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, 1995

                                       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, 1995 and March 31, 1995 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                 December 31      March 31
Operating investment properties:
   Land                                           $  18,190      $  18,190
   Buildings and improvements                        76,831         76,825
                                                 ----------      ---------
                                                     95,021         95,015
   Less accumulated depreciation                    (24,650)       (22,386)
                                                 ----------      ---------
                                                     70,371         72,629

Cash and cash equivalents                             3,101          1,292
Restricted cash                                       2,256          3,045
Accounts receivable - affiliates                         15             11
Prepaid and other assets                                 74             67
Deferred expenses, net                                  797            880
                                               ------------   ------------
                                                  $  76,614      $  77,924
                                                  =========      =========

                        LIABILITIES AND PARTNERS' DEFICIT

Long-term debt in technical default              $   83,745      $  83,745
Accounts payable and accrued expenses                   436            390
Accrued interest and fees                             4,052          3,156
Tenant security deposits                                430            441
Minority interest in net assets of  
   consolidated ventures                              1,217          1,221
Equity in losses of unconsolidated joint venture
  in excess of investments and advances               2,167          2,099
Deferred gain on forgiveness of debt                  3,830          4,087
Long-term debt                                        9,125          9,125
Partners' deficit                                   (28,388)       (26,340)
                                                 ----------     ----------
                                                  $  76,614      $  77,924
                                                  =========      =========

           CONSOLIDATED  STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
 For the ninemonths ended December 31, 1995 and 1994 (Unaudited)
                                 (In thousands)

                                                  General        Limited
                                                  Partners       Partners

Balance at March 31, 1994                           $(2,396)      $(21,862)
Net loss                                                (64)        (1,217)
                                                    -------       --------
Balance at December 31, 1994                        $(2,460)      $(23,079)
                                                    =======       ========

Balance at March 31, 1995                           $(2,500)      $(23,840)
Net loss                                               (102)        (1,946)
                                                    -------       --------
Balance at December 31, 1995                        $(2,602)      $(25,786)
                                                    =======       ========

                             See accompanying notes.


<PAGE>


                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                    CONSOLIDATED STATEMENTS OF OPERATIONS 
For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
                      (In thousands, except per Unit data)

                                  Three Months Ended       Nine Months Ended
                                       December 31,            December 31,
                                   1995         1994       1995         1994
                                   ----         ----       ----         ----

Revenues:
   Rental income               $  2,445    $  2,409      $7,289      $7,165
   Interest income                   61          41         159         100
   Other income                     109         119         327         337
                                -------    --------      ------      ------
                                  2,615       2,569       7,775       7,602

Expenses:
   Property operating expenses    1,031       1,068       2,781       2,811
   Real estate taxes                 39          31         533         577
   Interest expense               1,301       1,141       3,995       3,070
   Depreciation                     751         746       2,264       2,251
   General and administrative        62          51         186         168
                               -------- -  --------    ---------    --------
                                  3,184       3,037       9,759       8,877
                                -------    --------    --------     -------

Operating loss                     (569)       (468)     (1,984)     (1,275)

Partnership's share of 
  unconsolidated
  venture's loss                    (24)        (11)        (68)        (11)

Co-venturers' share of
  consolidated
  ventures' losses                    2           3           4           5
                              --------    ---------    --------     -------

Net loss                      $    (591)   $   (476)    $(2,048)    $(1,281)
                              =========    ========     =======     =======

Net loss per Limited 
 Partnership Unit             $(13.50)   $  (10.85)    $(46.73)    $(29.21)
                               =======   =========     =======      ======

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 nine  months  ended December 31, 1995 and 1994
        Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)

                                                         1995         1994
Cash flows from operating activities:
   Net loss                                              $(2,048)    $(1,281)
   Adjustments  to  reconcile  net  loss  to 
    net  cash  provided  by  operating
     activities:
     Depreciation                                          2,264        2,251
     Amortization of deferred financing costs                 83          226
     Amortization of deferred gain on forgiveness of debt   (257)        (257)
     Partnership's share of unconsolidated venture's loss     68           11
     Co-venturers' share of consolidated ventures' losses     (4)          (5)
     Changes in assets and liabilities:
      Accounts receivable - affiliates                        (4)         (12)
      Prepaid and other assets                                (7)          (7)
      Accounts payable and accrued expenses                   46          298
      Accrued interest and fees                              896          222
      Tenant security deposits                               (11)           8
      Advances from consolidated ventures                      -         (100)
                                                       ---------    ---------
      Total adjustments                                    3,074        2,635
                                                       ---------    ---------
      Net cash provided by operating activities            1,026        1,354
                                                       ---------    ---------

Cash flows from investing activities:
   Additions to buildings and improvements                    (6)        (206)
                                                      -----------   ----------
      Net cash used for investing activities                  (6)        (206)
                                                      -----------   ----------

Cash flows from financing activities:
   Release of funds from restricted cash                     789          765
   Repayment of long term debt                                 -         (490)
                                                     -----------    ---------
      Net cash provided by financing activities              789          275
                                                     -----------    ---------

Net increase in cash and cash equivalents                  1,809        1,423

Cash and cash equivalents, beginning of period             1,292        1,252
                                                      ----------     --------

Cash and cash equivalents, end of period               $   3,101     $  2,675
                                                       =========     ========

Cash paid during the period for interest               $   3,273     $  2,879
                                                       =========     ========









                             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, 1995.

    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 nine
       months ended September 30, 1995 and 1994
                                 (in thousands)

                                    Three Months Ended      Nine Months Ended
                                        September 30,           September 30,
                                       1995        1994        1995     1994

    Rental revenues                 $  279      $  281      $  876    $  808
    Interest and other income           18          17          41       102
                                  --------    --------    --------   -------
                                       297         298         917       910

    Property operating expenses        154         148         464       446
    Interest expense                   119          88         379       321
    Depreciation and amortization       59          78         174       156
                                  --------    --------     -------   -------
                                       332         314       1,017       923
                                   -------     -------      ------   -------
    Net loss                       $   (35)    $   (16)     $ (100)  $   (13)
                                   =======     =======      ======   =======

    Net loss:
      Partnership's share of 
       net loss                    $   (23)  $   (10)    $   (65)   $   (8)
      Co-venturer's share of
        net loss                       (12)       (6)        (35)       (5)
                                  --------   --------    --------   --------
                                   $   (35)   $   (16)   $   (100)  $   (13)
                                   =======    =======    ========   =======


<PAGE>


             Reconciliation  of Partnership's  Share of Operations
 For the three and nine months ended September 30, 1995 and 1994
                                 (in thousands)

                                      Three Months Ended      Nine Months Ended
                                        September 30,          September 30,
                                        1995      1994         1995     1994

     Partnership's share of
       operations, as shown above    $   (23)  $  (10)     $   (65)  $   (8)
     Amortization of excess basis         (1)      (1)          (3)      (3)
                                     -------   -------     -------   -------
     Partnership's share of
       unconsolidated venture's loss $   (24)  $  (11)     $   (68)   $ (11)
                                     =======   ======      =======    =====

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 nine months ended September 30, 1995 and 1994 (in thousands):

                                       Three Months Ended   Nine  Months Ended
                                         September 30,        September 30,
                                        1995      1994         1995     1994

      Property operating expenses:
        Repairs and maintenance       $  210   $  165      $   644    $   440
        Utilities                        166      165          463        433
        Other operating and 
         administrative                  655      738        1,674      1,938
                                      ------   ------       ------     -------
                                      $1,031   $1,068       $2,781     $2,811
                                      ======   ======       ======     ======


4. Related Party Transactions

   Included in general and  administrative  expenses  for the nine months  ended
   December 31, 1995 and 1994 is $61,000 and $64,000, 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 each of the nine
   months ended December 31, 1995 and 1994 is $3,000,  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 December 31, 1995 and
   March 31, 1995 consists of the following (in thousands):

                                                  December 31        March 31

    Nonrecourse,  variable rate mortgage
    note  pay-able  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 carries a variable
    interest rate, 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

    11%  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.                                        4,584            4,584

    Prior   indebtedness   principal
    payable     to    bank.     This
    obligation,  which is related to
    The Lakes Joint  Venture,  bears
    interest  at 11% per  annum  and
    is nonrecourse.                                    3,561            3,561
                                                  ----------       ----------
                                                      92,870           92,870
    Less:    Long-term    debt    in
    technical      default      (see
    discussion below)                                (83,745)         (83,745)
                                                   ---------        ---------
                                                   $   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.

    Debt secured by The Lakes at South Coast Apartments

       Original   financing  for  construction  of  The  Lakes  at  South  Coast
    Apartments  was provided from a developer  loan in the amount of $76,000,000
    funded  by  the  proceeds  of a  public  offering  of  tax-exempt  apartment
    development  revenue bonds. The Venture had been in default of the developer
    loan since December 1989 for failure to make full and timely payments on the
    loan.  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  $1,229,000 and $999,000 at September 30, 1995 and December
    31,  1994,  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 the  $92,000,000
    requirement, and the lender has not waived or modified the minimum appraised
    value requirement.  Accordingly, the Venture is technically in default under
    the   Reimbursement   Agreement.   The  Managing  General  Partner  has  had
    preliminary  discussions with the lender  regarding  possible changes to the
    1994  appraisal  requirement.  Preliminary  indications  have  been that the
    lender might  consider  waiving or  modifying  the minimum  appraised  value
    requirement for September 1994 in exchange for a rearrangement of the timing
    and  amounts  of  certain  priorities,  as  specified  in the  Reimbursement
    Agreement. Management does not expect the lender to take any 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 this  appraisal
    covenant and,  accordingly,  the principal amount of the debt related to The
    Lakes Joint  Venture has been  classified  as  long-term  debt in  technical
    default on the balance  sheets as of December  31, 1995 and March 31,  1995.
    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
    September  30,  1995 and  December  31,  1994,  $3,830,000  and  $4,087,000,
    respectively,  of such forgiven debt (net of  accumulated  amortization)  is
    reflected in the accompanying balance sheets.

6.  Contingencies

       The  Partnership  is  involved in certain  legal  actions.  The  Managing
    General  Partner  believes  that  these  actions  will be  resolved  without
    material adverse effect 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  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 during the first nine
months of fiscal 1996 to cover  required  current debt service,  the Lakes Joint
Venture still has over  $1,000,000  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.

      Despite a general strengthening in the real estate market for multi-family
residential  properties  over the past three 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. In addition, the Reimbursement Agreement which
governs the secured debt obligations of The Lakes Joint Venture contains certain
restrictive  covenants,  including  a  provision  that  required  the venture to
provide the lender,  in September  1994,  with an  independent  appraisal of the
operating  property  showing the value of the property to be equal to or greater
than $92 million. Failure to provide such an appraisal 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.  The Managing  General  Partner has had
preliminary  discussions with the lender regarding  possible changes to the 1994
appraisal requirement.  Preliminary  indications have been that the lender might
consider  waiving or  modifying  the minimum  appraised  value  requirement  for
September  1994 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 an appraisal which
meets the $92 million requirement, and the lender has not waived or modified the
minimum appraised value requirement.  Accordingly, the venture is technically in
default under the Reimbursement Agreement. Management does not expect the lender
to take any 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 this
appraisal covenant.

     In the event that  management  is  successful  in  negotiating  a waiver or
modification of the minimum appraised value requirement  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 covenant, the lender could choose to initiate foreclosure proceedings.
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 such  legal  defenses  and the result was a  foreclosure  of the  operating
property,  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  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,
planned capital  improvements for calendar 1996 include  upgrading the hallways,
elevator  landings and lobbies and painting the building  exteriors.  Management
has reached an  agreement  with the  mortgage  lender  regarding  the release of
certain  restricted  cash  amounts  to  pay  for  these  planned   improvements.
Improvements  planned at Lincoln  Garden for 1996 include  resurfacing  the pool
deck,  replacing  the roofs on several  buildings,  repairing  the sidewalks and
upgrading the unit interiors on a turnover  basis.  Future  improvements  at the
Harbour Pointe Apartments are expected to include new pool furniture, additional
exterior  lighting,  appliance  replacement  and the  installation of individual
water  meters in all  units.  The  amount and timing of the funds to be spent on
property  improvements at Lincoln Garden and Harbour Pointe will depend upon the
availability of cash flow from the respective property's operations.

      At December 31, 1995, the Partnership and its consolidated  joint ventures
had available cash and cash equivalents of approximately  $3,101,000.  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.

Results of Operations
Three Months Ended December 31, 1995

      The  Partnership's  net loss  increased  by $115,000  for the  three-month
period  ended  December  31,  1995,  as compared to the same period in the prior
year. This  unfavorable  change in net loss for the third quarter of fiscal 1996
resulted  primarily  from an increase  in the  Partnership's  operating  loss of
$101,000.  Operating  loss  increased  mainly due to a $160,000  increase in the
combined  interest expense of the consolidated  joint ventures as a result of an
increase in the variable  interest  rates on the respective  ventures'  mortgage
loans.  A small  increase in rental  income and a decline in property  operating
expenses of the  consolidated  joint ventures  partially  offset the increase in
interest expense.  The Partnership's share of the net loss of the Lincoln Garden
joint venture  increased  slightly due to an increase in the venture's  interest
expense  resulting from a higher  variable  interest rate on the  unconsolidated
venture's mortgage loan in the current three-month period.

Nine Months Ended December 31, 1995

      The Partnership's net loss increased by $767,000 for the nine-month period
ended December 31, 1995, as compared to the same period in the prior year.  This
unfavorable  change in net loss  resulted  from  increases in the  Partnership's
operating loss and the Partnership's  share of unconsolidated  venture's loss of
$709,000 and $57,000,  respectively.  Operating loss increased  mainly due to an
increase in interest  expense of  $925,000,  attributable  to an increase in the
variable  interest  rates on the  mortgage  loans  secured by The Lakes at South
Coast  Apartments and the Harbour Pointe  Apartments.  This increase in interest
expense was partially offset by an increase in rental income of $124,000, due to
increases  in rental  income  at both of the  Partnership's  consolidated  joint
ventures, and an increase in interest income of $59,000, attributable largely to
an increase in the average outstanding cash balances during the current year.

     The Partnership's share of unconsolidated  venture's loss, which represents
the operating results of the Lincoln Garden joint venture,  increased by $57,000
for the current nine-month period.  This increase in the Partnership's  share of
the  venture's net loss is mainly due to an increase in interest  expense,  as a
result of an increase in the variable  interest rate on the  venture's  mortgage
loan.  A decline in other  income at the Lincoln  Garden  joint  venture for the
current nine-month period was offset by an increase in rental income.


<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings

    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.

     The amended complaint in the New York Limited  Partnership  Actions alleges
that,  in  connection  with the sale of  interests  in  PaineWebber  Development
Partners Four, Ltd.,  PaineWebber,  Fourth  Development Fund Inc. and PA1985 (1)
failed to provide adequate disclosure of the risks involved;  (2) made false and
misleading   representations  about  the  safety  of  the  investments  and  the
Partnership's  anticipated  performance;  and (3)  marketed the  Partnership  to
investors for whom such  investments  were not  suitable.  The  plaintiffs,  who
purport  to be suing on  behalf  of all  persons  who  invested  in  PaineWebber
Development  Partners  Four,  Ltd.,  also allege that  following the sale of the
partnership  interests,  PaineWebber,  Fourth  Development  Fund Inc. and PA1985
misrepresented   financial   information  about  the  Partnership's   value  and
performance. The amended complaint alleges that PaineWebber,  Fourth Development
Fund,   Inc.  and  PA1985   violated  the  Racketeer   Influenced   and  Corrupt
Organizations Act ("RICO") and the federal  securities laws. The plaintiffs seek
unspecified  damages,  including  reimbursement for all sums invested by them in
the  partnerships,  as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships.  In addition,  the plaintiffs also
seek treble damages under RICO.

     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 which the parties expect
to submit  to the  court for its  consideration  and  approval  within  the next
several months. Until a definitive settlement and plan of allocation is approved
by the court,  there can be no assurance  what, if any,  payment or non-monetary
benefits will be made available to investors in PaineWebber Development Partners
Four,  Ltd.  Pursuant  to  provisions  of the  Partnership  Agreement  and other
contractual  obligations,  under certain  circumstances  the  Partnership may be
required to indemnify Fourth Development Fund, Inc., PA1985 and their affiliates
for costs and liabilities in connection with this litigation. Management has had
discussions with  representatives of PaineWebber and, based on such discussions,
the  Partnership  does not  believe  that  PaineWebber  intends  to  invoke  the
aforementioned  indemnifications  in  connection  with  the  settlement  of this
litigation.

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 13, 1996