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, 1996

                                       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, 1996 and March 31, 1996 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                 September 30     March 31
                                                 ------------     --------
Operating investment properties:
   Land                                           $  18,190      $  18,190
   Buildings and improvements                        77,513         76,995
                                                  ----------     ---------
                                                     95,703         95,185
   Less accumulated depreciation                    (27,001)       (25,465)
                                                  ---------      ---------
                                                     68,702         69,720

Cash and cash equivalents                             1,323          1,390
Restricted cash                                       4,782          4,164
Accounts receivable - affiliates                         89             16
Prepaid and other assets                                 56             68
Deferred expenses, net                                  714            769
                                                  ---------      ---------
                                                  $  75,666      $  76,127
                                                  =========      =========

                        LIABILITIES AND PARTNERS' DEFICIT

Long-term debt in default                         $  87,317      $  87,489
Accounts payable and accrued expenses                   403            355
Accrued interest and fees                             4,859          4,258
Tenant security deposits                                453            477
Equity in losses of unconsolidated joint venture
  in excess of investments and advances               2,284          2,223
Long-term debt                                        9,125          9,125
Co-venturers' share of net assets of
  consolidated ventures                               1,111          1,153
Partners' deficit                                   (29,886)       (28,953)
                                                  ---------      ---------
                                                  $  75,666      $  76,127
                                                  =========      =========

             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
        For the six months ended September 30, 1996 and 1995 (Unaudited)
                                 (In thousands)

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


Balance at March 31, 1995                           $(2,500)      $(23,840)
Net loss                                                (71)        (1,351)
                                                    -------       --------
Balance at September 30, 1995                       $(2,571)      $(25,191)
                                                    =======       ========

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



                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and six months ended September 30, 1996 and 1995 (Unaudited)
                      (In thousands, except per Unit data)

                                    Three Months Ended      Six Months Ended
                                       September 30,           September 30,
                                    ------------------      -----------------
                                      1996        1995         1996     1995
                                      ----        ----         ----     ----

Revenues:
   Rental income                  $ 2,455     $ 2,410      $ 4,973    $ 4,844
   Interest income                     66          57          130         98
   Other income                       113         100          346        218
                                  -------     -------      -------    -------
                                    2,634       2,567        5,449      5,160

Expenses:
   Property operating expenses        994         882        1,900      1,750
   Real estate taxes                  249         247          497        494
   Interest expense                 1,165       1,312        2,353      2,694
   Depreciation                       771         757        1,536      1,513
   General and administrative          29          66           77        124
                                 --------    --------     --------    -------
                                    3,208       3,264        6,363      6,575
                                ---------    --------     --------    -------

Operating loss                       (574)       (697)        (914)    (1,415)

Partnership's share of 
  unconsolidated venture's 
  loss                                (25)        (28)         (61)       (44)

Co-venturers' share of 
  consolidated ventures' 
  losses                               42          37           42         37
                               ----------    --------    --------     -------


Net loss                        $    (557) $     (688)    $   (933)   $(1,422)
                                =========  ==========     ========    =======

Net loss per Limited 
 Partnership Unit                $(12.71)  $ (15.69)      $ (21.28)   $(32.43)
                                 =======   ========       ========    =======

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 CASH FLOWS
              For the six months ended September 30, 1996 and 1995
          Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)

                                                           1996         1995
                                                           ----         ----
Cash flows from operating activities:
   Net loss                                              $  (933)    $ (1,422)
   Adjustments to reconcile net loss to
     net cash provided by operating activities:
     Depreciation                                          1,536        1,513
     Amortization of deferred financing costs                 55           51
     Amortization of deferred gain on forgiveness of debt   (172)        (172)
     Partnership's share of unconsolidated venture's loss     61           44
     Co-venturers' share of consolidated ventures' losses    (42)         (37)
     Changes in assets and liabilities:
      Accounts receivable - affiliates                       (73)          (2)
      Prepaid and other assets                                12           12
      Accounts payable and accrued expenses                   48          136
      Accrued interest and fees                              601          591
      Tenant security deposits                               (24)         (44)
                                                        --------     --------
      Total adjustments                                    2,002        2,092
                                                        --------     --------
      Net cash provided by operating activities            1,069          670
                                                        --------     --------

Cash flows from investing activities:
   Additions to buildings and improvements                  (518)           -
                                                       ---------     --------
      Net cash used in investing activities                 (518)           -
                                                       ---------     --------

Cash flows from financing activities:
   Net withdrawals from (deposits to)
    restricted cash                                        (618)         950
                                                       --------      --------
      Net cash provided by (used in) financing
        activities                                         (618)         950
                                                       --------      --------
  
Net increase (decrease) in cash and cash equivalents         (67)       1,620

Cash and cash equivalents, beginning of period             1,390        1,292
                                                        --------     --------

Cash and cash equivalents, end of period                $  1,323     $  2,912
                                                        ========     ========

Cash paid during the period for interest                $  1,869     $  2,224
                                                        ========     ========












                             See accompanying notes.


<PAGE>


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


1.  Organization

    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, 1996.

    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.

2.  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.

    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, 1996 and 1995
                                 (in thousands)

                                    Three Months Ended      Six Months Ended
                                          June 30,                June 30,
                                    ------------------      ----------------
                                      1996        1995         1996     1995
                                      ----        ----         ----     ----

    Rental revenues                $  284      $  296      $  559      $  597
    Interest and other income          16          12          31          23
                                   ------      ------      ------      ------
                                      300         308         590         620

    Property operating expenses       154         158         314         310
    Interest expense                  119         133         242         260
    Depreciation and amortization      63          59         125         115
                                  -------     -------     -------      ------
                                      336         350         681         685
                                  -------     -------     -------      ------
    Net loss                      $   (36)    $   (42)    $   (91)     $  (65)
                                  =======     =======     =======      ======

    Net loss:
      Partnership's share of
        net loss                  $  (24)    $   (27)    $   (59)     $  (42)
      Co-venturer's share of
        net loss                     (12)        (15)        (32)        (23)
                                  -------    -------     --------     ------
                                  $  (36)    $   (42)    $   (91)     $  (65)
                                  ======     =======     =======      ======


<PAGE>


               Reconciliation of Partnership's Share of Operations
            For the three and six months ended June 30, 1996 and 1995
                                 (in thousands)

                                     Three Months Ended     Six Months Ended
                                           June 30,              June 30,
                                     ------------------    ------------------
                                       1996        1995         1996     1995
                                       ----        ----         ----     ----

   Partnership's share of
     operations, as shown above      $  (24)     $  (27)     $  (59)    $  (42)
   Amortization of excess basis          (1)         (1)         (2)        (2)
                                     -------     -------     -------   -------
   Partnership's share of
     unconsolidated venture's loss   $  (25)     $  (28)     $  (61)   $  (44)
                                     ======       ======     ======    ======

3. 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 and, accordingly,
   presents  the  financial  position  and the  operating  results  of the joint
   venture on a consolidated basis.

   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.  Accordingly,  the  financial
   position  and  results  of  operations  of the  Venture  are  presented  on a
   consolidated basis.

   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, 1996 and 1995 (in thousands):

                                       Three Months Ended      Six Months Ended
                                            June 30,                June 30,
                                       ------------------    ------------------
                                        1996     1995           1996     1995
                                        ----     ----           ----     ----

      Property operating expenses:
        Repairs and maintenance        $ 288   $  284        $   500   $  434
        Utilities                        148      145            300      297
        Management fees                   93       90            187      181
        Other operating and 
          administrative                 465      363            913      838
                                       -----   ------        -------   ------
                                       $ 994   $  882        $ 1,900   $1,750
                                       ====    ======        =======   ======



<PAGE>


4. Related Party Transactions

   Included  in general and  administrative  expenses  for the six months  ended
   September   30,  1996  and  1995  is  $34,000  and   $42,000,   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 months ended
   September 30, 1996 and 1995 is $2,000 and $3,000, respectively,  representing
   fees earned by Mitchell Hutchins Institutional  Investors,  Inc. for managing
   the Partnership's cash assets.

5. Long-term Debt

   Long-term debt on the  Partnership's  balance sheet at September 30, 1996 and
   March 31, 1996 consists of the following (in thousands):

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

     Nonrecourse     mortgage    note
payable   by  71st   Street   Housing
Partners,  Ltd. 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  by The
Lakes  Joint  Venture  which  secures
County    of    Orange,    California
Tax-Exempt   Apartment   Develop-ment
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 by The
Lakes Joint  Venture to bank  secured
by a third  deed of  trust  plus  all
future rents and income  generated by
The Lakes at South Coast  Apartments.                    4,584          4,584

     Prior indebtedness  principal by
The Lakes  Joint  Venture  payable to
bank.  This obligation is nonrecourse
to the joint venture.                                    3,561          3,561

     Deferred gain on  forgiveness of
debt of The Lakes Joint  Venture (net
of accumulated amortization of $1,707
and  $1,535  at  June  30,  1996  and
December  31,   1995,   respectively)                   3,572           3,744

                                                   ----------      ----------
                                                       96,442          96,614

     Less:  Long-term debt in default
(see   discussion   below)                           (87,317)        (87,489)

                                                  ----------      ----------
                                                  $    9,125      $    9,125
                                                  ==========      ==========



<PAGE>


    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.

       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 is scheduled to expire on December 15, 1997.

    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 beginning in December 1989 for failure to make full and timely payments
    on the loan.  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 and payable from 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 1.0% of the
    outstanding  amount,  payable 60%  monthly  with the  remaining  40% (Unpaid
    Accrued  Letter of Credit  Fees)  deferred and paid in  accordance  with the
    Reimbursement  Agreement (see the Partnership's  Annual Report for a further
    discussion of the  Reimbursement  Agreement).  Such Unpaid Accrued Letter of
    Credit Fees were $1,459,000 and $1,306,000 at June 30, 1996 and December 31,
    1995, 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.

       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 amounts equal to or greater than $92,000,000 and  $100,000,000,
    respectively.  Failure  to  provide  such  appraisals  constitute  events of
    default under the Reimbursement  Agreement. To date, the Lakes Joint Venture
    has not  provided  the  lender  with an  appraisal  which  meets  either the
    $92,000,000 or  $100,000,000  requirement,  and the lender has not waived or
    modified the minimum appraised value requirements.  Accordingly, the Venture
    is technically  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.  During fiscal 1996 and the first
    half of fiscal 1997, the  Partnership  has engaged in  discussions  with the
    lender regarding possible changes in the appraisal requirements, however, no
    agreement  has been  reached to date.  There can be no  assurances  that the
    lender will grant any relief in connection with these  appraisal  covenants.
    Accordingly,  the  carrying  amount of the debt  related to The Lakes  Joint
    Venture has been classified as long-term debt in default on the accompanying
    balance sheets as of September 30, 1996 and March 31, 1996.

       In the event that  management is  successful  in  negotiating a waiver or
    modification of the minimum appraised value requirements described above for
    The Lakes  Joint  Venture,  the  Partnership  will  continue  to direct  the
    management  of the  remaining  operating  properties  in order  to  generate
    sufficient cash flow to sustain operations in the near-term while attempting
    to maximize  their  long-term  values.  Even under these  circumstances,  it
    remains to be seen whether such a strategy would result in the return of any
    significant  amount  of  invested  capital  to  the  Limited  Partners.   If
    management  cannot  reach an  agreement  with  The  Lakes'  mortgage  lender
    regarding  the  appraisal  covenants,  the lender  could  choose to initiate
    foreclosure  proceedings.  While the Partnership is prepared to exercise all
    available legal remedies in the event that the lender takes such actions, if
    the Partnership were not successful with its legal defenses the result could
    be a foreclosure of the operating  property.  If such a foreclosure  were to
    occur within the next 2 years,  the Partnership may be unable to recover the
    net carrying value of the operating investment property,  which exceeded its
    estimated  market value by  approximately $6 million as of June 30, 1996. In
    the event that the ownership of The Lakes was transferred to the lender as a
    result of foreclosure actions, the Partnership would have to weigh the costs
    of continued  operations against the realistic hopes for any future recovery
    of capital from the other two  investments.  Under such  circumstances,  the
    Managing  General  Partner  might  determine  that it  would  be in the best
    interests of the Limited Partners to liquidate the remaining investments and
    terminate the  Partnership.  Management  will reassess its future  operating
    strategy once the appraisal covenant  compliance issue on The Lakes is fully
    resolved.  These conditions raise  substantial doubt about the Venture's and
    the  Partnership's  ability to continue  as going  concerns.  The  financial
    statements  do not include any  adjustments  to reflect the possible  future
    effects on the  recoverability  and  classification of assets or the amounts
    and  classification  of liabilities that may result from the outcome of this
    uncertainty.

       The  restructuring  of the Prior  Indebtedness,  the  Deferred  Letter of
    Credit Fees and the line of credit  borrowings  in 1991 was 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  $5,279,000,  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,
    1996 and December 31, 1995, $3,572,000 and $3,744,000, respectively, of such
    forgiven  debt  (net  of  accumulated  amortization)  is  reflected  in  the
    accompanying balance sheets.

6.  Contingencies

       As discussed in detail in the  Partnership's  Annual  Report for the year
    ended March 31, 1996, the  Partnership is involved in certain legal actions.
    At the present  time,  the Managing  General  Partner is unable to determine
    what  impact,  if any, the  resolution  of these  matters  might have on the
    Partnership's financial statements, taken as a whole.


<PAGE>



                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

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

Liquidity and Capital Resources

     As discussed in the Annual Report,  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 successful
debt restructurings,  and the properties do not currently require the use of the
Partnership's cash reserves to support operations.  Nonetheless,  the properties
would not operate at or above breakeven under conventional financing terms based
on the current outstanding principal amounts owed. All three of these properties
have been  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.  As
previously  reported,   the  debt  modification  agreement  for  The  Lakes  was
structured with certain debt service reserves and accrual  features  intended to
help absorb interest rate  fluctuations.  Although such reserves have been drawn
down over the past 12 months to cover required  current debt service,  The Lakes
Joint  Venture  still has over  $1,200,000  of  reserves  in place to help cover
possible future debt service  shortfalls.  The Harbour Pointe and Lincoln Garden
joint ventures would require advances from the venture partners, principally the
Partnership in the case of Harbour Pointe, if future cash flows are insufficient
to cover any increases in debt service payments.

     The letters of credit which  collateralize  the Lincoln  Garden and Harbour
Pointe  mortgage  loans are scheduled to expire on May 1, 1997 and  December 15,
1997, respectively.  Management is currently evaluating its options for renewing
these letters of credit. If the letters of credit are not renewed,  the mortgage
loans would become  immediately due and payable upon these  expiration dates and
would  need to be  repaid  from the  proceeds  of a sale or  refinancing  of the
operating  investment  properties.  If  a  sale  or  refinancing  could  not  be
accomplished, the properties could be subject to foreclosure by the lenders. The
outcome of this situation cannot presently be determined.
     

     Despite a general  strengthening in the real estate market for multi-family
residential  properties over the past several years, based on current cash flows
generated from operations,  all three of the Partnership's  remaining properties
have  estimated  current  market  values  which are below the  balances of their
outstanding debt obligations.  It remains to be seen whether further improvement
in market  conditions will occur as rapidly or to the extent necessary to enable
the Partnership to recover any meaningful portion of its original  investment in
these three remaining properties. At the present time, the recovery of the local
markets in which the  Partnership's  remaining  properties  are located is being
slowed by, in all cases, new construction of competing apartment properties. The
new construction  activity in the Bradenton,  Florida (Harbour Pointe),  Tucson,
Arizona  (Lincoln  Garden)  and  Costa  Mesa,  California  (The  Lakes)  markets
represents  the first  substantial  additions to the market  supply of apartment
units in these markets in several years and has forced the  Partnership to offer
rental  concessions at its investment  properties in order to maintain occupancy
levels. The supply of new apartment units has also restrained rental rate growth
at the Partnership's properties over the past year.

     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   is  defined  as  an  event  of  default  under  the
Reimbursement  Agreement.  Based on current cash flow levels and the  prevailing
market  conditions,   the  value  of  the  property  could  be  expected  to  be
considerably  less than $92  million as of  September  30,  1996.  The  Managing
General  Partner  has had  preliminary  discussions  with the  lender  regarding
possible  changes to the appraisal  requirements.  Preliminary  indications have
been that the lender might consider  waiving or modifying the minimum  appraised
value  requirements in exchange for a rearrangement of the timing and amounts of
certain  payment  priorities,  as  specified  in  the  Reimbursement  Agreement.
However,  to date the venture has not provided the lender with appraisals  which
meet either of the minimum thresholds, and the lender has not waived or modified
the minimum appraised value requirements.  In February 1996, the lender issued a
formal  notice of default to the Joint  Venture  pursuant  to the  Reimbursement
Agreement.  At this  time,  management  does not  expect  the lender to take any
additional  actions as long as progress continues to be made in negotiations for
modification to the terms of the Reimbursement Agreement.  However, there can be
no  assurances  that the lender will grant any relief in  connection  with these
appraisal covenants.

     In the event that  management  is  successful  in  negotiating  a waiver or
modification of the minimum appraised value requirements described above for The
Lakes Joint Venture,  which represents  approximately  49% of the  Partnership's
original  investment  portfolio,  the  Partnership  will  continue to direct the
management of the remaining operating properties in order to generate sufficient
cash flow to sustain  operations in the near-term  while  attempting to maximize
their long-term values. As discussed above, even under these  circumstances,  it
remains to be seen  whether  such a strategy  would  result in the return of any
significant  amount of invested capital to the Limited  Partners.  If management
cannot  reach an  agreement  with  The  Lakes'  mortgage  lender  regarding  the
appraisal   covenants,   the  lender  could   choose  to  initiate   foreclosure
proceedings.  While the  Partnership is prepared to exercise all available legal
remedies in the event that the lender  takes such  actions,  if the  Partnership
were not successful with its legal defenses the result could be a foreclosure of
the operating  property.  If such a foreclosure  were to occur within the next 2
years,  the  Partnership  may be unable to recover the net carrying value of The
Lakes' operating investment property,  which exceeded its estimated market value
by approximately $6 million as of June 30, 1996. In the event that the ownership
of The Lakes was  transferred to the lender as a result of foreclosure  actions,
the Partnership  would have to weigh the costs of continued  operations  against
the  realistic  hopes for any  future  recovery  of  capital  from the other two
investments.  Under such  circumstances,  the  Managing  General  Partner  might
determine  that it would be in the best  interests  of the  Limited  Partners to
liquidate the remaining  investments and terminate the  Partnership.  Management
will  reassess  its  future  operating  strategy  once  the  appraisal  covenant
compliance issue on The Lakes is fully resolved.

     Barring a significant  increase in tax-exempt  interest rates,  excess cash
flow  from  Harbour  Pointe  should  continue  to be  sufficient  to  cover  the
Partnership's  operating  expenses over the near term. Excess cash flow from the
Lincoln  Garden joint  venture has been minimal and is primarily  payable to the
co-venturer  for the  repayment  of  prior  advances.  To the  extent  that  the
Partnership's  operating properties generate excess cash flow after current debt
service,  a  substantial  portion  of such  amounts  will be  reinvested  in the
properties  to  make  certain  repairs  and  improvements  aimed  at  maximizing
long-term  values.  At The Lakes,  capital  improvements  for calendar 1996 have
included  a  continuation  of the  program  to upgrade  the  hallways,  elevator
landings,  lobbies,  carpeting and signage. As previously  reported,  management
reached an agreement with the mortgage  lender  regarding the release of certain
restricted  cash amounts to pay for these planned  improvements,  as well as for
the  painting of the  building  exteriors.  Improvements  at Lincoln  Garden for
calendar 1996 have included  renovations to the clubhouse,  additional  exterior
lighting and appliance  replacement on an as-needed  basis. Improvements  at the
Harbour Pointe Apartments during calendar 1996 included new pool furniture,  the
installation  of additional  sidewalks  and  upgrading  the unit  interiors on a
turnover  basis.  During  calendar 1995, the  installation  of individual  water
meters in all units at Harbour Pointe was completed, which transferred the water
usage costs from the joint venture to the tenants.  The full twelve-month effect
of this reduction in operating  expenses has improved the venture's cash flow in
calendar 1996. The amount and timing of the funds to be spent on future property
improvements  at both  Lincoln  Garden and  Harbour  Pointe will depend upon the
availability of cash flow from the respective property's operations.

     At September 30, 1996, the Partnership and its consolidated  joint ventures
had available cash and cash equivalents of approximately  $1,323,000.  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 operating
deficits  of its  remaining  joint  venture  investments.  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.


<PAGE>


Results of Operations
Three Months Ended September 30, 1996

     The Partnership's net loss decreased by $131,000 for the three-month period
ended September 30, 1996, as compared to the same period in the prior year. This
favorable   change  in  net  loss  resulted  largely  from  a  decrease  in  the
Partnership's operating loss of $123,000. Operating loss decreased mainly due to
increases in rental  income and a decrease in interest  expense.  Rental  income
from the consolidated  joint ventures  increased by $45,000  primarily due to an
increase in average  occupancy and a small increase in rental rates at The Lakes
at South Coast Apartments.  Interest expense decreased by $147,000 mainly due to
a decrease in the variable  interest rate on the first  mortgage loan secured by
The Lakes at South  Coast  Apartments.  The  increase  in rental  income and the
decrease in interest  expense were  partially  offset by an increase in property
operating expenses.  Property operating expenses increased by $112,000 primarily
due to an  increase in repairs  and  maintenance  expenses at The Lakes at South
Coast Apartments in connection with the enhancement projects described above.

     The Partnership's share of unconsolidated  venture's loss, which represents
the operating results of the Lincoln Garden Joint Venture decreased by $3,000 in
the current three-month period compared to the same period last year,  primarily
due to decreases in the venture's interest expense and real estate taxes.

Six Months Ended September 30, 1996

     The  Partnership's  net loss decreased by $489,000 for the six-month period
ended September 30, 1996, as 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 $501,000.  Operating loss decreased mainly due to increases in
rental and other income from the  consolidated  joint ventures and a decrease in
interest  expense.  Rental  income  increased  by $129,000  primarily  due to an
increase in average  occupancy and a small increase in rental rates at The Lakes
at South Coast Apartments. Other income increased by $128,000 largely due to the
receipt  of a real  estate  tax  refund by The Lakes  Joint  Venture  during the
current period.  Interest expense decreased by $341,000 mainly due to a decrease
in the variable interest rate on the first mortgage loan secured by The Lakes at
South  Coast  Apartments.  The  increases  in rental  and other  income  and the
decrease in interest  expense were  partially  offset by an increase in property
operating expenses.  Property operating expenses increased by $150,000 primarily
due to an  increase in repairs  and  maintenance  expenses at The Lakes at South
Coast Apartments in connection with the enhancement projects described above.

     The decrease in the Partnership's operating loss was partially offset by an
increase  in the  Partnership's  share of  unconsolidated  venture's  loss.  The
Partnership's  share of  unconsolidated  venture's  loss,  which  represents the
operating   results  of  the  Lincoln   Garden  Joint   Venture,   increased  by
approximately  $17,000 for the current six-month period primarily due to a small
decrease in the  venture's  rental income  resulting  from a decrease in average
occupancy at the Lincoln Garden Apartments.



<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings

    As discussed  in prior  quarterly  and annual  reports,  in November  1994 a
series of purported class actions (the "New York Limited  Partnership  Actions")
were filed in the United States District Court for the Southern  District of New
York concerning  PaineWebber  Incorporated's  sale and sponsorship of 70 limited
partnership  investments,  including  those  offered  by  the  Partnership.  The
lawsuits were brought against  PaineWebber  Incorporated  and Paine Webber Group
Inc.  (together   "PaineWebber"),   among  others,  by  allegedly   dissatisfied
partnership investors.  In March 1995, after the actions were consolidated under
the title In re  PaineWebber  Limited  Partnership  Litigation,  the  plaintiffs
amended their complaint to assert claims against a variety of other  defendants,
including  Fourth  Development  Fund Inc. and Properties  Associates  1985, L.P.
("PA1985"),  which are the General Partners of the Partnership and affiliates of
PaineWebber.  On May 30, 1995, the court certified class action treatment of the
claims asserted in the litigation.

     In January 1996,  PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action  litigation,  including  releases in favor of the
Partnership  and the General  Partners,  and the  allocation of the $125 million
settlement  fund among  investors  in the various  partnerships  at issue in the
case.  As part of the  settlement,  PaineWebber  also  agreed to  provide  class
members with certain financial  guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the  direction of the court.  A final  hearing on the fairness of the
proposed settlement is scheduled to continue in November 1996.

     With regard to the Abbate  action  described  in the Annual  Report on Form
10-K for the year ended March 31, 1996,  in September  1996 the court  dismissed
many  of the  plaintiffs'  claims  as  barred  by  the  applicable  statutes  of
limitations.  The eventual outcome of this litigation and the potential  impact,
if any, on the Partnership's  unitholders remains  undeterminable at the present
time.

     The  status of the  other  litigation  involving  the  Partnership  and its
General  Partners  remains  unchanged  from  the  description  provided  in  the
Partnership's Annual Report on Form 10-K for the year ended March 31, 1996.

     Under certain limited circumstances,  pursuant to the Partnership Agreement
and other contractual  obligations,  PaineWebber affiliates could be entitled to
indemnification  for expenses and  liabilities in connection with the litigation
discussed above. However, PaineWebber has agreed not to seek indemnificaiton for
any amounts it is required to pay in connection  with the  settlement of the New
York Limited  Partnership  Actions.  At the present time,  the Managing  General
Partner  cannot  estimate the impact,  if any, of the potential  indemnification
claims on the Partnership's financial statements, taken as a whole. Accordingly,
no provision for any liability  which could result from the eventual  outcome of
these  matters has been made in the  accompanying  financial  statements  of the
Partnership.

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 13, 1996