obligation  approximated $8.8 million as of June 30, 1997 and December
31, 1996.

      Interest on the  underlying  bonds is  intended to be exempt from  federal
income tax pursuant to Section 103 of the Internal  Revenue  Code. In connection
with obtaining the mortgage,  the Harbour  Pointe joint venture  executed a Land
Use  Restriction  Agreement with the Manatee County  Housing  Finance  Authority
which provides,  among other things,  that  substantially all of the proceeds of
the Bonds  issued be  utilized to finance  multi-family  housing of which 20% or
more of the  units  are to be  leased to low and  moderate  income  families  as
established by the United States Department of Housing and Urban Development. In
the event that the  underlying  Bonds do not maintain their  tax-exempt  status,
whether by a change in law or by  noncompliance  with the rules and  regulations
related thereto, repayment of the note may be accelerated.

      Pursuant  to the  financing  agreement,  a bank has issued an  irrevocable
letter of credit to the Bond trustee in the joint venture's name for $9,247,500.
An annual fee equal to 1% of the letter of credit balance is payable  monthly to
the extent of net cash operating  income  available to pay such fees. The letter
of credit  was  scheduled  to expire on  December  15,  1997.  During the second
quarter of fiscal 1998, the letter of credit issuer approved the joint venture's
application for an extension of the letter of credit through  December 15, 2000.
The new terms of the letter of credit  agreement  require  the  commencement  of
regular principal amortization payments on the underlying first mortgage loan of
$60,000 per quarter  beginning on February 15, 1998.  The terms of the extension
also  increase  the letter of credit  fee to 1.25% per annum on the  outstanding
amount of $9,247,500,  payable on a quarterly basis beginning February 15, 1998.
The  joint  venture  will  also  be  required  to  make  annual  deposits  to  a
lender-controlled  escrow  account equal to 75% of Harbour  Pointe's  annual net
cash flow, as defined,  for each fiscal year,  beginning  with fiscal 1998.  All
funds deposited to the escrow account will be returned to the joint venture upon
the earlier of the termination  and  surrendering of the letter of credit to the
lender or the achievement of a loan-to-value ratio equal to or less than 75%, as
determined solely by the lender.

      Debt secured by The Lakes at South Coast Apartments:
      ----------------------------------------------------

      Original financing for construction of The Lakes at South Coast Apartments
was provided from a developer  loan in the amount of  $76,000,000  funded by the
proceeds of a public offering of tax-exempt apartment development revenue bonds.
The Venture had been in default of the  developer  loan since  December 1989 for
failure  to make  full and  timely  payments  on the  loan.  As a result  of the
Venture's default,  the required semi-annual interest and principal payments due
to the bond holders  through June of 1991 were made by the bank which had issued
an irrevocable  letter of credit securing the bonds. Under the terms of the loan
agreement,  the Venture was  responsible  for  reimbursing  the letter of credit
issuer  for  any  draws  made  against  the  letter  of  credit  which  totalled
$7,748,000.

      The  original  bond  issue was  refinanced  during  1991 and the  original
developer loan was  extinguished.  The new developer loan (1991 Developer Loan),
in the amount of $75,600,000,  is payable to the County of Orange and was funded
by the  proceeds  of a  public  offering  of  tax-exempt  apartment  development
revenues bonds issued, at par, by the County of Orange,  California in September
1991.  Principal is payable  upon  maturity,  December 1, 2006.  Interest on the
bonds is variable, with the rate determined weekly by a remarketing agent and is
payable in arrears on the first of each month.
<PAGE>
      The loan is secured  by a first  deed of trust  plus all future  rents and
income  generated by the  operating  investment  property.  Bond  principal  and
interest  payments are secured by an  irrevocable  letter of credit  issued by a
bank in the amount of $76,569,000,  expiring December 15, 1998. The Venture pays
an annual letter of credit fee equal to 1.3% of the outstanding amount,  payable
73% monthly with the  remaining  27% deferred  and paid in  accordance  with the
Reimbursement  Agreement (Unpaid Accrued Letter of Credit Fees).  Unpaid Accrued
Letter of Credit  Fees  were  $2,667,000  and  $2,533,000  at June 30,  1997 and
December  31,  1996,  respectively.  The bank  letter of credit is  secured by a
second deed of trust on the operating  investment  property and future rents and
income from the operating investment property.

      In conjunction  with the 1991 Developer  Loan, the Venture  entered into a
Reimbursement   Agreement  with  the  letter  of  credit  issuer  regarding  the
unreimbursed  letter of credit  draws  referred  to above.  The letter of credit
issuer agreed to forgive all outstanding  accrued interest through September 26,
1991, aggregating $1,132,000,  along with a portion of the outstanding principal
in the amount of $300,000.  In return,  the Venture made a principal  payment of
$926,000,  leaving an unpaid  balance of $6,523,000  (Prior  Indebtedness).  The
outstanding  principal balance of the Prior  Indebtedness bears interest payable
to the letter of credit issuer at the rate of 11% per annum. Interest accrued on
the Prior  Indebtedness  from the date of closing through June 1992 was forgiven
by the letter of credit issuer.  Principal payments from available net cash flow
and the release of certain  restricted  escrow funds  described  below  totalled
$3,112,000  through June 30, 1997,  leaving an outstanding  principal balance of
$3,411,000 as of June 30, 1997. At the time of the  refinancing the Venture also
owed the letter of credit issuer fees totalling $2,184,000. The letter of credit
issuer  agreed to forgive  $1,259,000  of such  unpaid  fees,  leaving an unpaid
balance of $925,000  (Deferred  Prior Letter of Credit Fees).  The Venture has a
limited  right  to  defer  payment  of  interest  and  principal  on  the  Prior
Indebtedness and the Unpaid Accrued Letter of Credit Fees to the extent that the
net cash flow from  operations  is not  sufficient  after  the  payment  of debt
service on the 1991 Developer Loan and the funding of certain required reserves.
In addition,  upon a sale or other  disposition of the operating  property,  the
Reimbursement  Agreement  allows for the  payment to the Venture of an amount of
$5,500,000,  plus  accrued  interest  at the rate of 8% per annum,  prior to the
repayment  to the letter of credit  issuer of the accrued  interest on the Prior
Indebtedness and the Deferred Prior Letter of Credit Fees.

      In November 1988, a borrowing  arrangement with a bank was entered into to
provide funds for The Lakes.  The Venture obtained a line of credit secured by a
third trust deed on the subleasehold interest,  buildings and improvements,  and
rents and income in the amount of $6,300,000. Interest on the line of credit was
originally  payable  monthly  at 1-1/2%  over the  Citibank,  N.A.  prime  rate.
However,  because of the default status of this obligation during 1990, interest
had  accrued at a rate of prime  plus 4% through  September  26,  1991.  Accrued
interest on the line of credit,  which is payable to the same bank which  issued
the  letter of credit in  connection  with the  bonds,  totalled  $1,841,000  at
September 26, 1991. The outstanding  principal balance of the line of credit was
$6,127,000 as of September 26, 1991. In conjunction  with the refinancing of the
developer  loan  described  above,  the  lender  agreed  to  forgive  all of the
outstanding accrued interest at the date of the refinancing. Interest accrues on
the  outstanding  principal  balance  at the  rate  of 11% per  annum  beginning
September  27,  1991.  Payment of interest  and  principal on the line of credit
borrowings,  prior to a sale or other disposition of the operating property,  is
limited to the extent of  available  cash flow after the payment of debt service
on the developer loan and the funding of certain required reserves. In addition,
as with the Prior  Indebtedness  principal and interest  described above, upon a
sale or other  disposition  of the  operating  property,  the payment of accrued
interest on the line of credit  borrowings is subordinated to the receipt by the
Venture of $5,500,000  plus a simple return  thereon of 8% per annum.  Principal
payments on the line of credit  borrowings from available net cash flow totalled
$3,159,000  through June 30, 1997,  leaving an outstanding  principal balance of
$2,968,000 as of June 30, 1997.

      The restructuring of the Prior Indebtedness, the Deferred Letter of Credit
Fees and the line of credit borrowings,  as described above, have been accounted
for in  accordance  with  Statement of Financial  Accounting  Standards  No. 15,
"Accounting  by  Debtors  and  Creditors  for  Troubled  Debt   Restructurings".
Accordingly,  the forgiveness of debt, aggregating $5,278,000, has been deferred
and is being amortized as a reduction of interest expense  prospectively using a
method  approximating the effective interest method over the estimated remaining
term of the  Venture's  indebtedness.  At June 30, 1997 and  December  31, 1996,
$3,229,000  and  $3,401,000,   respectively,  of  such  forgiven  debt  (net  of
accumulated  amortization) has been reflected on the accompanying balance sheets
and  $172,000  has been  amortized  as a reduction  of  interest  expense in the
accompanying  statements of operations  for each of the six-month  periods ended
June 30, 1997 and 1996.
<PAGE>
      The 1991 Developer Loan required the establishment of a $2,000,000 deficit
reserve account,  funded from the Venturers' 1991  contributions.  The loan also
required the funding of an  additional  reserve  account on a monthly basis from
available  cash flow (as  defined) to the extent that the  interest  rate on the
bonds  is  below  6%,  until  the  balance  in  this  reserve  account  totalled
$1,000,000.  During fiscal 1997,  the  requirement  for the  additional  reserve
account was  eliminated  and the balance in the account was applied  against the
Venture's  outstanding debt obligations.  The $2,000,000  deficit reserve may be
used under certain  circumstances to fund the Venture's debt service obligations
to the extent that net operating income is insufficient. As of June 30, 1997 and
December  31,  1996,  the  balance  in  the  deficit  reserve  account  totalled
$1,171,000 and $1,146,000, respectively. Such amounts are included in restricted
cash on the  accompanying  balance sheets.  The remaining  balance in restricted
cash relates to operating  cash  accounts of the Venture in which  disbursements
are restricted by the bank.

      The 1991 Developer Loan contains several restrictive covenants, including,
among others, a requirement that the Venture furnish the letter of credit issuer
in September 1994 and September 1996 with  certified  independent  appraisals of
the fair market value of the operating  investment  property for an amount equal
to or  greater  than  $92,000,000  and  $100,000,000,  respectively.  Failure to
provide  such   appraisals  was  defined  as  an  event  of  default  under  the
Reimbursement  Agreement.  Through the first  quarter of fiscal 1998,  the Lakes
Joint Venture had not provided the lender with an appraisal which met either the
$92,000,000 or $100,000,000  requirement and, accordingly,  was in default under
the Reimbursement Agreement. In February 1996, the lender issued a formal notice
of default to the Joint Venture pursuant to the Reimbursement Agreement. For the
past several years,  the Managing  General Partner has had discussions  with the
lender regarding possible changes to the appraisal requirements which were fully
resolved  during the second  quarter of fiscal 1998. On September 18, 1997,  the
Partnership  signed amendment  documents with the lender to remove the appraisal
requirements.  As a result,  the  Venture  is no longer  in  technical  default.
Additionally,  the  amendment  allows the release of funds from certain  reserve
accounts  that  have  been  required  by the  lender.  The  property's  improved
operations and increasing  rental rates,  combined with the low interest rate on
the  tax-exempt  bonds,  make the reserves no longer  necessary.  The money from
these accounts was used to pay down approximately $1,900,000 of debt owed by the
Venture to the lender.  Such  principal  paydown  will be reflected in the third
quarter financial  statements due to the three-month  reporting lag described in
Note 4. In addition, approximately $800,000 has been earmarked for the necessary
painting of the  property,  and another  $300,000 has been  allocated for future
capital needs. The fair value of the aggregate indebtedness secured by The Lakes
at South Coast Apartments cannot presently be determined due to its unique terms
and conditions.

<PAGE>



                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified  in Item 7 of the  Partnership's  Annual  Report on Form 10-K for the
year ended March 31, 1997 under the heading  "Certain  Factors  Affecting Future
Operating  Results",  which could cause actual results to differ materially from
historical  results  or  those  anticipated.  The  words  "believe",   "expect",
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

Liquidity and Capital Resources
-------------------------------

      The  Partnership is focusing on potential  disposition  strategies for the
remaining  investments  in  its  portfolio.  Management  believes  that  due  to
improving market  conditions,  the values of The Lakes at South Coast Apartments
and Harbour  Pointe  Apartments  have  increased  during  recent  months and are
approaching or have exceeded the outstanding  balances of the  properties'  debt
encumbrances.  However,  it remains to be seen whether continued  improvement in
market conditions will be sufficient for the Partnership to recover  significant
portions  of  its  original  investments  in  the  remaining   properties.   The
Partnership's ability to recover any significant portion of its original capital
will  depend  principally  on the  future  success  of The Lakes at South  Coast
Apartments,  which  represents  the  majority  of  the  Partnership's  remaining
portfolio.  Although no assurances  can be given,  it is currently  contemplated
that sales of the Partnership's  assets could be accomplished  within the next 2
to 3 years.

      The  operations of the three  remaining  assets,  The Lakes at South Coast
Apartments,  the Harbour Pointe  Apartments  and the Lincoln Garden  Apartments,
have been stabilized as a result of debt  restructurings,  and the properties do
not  currently  require the use of the  Partnership's  cash  reserves to support
operations.  Without these  restrictions,  the properties would most likely have
been lost through foreclosure  actions by the respective  lenders.  All three of
these  properties  were financed with  tax-exempt  revenue bonds issued by local
housing authorities.  The interest rates on all three of these restructured debt
obligations  are now  variable  rates  which  are based on  comparable  rates on
similar  tax-exempt  obligations.  Such rates have  remained 3 to 4 percent  per
annum below comparable  conventional rates over the past several years which has
allowed the  properties,  for the most part, to generate  excess cash flow after
the payment of operating expenses and debt service  obligations.  This cash flow
has been used to maintain these properties in competitive condition. If interest
rates were to rise dramatically, The Lakes at South Coast Apartments and Harbour
Pointe  Apartments  would  require  advances  from the  Partnership  in order to
continue paying their operating expenses and debt service obligations.

      On September 18, 1997, the Partnership sold 75% of its position in Lincoln
Garden Apartments for $18,845 to its co-venture partner.  The remaining 25% will
be acquired by the co-venture partner for $6,155 on or after September 19, 1998.
Upon completion of this sale, the total net proceeds to the Partnership  will be
$25,000.  Unlike the Lakes and Harbour Pointe  investments,  management does not
believe  that the value of the  Lincoln  Garden  property  has reached the point
where it exceeds the outstanding first mortgage loan balance. Because management
does not foresee a potential for  appreciation in the value of the property over
the  near  term,  the  Partnership  negotiated  a sale  of its  position  to the
co-venture  partner for a nominal  payment.  During recent years,  the operating
performance of the Lincoln Garden Apartments has  deteriorated,  as evidenced by
declining  occupancy  levels,  lower rental  income and an inability to generate
positive cash flow.  Since its inception,  the Partnership has not received cash
flow from this investment, and no cash flow from this asset is projected for the
future. The property is located in Tucson,  Arizona,  where a significant number
of new apartment  units have been  constructed  during  recent years.  These new
apartment  developments  have placed negative  competitive  pressures on Lincoln
Garden  which  is  an  older  property   located  outside  of  Tucson's  growing
residential areas. The Partnership will recognize a gain for financial reporting
purposes on the sale of its interest in Lincoln Garden because the equity method
carrying value of the investment is negative, as prior year losses have exceeded
the amount of the Partnership's initial investment. The gain related to the sale
of the 75% portion of the  Partnership's  investment  will be  reflected  in the
financial   statements  for  the  third  quarter  of  fiscal  1998  due  to  the
Partnership's three-month reporting lag.

      As previously reported, the Partnership had initiated discussions with the
issuer  of the  letter of credit on the  Harbour  Pointe  Apartments,  which was
scheduled to expire on December 15,  1997.  During the second  quarter of fiscal
1998, the letter of credit issuer approved the joint  venture's  application for
an extension of the letter of credit through December 2000. The new terms of the
letter of credit agreement require the commencement of regular bond sinking fund
contributions  of $240,000  per annum to be paid in  quarterly  installments  of
$60,000  beginning  February 15, 1998.  The terms of the extension also increase
the letter of credit fee from 1% to 1.25% per annum on the outstanding amount of
$9,247,500,  payable on a quarterly basis beginning February 15, 1998. The joint
venture  will also be required to make  annual  deposits to a  lender-controlled
escrow  account  equal to 75% of  Harbour  Pointe's  annual  net cash  flow,  as
defined,  for each fiscal year,  beginning with fiscal 1998. All funds deposited
to the escrow  account will be returned to the joint venture upon the earlier of
the  termination  and  surrendering of the letter of credit to the lender or the
achievement  of a  loan-to-value  ratio equal to or less than 75%, as determined
solely  by the  lender.  Recent  improvements  in market  conditions  and in the
operating  performance  of the Harbour  Pointe  Apartments  have  increased  the
estimated  market  value of the property to a level which  slightly  exceeds the
outstanding  first mortgage loan balance.  Nonetheless,  significant  additional
appreciation  would have to occur in order to achieve a  loan-to-value  ratio of
75% or less.  As a result,  the  effect of the new terms of the  Harbour  Pointe
letter of credit will be that the cash flow from the property's  operations will
no longer be available to cover the  Partnership's  future  operating  expenses.
However,  the  Partnership  has  sufficient  cash  reserves  to cover  operating
expenses for the next several years. With the Partnership  focusing on potential
disposition  strategies for its remaining investment  properties and targeting a
liquidation  within the next 2-to-3 years,  such reserves  should be adequate to
meet the Partnership's liquidity needs during this period.

      As previously  reported,  the  Reimbursement  Agreement  which governs the
secured debt obligations of The Lakes Joint Venture contains certain restrictive
covenants,  including,  among others, a requirement that the venture provide the
lender,  in  September  1994 and  September  1996,  with  certified  independent
appraisals of the operating property  indicating the value of the property to be
equal to or greater than $92 million and $100 million, respectively.  Failure to
provide  such   appraisals  was  defined  as  an  event  of  default  under  the
Reimbursement  Agreement.  Through the first  quarter of fiscal 1998,  the Lakes
Joint Venture had not provided the lender with an appraisal which met either the
$92,000,000 or $100,000,000  requirement and, accordingly,  was in default under
the Reimbursement Agreement. In February 1996, the lender issued a formal notice
of default to the Joint Venture pursuant to the Reimbursement Agreement. For the
past several years,  the Managing  General Partner has had discussions  with the
lender regarding possible changes to the appraisal requirements which were fully
resolved  during the second  quarter of fiscal 1998. On September 18, 1997,  the
Partnership  signed amendment  documents with the lender to remove the appraisal
requirements.  As a result,  the  Venture  is no longer  in  technical  default.
Additionally,  the  amendment  allows the release of funds from certain  reserve
accounts  that  have  been  required  by the  lender.  The  property's  improved
operations and increasing  rental rates,  combined with the low interest rate on
the  tax-exempt  bonds,  make the reserves no longer  necessary.  The money from
these accounts was used to pay down approximately $1,900,000 of debt owed by the
Venture to the lender.  In addition,  approximately  $800,000 has been earmarked
for the  necessary  painting  of the  property,  and another  $300,000  has been
allocated for future capital needs.

      The Lakes at South Coast Apartments had an average  occupancy level of 95%
for the  quarter  ended  September  30,  1997,  which was down 1% from the prior
quarter. This change was anticipated and is the result of aggressive rental rate
increases  that began in December  1996.  At the same time that the rental rates
have been increased,  the property's leasing team has eliminated  concessions to
all new tenants and  significantly  reduced the discounts to existing tenants on
leases that are being  renewed.  These  actions have been  possible  because The
Lakes is located in an extremely  strong apartment market that continues to gain
momentum.  Projecting an average  occupancy level of 95% for the year, the local
market  contains  7,560 rental units and reports rental rate increases of 10% to
15%  since  the  beginning  of  1997.   Although  there  are  several  apartment
communities being constructed in Orange County, none of this new competition has
adversely  impacted the performance of The Lakes. A new toll road opened earlier
this year to provide  quicker  access  between  Orange County and outlying areas
which have appealing  apartment rental rates and affordable new home prices.  To
date,  the new highway has not had a major  impact on apartment  communities  in
Costa Mesa.  The Lakes is somewhat  insulated  from the effects of these changes
because it has a highly  desirable  location  close to  numerous  employers  and
within walking distance of South Coast Plaza, one of the largest retail malls in
the United  States.  The  proximity to work,  shopping and  entertainment  is an
attractive  benefit for tenants at the property.  The rapidly  improving  market
conditions  in the  Orange  County  area have  resulted  in an  increase  in the
estimated  market value of The Lakes in recent months.  During the quarter ended
September 30, 1997, the Partnership received several unsolicited  expressions of
interest from potential  purchasers of The Lakes which suggest that a sale price
in  excess of the  outstanding  balance  of the  secured  indebtedness  might be
achievable.  Management  is currently  completing a market  analysis in order to
evaluate the  property's  current  value,  to assess the near term potential for
additional  appreciation and to determine the appropriate  timing for a possible
sale of the property.

      At September 30, 1997, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately  $2,444,000.  Such cash
and cash  equivalents  will be used for the working capital  requirements of the
Partnership  and the  consolidated  ventures  and, to the extent  necessary  and
economically  justified,  to fund the Partnership's  share of any future capital
improvements or operating  deficits of its remaining joint venture  investments.
As noted above,  approximately $1.1 million of capital  improvements  planned at
The Lakes  will be paid from the  balances  in the  restricted  escrow  accounts
formerly   required  by  the  lender.   The  source  of  future   liquidity  and
distributions  to the  partners is expected to be from cash  generated  from the
operations of the remaining  investment  properties  and from proceeds  received
from the sale, refinancing or other disposition of such properties.

Results of Operations
Three Months Ended September 30, 1997
-------------------------------------

     The Partnership's net loss decreased by $206,000 for the three-month period
ended  September  30, 1997,  when compared to the same period in the prior year.
This favorable change in net loss resulted from a decrease in the  Partnership's
operating loss of $245,000  (including the  co-venturers'  share of consolidated
ventures' losses) which was partially offset by an increase in the Partnership's
share  of  unconsolidated  venture's  loss of  $39,000.  Operating  loss,  which
includes the  consolidated  results of The Lakes and Harbour  Pointe,  decreased
mainly due to an  increase  in rental  revenue  of  $178,000  and a decrease  in
depreciation  expense of $118,000.  Rental revenue increased  primarily due to a
$158,000  increase in rental  revenue at The Lakes as a result of  increases  in
rental rates.  Depreciation  expense  decreased as a result of various five-year
assets having  become fully  depreciated  at The Lakes during  fiscal 1997.  The
increase in rental revenue and decrease in  depreciation  expense were partially
offset by a  $28,000  increase  in  general  and  administrative  expenses.  The
increase in general and  administrative  expense was largely  attributable to an
increase in certain required professional services.

      The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Lincoln Garden Joint Venture,  increased by $39,000
in the current  three-month  period due to a $35,000  decline in rental  income.
Rental  income  decreased  mainly as a result of a decline in average  occupancy
when  compared  to the same  period  in the  prior  year due to the  competitive
conditions referred to above.

Six Months Ended September 30, 1997
-----------------------------------

     The  Partnership's  net loss decreased by $419,000 for the six-month period
ended  September  30, 1997,  when compared to the same period in the prior year.
This favorable change in net loss resulted from a decrease in the  Partnership's
operating loss of $469,000  (including the  co-venturers'  share of consolidated
ventures' losses) which was partially offset by an increase in the Partnership's
share  of  unconsolidated  venture's  loss of  $50,000.  Operating  loss,  which
includes the  consolidated  results of The Lakes and Harbour  Pointe,  decreased
mainly due to an  increase  in rental  revenue  of  $309,000  and a decrease  in
depreciation  expense of $230,000.  Rental revenue increased  primarily due to a
$304,000  increase in rental  revenue at The Lakes as a result of  increases  in
rental rates.  Depreciation  expense  declined as a result of various  five-year
assets having  become fully  depreciated  at The Lakes during  fiscal 1997.  The
increase in rental revenue and decrease in  depreciation  expense were partially
offset by a $79,000  decrease in other income and a $43,000  increase in general
and  administrative  expenses.  Other income decreased mainly due to real estate
tax  refunds  received  by The Lakes Joint  Venture  during the prior year.  The
increase in general and  administrative  expense was largely  attributable to an
increase in certain required professional services.

      The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Lincoln Garden Joint Venture,  increased by $50,000
in the current  six-month  period due to a $58,000  decrease  in rental  income.
Rental  income  decreased  mainly as a result of a decline in average  occupancy
when  compared  to the same  period  in the  prior  year due to the  competitive
conditions referred to above.





<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings   NONE

Item 2. through 5.          NONE

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits: NONE

(b) Reports on Form 8-K:

     No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.


<PAGE>




                PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                    PAINEWEBBER DEVELOPMENT
                                    PARTNERS FOUR, LTD.


                                    By:  Fourth Development Fund Inc.
                                         Managing General Partner




                                    By: /s/ Walter V. Arnold
                                        --------------------
                                        Walter V. Arnold
                                        Senior Vice President and
                                        Chief Financial Officer



Dated:  November 10, 1997