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 DECEMBER 31, 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
                December 31, 1997 and March 31, 1997 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                 December 31     March 31
                                                 -----------     --------

Operating investment properties:
   Land                                          $  18,190      $  18,190
   Buildings and improvements                       77,896         77,896
                                                 ---------      ---------
                                                    96,086         96,086
   Less accumulated depreciation                   (30,036)       (28,077)
                                                 ---------      ---------
                                                    66,050         68,009

Cash and cash equivalents                            2,363          1,562
Restricted cash                                      3,638          3,628
Accounts receivable - affiliates                        25             21
Prepaid and other assets                                46             64
Deferred expenses, net                                 622            658
                                                 ---------      ---------
                                                 $  72,744      $  73,942
                                                 =========      =========

                        LIABILITIES AND PARTNERS' DEFICIT

Accounts payable and accrued expenses            $     198      $     287
Accrued interest and fees                            5,336          4,587
Tenant security deposits                               379            526
Losses of unconsolidated joint venture
  in excess of investments and advances                534          2,375
Mortgage loans payable                              94,247         95,028
Co-venturers' share of net assets of
  consolidated ventures                              1,064          1,140
Partners' deficit                                  (29,014)       (30,001)
                                                 ---------      ---------
                                                 $  72,744      $  73,942
                                                 =========      =========






                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and ninemonths ended December 31, 1997 and 1996 (Unaudited)
                      (In thousands, except per Unit data)

                                Three Months Ended     Nine Months Ended
                                    December 31,          December 31,
                               --------------------    -------------------
                                   1997        1996      1997        1996
                                   ----        ----      ----        ----

Revenues:
   Rental income               $  2,665    $  2,572    $ 7,947    $ 7,545
   Interest income                   64          36        185        166
   Other income                     123         125        390        471
                               --------    --------    -------    -------
                                  2,852       2,733      8,522      8,182

Expenses:
   Property operating expenses    1,140         903      3,021      2,803
   Real estate taxes                234         248        702        745
   Interest expense               1,256       1,175      3,586      3,528
   Depreciation                     653         773      1,959      2,309
   General and administrative        83          50        203        127
                               --------    --------    -------    -------
                                  3,366       3,149      9,471      9,512
                               --------    --------    -------    -------

Operating loss                     (514)       (416)      (949)    (1,330)

Gain on sale of joint venture
 interest                         2,010           -      2,010          -

Partnership's share of
  unconsolidated venture's 
  loss                              (39)        (31)      (150)       (92)

Co-venturers' share of 
  consolidated ventures' 
  losses                             44          31         76         73
                               --------    --------    -------    -------

Net income (loss)              $  1,501    $   (416)   $   987    $(1,349)
                               ========    ========    =======    =======

Net income (loss) per Limited
   Partnership Unit            $  32.41    $  (9.53)   $ 20.68    $(30.81)
                               ========    ========    =======    =======

      The above net income (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 nine months ended December 31, 1997 and 1996 (Unaudited)
                                 (In thousands)

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

Balance at March 31, 1996                     $ (2,631)        $(26,322)
Net loss                                           (66)          (1,283)
                                              --------         --------
Balance at December 31, 1996                  $ (2,697)        $(27,605)
                                              ========         ========

Balance at March 31, 1997                     $ (2,683)        $(27,318)
Net income                                         126              861
                                              --------         --------
Balance at December 31, 1997                  $ (2,557)        $(26,457)
                                              ========         ========

























                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the nine months ended December 31, 1997 and 1996
          Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                        1997       1996
                                                                        ----       ----
<S>                                                                     <C>        <C> 

Cash flows from operating activities:
   Net income (loss)                                                  $   987   $  (1,349)
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation                                                       1,959       2,304
     Amortization of deferred financing costs                              86          83
     Amortization of deferred gain on forgiveness of debt                (257)       (257)
     Gain on sale of joint venture interest                            (2,010)          -
     Partnership's share of unconsolidated venture's loss                 150          92
     Co-venturers' share of consolidated ventures' losses                 (76)        (73)
     Changes in assets and liabilities:
      Accounts receivable - affiliates                                     (4)         (4)
      Prepaid and other assets                                             18         (10)
      Deferred expenses                                                   (50)          -
      Accounts payable and accrued expenses                               (89)        545
      Accrued interest and fees                                           749         743
      Tenant security deposits                                           (147)          2
                                                                      -------   ---------
         Total adjustments                                                329       3,425
                                                                      -------   ---------
         Net cash provided by operating activities                      1,316       2,076
                                                                      -------   ---------

Cash flows from investing activities:
   Additions to buildings and improvements                                  -        (517)
   Proceeds from sale of joint venture interest                            19           -
                                                                      -------   ---------
         Net cash provided by (used in) investing activities               19        (571)
                                                                      -------   ---------
    

Cash flows from financing activities:
   (Increase) decrease in restricted cash                                 (10)        386
   Repayment of principal on long-term debt                              (524)       (862)
                                                                      -------   ---------
         Net cash used in financing activities                           (534)       (476)
                                                                      -------   ---------

Net increase in cash and cash equivalents                                 801       1,029
Cash and cash equivalents, beginning of period                          1,562       1,390
                                                                      -------   ---------
Cash and cash equivalents, end of period                              $ 2,363   $   2,419
                                                                      =======   =========

Cash paid during the period for interest                            $    3,008   $  2,959
                                                                    ==========   ========
</TABLE>

                             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 December  31, 1997 and March 31, 1997 and  revenues  and
expenses for each of the three- and  nine-month  periods ended December 31, 1997
and 1996. Actual results could differ from the estimates and assumptions used.

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

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

      Included in general and administrative expenses for the nine-month periods
ended  December  31,  1997  and  1996  is  $60,000  and  $55,000,  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  nine-month
periods  ended  December  31, 1997 and 1996 is $4,000 and $3,000,  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 interest in the
Lincoln  Garden  joint  venture  to its  co-venture  partner  for  $18,845.  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.  The sale was  structured in two parts to minimize
the negative tax  consequences  to the Lincoln Garden joint venture.  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 in the foreseeable  future,  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  Partnership  recognized  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  is
reflected in the financial  statements  for the third quarter of fiscal 1998 due
to the Partnership's three-month reporting lag.

     Summarized  operations of the unconsolidated joint venture, for the periods
indicated, are as follows:

                         Condensed Summary of Operations
         For the three and nine months ended September 30, 1997 and 1996
                                 (in thousands)

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

    Rental revenues              $  275      $  277    $   776   $    836
    Interest and other income        12          14         43         45
                                 ------      ------    -------    -------
                                    287         291        819        881

    Property operating expenses     143         157        465        471
    Interest expense                128         115        375        357
    Depreciation and
     amortization                    74          64        205        189
                                 ------      ------    -------    -------
                                    345         336      1,045      1,017
                                 ------      ------    -------    -------
    Net loss                     $  (58)     $  (45)   $  (226)   $  (136)
                                 ======      ======    =======    =======


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

    Net loss:
      Partnership's share of
         net loss                $  (38)    $  (30)    $  (147)   $  (89)
      Co-venturer's share of
         net loss                   (20)       (15)        (79)      (47)
                                 ------     ------     -------    -------
                                 $  (35)    $  (45)    $  (226)   $ (136)
                                =======     ======     =======    ======

               Reconciliation of Partnership's Share of Operations
         For the three and nine months ended December 31, 1997 and 1996
                                 (in thousands)

                                  Three Months Ended    Nine Months Ended
                                     December 31,         December 31,
                                  ------------------    -----------------
                                    1997       1996        1997      1996
                                    ----       ----        ----      ----

     Partnership's share of 
        operations,
        as shown above           $  (38)     $  (30)    $  (147)   $   (89)
     Amortization of excess
        basis                        (1)         (1)         (3)        (3)
                                 ------      ------     -------    -------
     Partnership's share of
       unconsolidated
       venture's loss            $  (39)     $  (31)    $  (150)   $   (92)
                                 ======      ======     =======    =======

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 nine months ended September 30, 1997 and 1996 (in thousands):

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                   ------------------    ------------------
                                     1997     1996         1997       1996
                                     ----     ----         ----       ----
      Property operating expenses:
        Repairs and maintenance    $   324  $   213      $    781   $   713
        Utilities                      169      147           438       447
        Management fees                100       96           300       283
        Other operating and 
          administrative               547      447         1,502     1,360
                                   -------  -------      --------   -------
  
                                   $ 1,140  $   903      $ 3,020    $ 2,803
                                   =======  =======      =======    =======

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

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

                                                December 31       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.                2,967          3,491

    Prior            indebtedness
    principal   payable  to  bank
    by    The     Lakes     Joint
    Venture.    This   obligation
    is  nonrecourse  to the joint
    venture.                                        3,411           3,411

    Deferred       gain      from
    forgiveness  of debt  (net of
    accumulated  amortization  of
    $2,134    and    $1,877    at
    September    30,   1997   and
    December       31,      1996,
    respectively).                                 3,144           3,401
                                                --------        --------
                                                $ 94,247        $ 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  September  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 Lakes Joint  Venture  ("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.

      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  $2,735,000  and $2,533,000 at September 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
$925,000,  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. Interest forgiven during this period, along with
related  legal  fees for the  restructuring  transaction,  aggregated  $746,000.
Principal  payments  from  available  net cash flow and the  release  of certain
restricted  escrow funds described below totalled  $3,112,000  through September
30, 1997, leaving an outstanding principal balance of $3,411,000 as of September
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
$3,160,000 through September 30, 1997, leaving an outstanding  principal balance
of $2,967,000 as of September 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 September 30, 1997 and December 31, 1996,
$3,144,000  and  $3,401,000,   respectively,  of  such  forgiven  debt  (net  of
accumulated  amortization) has been reflected on the accompanying balance sheets
and  $257,000  has been  amortized  as a reduction  of  interest  expense in the
accompanying  statements of operations for each of the nine-month  periods ended
September 30, 1997 and 1996.

      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  was  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 September 30,
1997 and December 31, 1996, the balance in the deficit reserve account  totalled
$1,184,000 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 it no longer  necessary to maintain these reserves.
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 fourth quarter financial  statements because the release of cash from the
restricted  accounts  occurred  subsequent  to September  30, 1997. In addition,
approximately  $800,000 of the previously  restricted cash has been reserved 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
-------------------------------

      As previously reported, the Partnership is currently focusing on potential
disposition   strategies  for  the  remaining   investments  in  its  portfolio.
Management  believes that the improvements in the apartment  segment of the real
estate market may provide the Partnership  with favorable  opportunities to sell
The Lakes at South Coast  Apartments  and the Harbour  Pointe  Apartments in the
near term.  Management  believes that due to improving  market  conditions,  the
values of The Lakes at South Coast  Apartments and the Harbour Point  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
outcome of the sale of The Lakes at South Coast Apartments, which represents the
majority of the Partnership's remaining portfolio.  The rapidly improving market
conditions in the Orange  County area where The Lakes at South Coast  Apartments
is located have resulted in a significant increase in the estimated market value
of The Lakes in recent months. As previously reported,  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.  The dramatic  rental rate increases in the Orange County market may
also be an  indication  that the market is  approaching  its peak.  As a result,
management  has  selected  a  national  brokerage  firm to market  The Lakes and
expects  to begin  formal  marketing  efforts  in  February  1998 with a goal of
completing a sale during calendar 1998. It is currently  contemplated that sales
of all of the  Partnership's  remaining assets could be accomplished  within the
next 1 to 2 years.  The sale of the  remaining  assets  would be followed by the
formal liquidation of the Partnership.  There are no assurances,  however,  that
the sale of the remaining  assets and the liquidation of the Partnership will be
completed within this time frame.

      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 restructurings,  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.

      As reported in the second  quarter,  on September 18, 1997 the Partnership
sold 75% of its  interest  in the joint  venture  that owns the  Lincoln  Garden
Apartments  to its  co-venture  partner for $18,845.  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.  The sale was  structured  in two parts to minimize  the  negative  tax
consequences  to the Lincoln Garden joint venture.  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.  In  addition,  the  co-venture  partner has a priority
position  in the joint  venture  due to certain  loans  which it advanced to the
venture to cover prior operating deficits. Because management does not foresee a
potential  for  appreciation  in the value of the  property  in the  foreseeable
future,  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  recognized 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 Harbour Pointe  Apartments  averaged 96% occupancy  during the quarter
ended December 31, 1997, a 3% increase from the previous quarter.  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 1 to
2 years,  such reserves should be adequate to meet the  Partnership's  liquidity
needs during this period.  The Partnership  plans to initiate  marketing efforts
for the sale of the Harbour Ponte property within the next several months.

      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  provided  for the  release of funds from  certain
reserve accounts that had 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 it no longer  necessary to maintain these reserves.
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 fourth quarter financial  statements because the release of cash from the
restricted  accounts  occurred  subsequent  to September  30, 1997. In addition,
approximately  $800,000 of the previously  restricted cash has been reserved for
the necessary painting of the property,  and another $300,000 has been allocated
for future capital needs.  The exterior  painting project began during the third
quarter.  To date, two of the property's  nine  residential  buildings have been
painted.  During  January and February,  the painting  project will focus on the
fencing,  light posts and the clubhouse.  In late February,  the painting of the
residential buildings will resume as the weather permits.

      The Lakes at South Coast Apartments had an average  occupancy level of 95%
for the quarter ended December 31, 1997,  unchanged from the prior quarter.  The
property's  leasing team was able to sustain a 95% occupancy level each month of
the past quarter while implementing significant rental rate increases upon lease
expirations.  All new tenant  leases are signed at the  increased  market rental
rates  which  were  raised  substantially  throughout  the  past  year.  In some
instances,  the new  market  rental  rate is as much as $100  over  the  rent an
existing tenant paid on their expiring  lease. In order to minimize  turnover of
these apartments, existing tenants that elect to renew their leases are given 5%
increases. Property management surveys indicate that 25% of tenants that did not
renew their leases  during the past quarter  chose not to remain at the property
due to the rent increases.  Although turnover has increased compared to the same
period last year, traffic has correspondingly  increased and the occupancy level
remains high despite the aggressive rental rate increases.

      At December 31, 1997, the Partnership and its consolidated  joint ventures
had available cash and cash equivalents of approximately  $2,356,000.  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  property's  mortgage  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 December 31, 1997
------------------------------------

      For the three months ended December 31, 1997, the Partnership reported net
income of  $1,501,000  as compared to a net loss of $416,000 for the same period
in the prior year.  This favorable  change in net income (loss) is primarily the
result of a $2,010,000 gain  recognized on the sale of 75% of the  Partnership's
interest in the Lincoln  Garden joint  venture in September  1997,  as discussed
further above.  This favorable  change in net income (loss) was partially offset
by an increase in the  Partnership's  operating  loss of $85,000  (including the
co-venturers'  share  of  consolidated  ventures'  losses)  an  increase  in the
Partnership's   share  of   unconsolidated   venture's   loss  of  $8,000.   The
Partnership's  operating loss,  which includes the  consolidated  results of the
Lakes and Harbour Pointe joint ventures,  increased mainly due to an increase in
property  operating expenses and interest charges which were partially offset by
an increase in rental revenues and a decrease in depreciation expense.  Property
operating  expenses  increased by $237,000  mainly due to an increase in repairs
and maintenance related expenditures at both consolidated  properties during the
current three-month period. Interest expense increased mainly due to an increase
in the annual  letter of credit fee on the debt of The Lakes Joint  Venture from
1% to 1.3%  effective  December  16, 1996,  as  discussed  further in the Annual
Report.  Rental revenues  increased mainly due to an $82,000 increase in revenue
at The Lakes as a result of  increases  in rental  rates.  Depreciation  expense
decreased  by  $115,000  as a result  of  certain  assets  having  become  fully
depreciated at The Lakes during fiscal 1997.

      The Partnership's share of unconsolidated venture's loss, which represents
the operating  results of the Lincoln Garden joint venture,  increased by $8,000
in the current  three-month  period mainly due to a $13,000 increase in interest
expense and a $10,000 increase in depreciation  and  amortization  expense which
were partially offset by a $14,000 decrease in property operating expenses.

Nine Months Ended December 31, 1997
-----------------------------------

      The Partnership  reported net income of $987,000 for the nine-month period
ended  December  31, 1997 as compared to a net loss of  $1,349,000  for the same
period  in the  prior  year.  This  favorable  change  in net  income  (loss) is
primarily the result of a $2,010,000  gain  recognized on the sale of 75% of the
Partnership's interest in the Lincoln Garden joint venture in September 1997, as
discussed  further  above.  Also  contributing  to the  favorable  change in the
Partnership's  net income (loss) was a decrease in the  Partnership's  operating
loss of $384,000  (including the co-venturers'  share of consolidated  ventures'
losses) which was partially  offset by a $58,000  increase in the  Partnership's
share of  unconsolidated  venture's  loss.  Operating  loss,  which includes the
consolidated  results of the Lakes and Harbour Pointe joint ventures,  decreased
mainly due to an  increase  in rental  revenue  of  $402,000  and a decrease  in
depreciation  expense of $345,000.  Rental revenues increased primarily due to a
$386,000  increase  in revenue at The Lakes as a result of  increases  in rental
rates  compared  to the same  period in the  prior  year.  Depreciation  expense
declined as a result of certain  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 an $81,000  decrease  in other
income and increases in the property operating, general and administrative,  and
interest  expense  categories.  Other income decreased mainly due to real estate
tax refunds received by The Lakes Joint Venture during the prior year.  Property
operating   expenses  were  higher  mainly  due  to  increases  in  repairs  and
maintenance,  advertising,  salaries  and  management  fees at The  Lakes and an
increase in repairs and maintenance  expenses at Harbour Pointe. The increase in
general and administrative  expenses was largely  attributable to an increase in
certain required  professional services compared to the same period in the prior
year.

      The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Lincoln Garden joint venture,  increased by $58,000
in the current  nine-month  period due to a $60,000  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:  February 17, 1998