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 JUNE 30, 1997

                                       OR

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

            For the transition period from _____ to ______.


                            Commission File Number:  0-17150


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


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


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


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes |X| . No |_|.

<PAGE>

                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

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

                                     ASSETS
                                                   June 30        March 31
                                                   -------        --------

Operating investment properties:
   Land                                           $  18,190      $  18,190
   Buildings and improvements                        77,896         77,896
                                                  ---------      ---------
                                                     96,086         96,086
   Less accumulated depreciation                    (28,730)       (28,077)
                                                  ---------      ---------
                                                     67,356         68,009

Cash and cash equivalents                             2,298          1,562
Restricted cash                                       3,369          3,628
Accounts receivable - affiliates                         22             21
Prepaid and other assets                                179             64
Deferred expenses, net                                  643            658
                                                  ---------      ---------
                                                  $  73,867      $  73,942
                                                  =========      =========

                        LIABILITIES AND PARTNERS' DEFICIT

Long-term debt in default                         $  85,397      $  85,903
Accounts payable and accrued expenses                   615            287
Accrued interest and fees                             4,838          4,587
Tenant security deposits                                502            526
Equity in losses of unconsolidated joint venture
  in excess of investments and advances               2,422          2,375
Mortgage loan payable                                 9,125          9,125
Co-venturers' share of net assets of
  consolidated ventures                               1,132          1,140
Partners' deficit                                   (30,164)       (30,001)
                                                  ---------      ---------
                                                  $  73,867      $  73,942
                                                  =========      =========


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

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

Balance at March 31, 1996                           $(2,631)      $(26,322)
Net loss                                                (19)          (357)
                                                    -------       --------
Balance at June 30, 1996                            $(2,650)      $(26,679)
                                                    =======       ========

Balance at March 31, 1997                           $(2,683)      $(27,318)
Net loss                                                 (8)          (155)
                                                    -------       --------
Balance at June 30, 1997                            $(2,691)      $(27,473)
                                                    =======       ========


                             See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

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

                                                1997                1996
                                                ----                ----

Revenues:
   Rental income                              $ 2,649            $ 2,518
   Interest income                                 60                 64
   Other income                                   131                233
                                              -------            -------
                                                2,840              2,815

Expenses:
   Property operating expenses                    871                906
   Real estate taxes                              234                248
   Interest expense                             1,143              1,188
   Depreciation                                   653                768
   General and administrative                      63                 45
                                              -------            -------
                                                2,964              3,155
                                              -------            -------

Operating loss                                   (124)              (340)

Partnership's share of unconsolidated
  venture's loss                                  (47)               (36)

Co-venturers' share of consolidated
  ventures' losses                                  8                  -
                                              -------            -------
Net loss                                      $  (163)           $  (376)
                                              =======            =======

Net loss per Limited Partnership Unit          $(3.72)            $(8.57)
                                               ======             ======

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 three months ended June 30, 1997 and 1996
          Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)

                                                            1997        1996
                                                            ----        ----
Cash flows from operating activities:
   Net loss                                            $    (163)   $    (376)
   Adjustments to reconcile net loss to
     net cash provided by operating activities:
     Depreciation                                            653          768
     Amortization of deferred financing costs                 15           26
     Amortization of deferred gain on forgiveness
       of debt                                               (85)         (85)
     Partnership's share of unconsolidated venture's
       loss                                                   47           36
     Co-venturers' share of consolidated ventures'
       losses                                                 (8)           -
     Changes in assets and liabilities:
      Accounts receivable - affiliates                        (1)         (71)
      Prepaid and other assets                              (115)           6
      Accounts payable and accrued expenses                  328          177
      Accrued interest and fees                              251          339
      Tenant security deposits                               (24)         (35)
                                                       ---------    ---------
         Total adjustments                                 1,061        1,161
                                                       ---------    ---------
         Net cash provided by operating activities           898          785
                                                       ---------    ---------

Cash flows from investing activities:
   Additions to buildings and improvements                     -         (273)
                                                       ---------    ---------
         Net cash used in investing activities                 -         (273)
                                                       ---------    ---------
Cash flows from financing activities:
   Decrease in restricted cash                               259        2,133
   Repayment of principal on long-term debt                 (421)           -
                                                       ---------    ---------
         Net cash (used in) provided by 
           financing activities                             (162)       2,133
                                                       ---------    ---------
Net increase in cash and cash equivalents                    736        2,645

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

Cash and cash equivalents, end of period               $   2,298    $   4,035
                                                       =========    =========

Cash paid during the period for interest               $     962    $     908
                                                       =========    =========











                             See accompanying notes.


<PAGE>


                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
                  Notes to Consolidated Financial Statements
    
1.  General

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

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


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 months ended March 31, 1997 and 1996
                                 (in thousands)

                                                  1997           1996
                                                  ----           ----

    Rental revenues                             $  252        $  275
    Interest and other income                       16            15
                                                ------        ------
                                                   268           290

    Property operating expenses                    158           160
    Interest expense                               115           123
    Depreciation and amortization                   66            62
                                                ------        ------
                                                   339           345
                                                ------        ------
    Net loss                                    $  (71)       $  (55)
                                                ======        ======

    Net loss:
      Partnership's share of net loss           $  (46)       $  (35)
      Co-venturer's share of net loss              (25)          (20)
                                                ------        ------
                                                $  (71)       $  (55)
                                                ======        ======


<PAGE>


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

                                                  1997          1996
                                                  ----          ----

     Partnership's share of operations, 
        as shown above                          $   (46)      $   (35)
     Amortization of excess basis                    (1)           (1)
                                                -------       -------
     Partnership's share of unconsolidated
        venture's loss                          $   (47)      $   (36)
                                                =======       =======

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 in the accompanying financial
     statements.

     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 months ended March 31, 1997 and 1996 (in thousands):

                                                  1997         1996
                                                  ----         ----
      Property operating expenses:
        Repairs and maintenance                $   185       $   212
        Utilities                                  124           152
        Management fees                             99            94
        Other operating and administrative         463           448
                                               -------       -------
                                               $   871       $   906
                                               =======       =======

4. Related Party Transactions

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

     Included in general and administrative expenses for both of the three-month
     periods   ended   June  30,   1997  and  1996  is   $20,000,   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 both of the
     three-month  periods  ended June 30, 1997 and 1996 is $2,000,  representing
     fees earned by an affiliate,  Mitchell  Hutchins  Institutional  Investors,
     Inc., for managing the Partnership's cash assets.
<PAGE>
5. Long-term Debt

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

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

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

    Nonrecourse   loan  payable  to
    bank secured by a third deed of
    trust plus all future rents and
    income  generated  by The Lakes
    at  South   Coast   Apartments.                    3,070           3,491

    Prior   indebtedness   principal
    payable     to    bank.     This
    obligation  is   nonrecourse  to
    the joint venture.                                 3,411          3,411

    Deferred gain on  forgiveness of
    debt    (net   of    accumulated
    amortization   of   $1,962   and
    $1,877  at  March  31,  1997 and
    December        31,        1996,
    respectively).                                     3,316          3,401
                                                    --------      ---------
                                                      94,522         95,028


    Less:    Long-term    debt    in
    default (see discussion below)                   (85,397)       (85,903)
                                                    --------      ---------
                                                    $  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.   The  fair  market  value  of  this  debt   obligation
    approximated $8.8 million as of March 31, 1997 and December 31, 1996.
    
    Interest on the  underlying  bonds is  intended  to be exempt  from  federal
    income  tax  pursuant  to  Section  103 of the  Internal  Revenue  Code.  In
    connection  with  obtaining the mortgage,  the Harbour  Pointe joint venture
    executed a Land Use  Restriction  Agreement  with the Manatee County Housing
    Finance Authority which provides, among other things, that substantially all
    of the  proceeds of the Bonds  issued be  utilized  to finance  multi-family
    housing  of  which  20% or more of the  units  are to be  leased  to low and
    moderate income  families as established by the United States  Department of
    Housing and Urban Development. In the event that the underlying Bonds do not
    maintain  their  tax-exempt  status,  whether  by a  change  in  law  or  by
    noncompliance with the rules and regulations  related thereto,  repayment of
    the note may be accelerated.

    Pursuant to the financing agreement, a bank has issued an irrevocable letter
    of credit to the Bond trustee in the joint venture's name for $9,247,500. An
    annual fee equal to 1% of the letter of credit balance is payable monthly to
    the extent of net cash  operating  income  available  to pay such fees.  The
    letter of credit was scheduled to expire on December 15, 1997. Subsequent to
    the end of the first quarter of fiscal 1998, on July 22, 1997, the letter of
    credit issuer approved the joint  venture's  application for an extension of
    the letter of credit through  December 15, 2000. The new terms of the letter
    of  credit  agreement   require  the   commencement  of  regular   principal
    amortization  payments on the underlying  first mortgage loan of $60,000 per
    quarter  beginning  on February 15, 1998.  The terms of the  extension  also
    increase  the  letter  of credit  fee to 1.25% per annum of the  outstanding
    amount of $9,247,500,  payable on a quarterly basis  beginning  February 15,
    1998.  The joint venture will also be required to make annual  deposits to a
    lender-controlled escrow account equal to 75% of Harbour Pointe's annual net
    cash flow, as defined, for each fiscal year, beginning with fiscal 1998. All
    funds  deposited to the escrow account will be returned to the joint venture
    upon the earlier of the termination and surrendering of the letter of credit
    to the lender or the  achievement of a 75% or less  loan-to-value  ratio, as
    defined, as determined solely by the lender.

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

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

    The  original  bond  issue  was  refinanced  during  1991  and the  original
    developer  loan was  extinguished.  The new developer  loan (1991  Developer
    Loan), in the amount of $75,600,000,  is payable to the County of Orange and
    was funded by the  proceeds  of a public  offering of  tax-exempt  apartment
    development  revenues  bonds  issued,  at  par,  by the  County  of  Orange,
    California in September 1991.  Principal is payable upon maturity,  December
    1, 2006. Interest on the bonds is variable,  with the rate determined weekly
    by a remarketing agent and is payable in arrears on the first of each month.

     The loan is secured  by a first  deed of trust  plus all  future  rents and
     income generated by the operating investment  property.  Bond principal and
     interest payments are secured by an irrevocable  letter of credit issued by
     a bank in the  amount of  $76,569,000,  expiring  December  15,  1998.  The
     Venture  pays  an  annual  letter  of  credit  fee  equal  to  1.3%  of the
     outstanding amount (1% prior to December 15, 1996),  payable 73% (60% prior
     to December 15, 1996) monthly with the remaining 27% (40% prior to December
     15, 1996) deferred and paid in accordance with the Reimbursement  Agreement
     (Unpaid  Accrued  Letter of Credit Fees).  Unpaid  Accrued Letter of Credit
     Fees were  $2,600,000  and  $2,533,000  at March 31, 1997 and  December 31,
     1996,  respectively.  The bank letter of credit is secured by a second deed
     of trust on the operating  investment  property and future rents and income
     from the operating investment property.

     In  conjunction  with the 1991 Developer  Loan, the Venture  entered into a
     Reimbursement  Agreement  with the letter of credit  issuer  regarding  the
     unreimbursed letter of credit draws referred to above. The letter of credit
     issuer agreed to forgive all outstanding accrued interest through September
     26, 1991, aggregating  $1,132,000,  along with a portion of the outstanding
     principal  in the  amount  of  $300,000.  In  return,  the  Venture  made a
     principal  payment of  $926,000,  leaving an unpaid  balance of  $6,523,000
     (Prior  Indebtedness).  The  outstanding  principal  balance  of the  Prior
     Indebtedness  bears interest  payable to the letter of credit issuer at the
     rate of 11% per annum.  Interest accrued on the Prior Indebtedness from the
     date of  closing  through  June 1992 was  forgiven  by the letter of credit
     issuer.  Principal payments from available net cash flow and the release of
     certain restricted escrow funds described below totalled $3,112,000 through
     March 31, 1997,  leaving an outstanding  principal balance of $3,411,000 as
     of March 31, 1997. At the time of the refinancing the Venture also owed the
     letter of credit  issuer fees  totalling  $2,184,000.  The letter of credit
     issuer agreed to forgive  $1,259,000 of such unpaid fees, leaving an unpaid
     balance of $925,000 (Deferred Prior Letter of Credit Fees). The Venture has
     a limited  right to defer  payment of interest  and  principal on the Prior
     Indebtedness  and the Unpaid  Accrued  Letter of Credit  Fees to the extent
     that the net cash flow from operations is not sufficient  after the payment
     of debt  service  on the 1991  Developer  Loan and the  funding  of certain
     required  reserves.  In addition,  upon a sale or other  disposition of the
     operating property,  the Reimbursement  Agreement allows for the payment to
     the Venture of an amount of $5,500,000,  plus accrued  interest at the rate
     of 8% per annum,  prior to the  repayment to the letter of credit issuer of
     the  accrued  interest on the Prior  Indebtedness  and the  Deferred  Prior
     Letter of Credit Fees.

     In November 1988, a borrowing  arrangement  with a bank was entered into to
     provide funds for The Lakes.  The Venture obtained a line of credit secured
     by  a  third  trust  deed  on  the  subleasehold  interest,  buildings  and
     improvements, and rents and income in the amount of $6,300,000. Interest on
     the line of credit  was  originally  payable  monthly  at  1-1/2%  over the
     Citibank,  N.A. prime rate. However,  because of the default status of this
     obligation  during  1990,  interest  had accrued at a rate of prime plus 4%
     through September 26, 1991.  Accrued interest on the line of credit,  which
     is payable to the same bank which issued the letter of credit in connection
     with the bonds,  totalled $1,841,000 at September 26, 1991. The outstanding
     principal  balance of the line of credit was $6,127,000 as of September 26,
     1991. In conjunction  with the  refinancing of the developer loan described
     above, the lender agreed to forgive all of the outstanding accrued interest
     at the  date  of  the  refinancing.  Interest  accrues  on the  outstanding
     principal  balance  at the rate of 11% per annum  beginning  September  27,
     1991.  Payment of interest and principal on the line of credit  borrowings,
     prior to a sale or other disposition of the operating property,  is limited
     to the extent of  available  cash flow after the payment of debt service on
     the  developer  loan and the  funding  of  certain  required  reserves.  In
     addition,  as with the Prior Indebtedness  principal and interest described
     above,  upon a sale or other  disposition  of the operating  property,  the
     payment  of  accrued   interest  on  the  line  of  credit   borrowings  is
     subordinated  to the  receipt by the  Venture of  $5,500,000  plus a simple
     return  thereon of 8% per annum.  Principal  payments on the line of credit
     borrowings from available net cash flow totalled  $3,057,000  through March
     31, 1997,  leaving an  outstanding  principal  balance of  $3,070,000 as of
     March 31, 1997.

     The restructuring of the Prior Indebtedness,  the Deferred Letter of Credit
     Fees and the line of  credit  borrowings,  as  described  above,  have been
     accounted  for  in  accordance  with  Statement  of  Financial   Accounting
     Standards  No. 15,  "Accounting  by Debtors and Creditors for Troubled Debt
     Restructurings".   Accordingly,   the  forgiveness  of  debt,   aggregating
     $5,278,000,  has been  deferred  and is being  amortized  as a reduction of
     interest expense  prospectively using a method  approximating the effective
     interest  method  over  the  estimated  remaining  term  of  the  Venture's
     indebtedness.  At March 31, 1997 and  December  31,  1996,  $3,316,000  and
     $3,401,000,   respectively  of  such  forgiven  debt  (net  of  accumulated
     amortization)  has been  reflected on the  accompanying  balance sheets and
     $85,000  has been  amortized  as a  reduction  of  interest  expense in the
     accompanying  statements of operations for each of the three-month  periods
     ended March 31, 1997 and 1996.

     The 1991 Developer Loan required the establishment of a $2,000,000  deficit
     reserve account,  funded from the Venturers' 1991  contributions.  The loan
     also  required the funding of an  additional  reserve  account on a monthly
     basis from available cash flow (as defined) to the extent that the interest
     rate on the bonds is below 6%,  until the balance in this  reserve  account
     totalled $1,000,000. During fiscal 1997, the requirement for the additional
     reserve  account was  eliminated and the balance in the account was applied
     against the Venture's outstanding debt obligations.  The $2,000,000 deficit
     reserve may be used under certain  circumstances to fund the Venture's debt
     service   obligations   to  the  extent  that  net   operating   income  is
     insufficient.  As of March 31, 1997 and December  31, 1996,  the balance in
     the  deficit   reserve   account   totalled   $1,158,000  and   $1,146,000,
     respectively.   Such  amounts  are  included  in  restricted  cash  on  the
     accompanying  balance  sheets.  The remaining  balance in  restricted  cash
     relates to operating  cash  accounts of the Venture in which  disbursements
     are restricted by the bank.

     The 1991 Developer Loan contains several restrictive covenants,  including,
     among others,  a requirement  that the Venture furnish the letter of credit
     issuer in September  1994 and  September  1996 with  certified  independent
     appraisals  of the fair market value of the operating  investment  property
     for an  amount  equal to or  greater  than  $92,000,000  and  $100,000,000,
     respectively.  Failure  to provide  such  appraisals  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 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 1997, the Partnership engaged in
     discussions  with the lender  regarding  possible  changes in the appraisal
     requirements and such  discussions  continued during the quarter ended June
     30,  1997.  However,  no  agreement  has been  reached to date.  Management
     expects to continue such  discussions  but 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
     balance  sheets as of June 30, 1997 and March 31,  1997.  The fair value of
     the aggregate  indebtedness  secured by The Lakes at South Coast Apartments
     cannot  presently be determined  due to the current  default  status of the
     obligations.

     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.  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 Partnership would recognize a net gain for
     financial  reporting  purposes upon either the sale or  foreclosure  of The
     Lakes at South Coast  Apartments  because the balance of the mortgage  loan
     payable  exceeds  the  net  carrying  value  of  the  operating  investment
     properties.



<PAGE>

                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

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

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

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

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

     The  operations  of the three  remaining  assets,  The Lakes at South Coast
Apartments,  the Harbour Pointe  Apartments  and the Lincoln Garden  Apartments,
have been stabilized as a result of debt  restructurings,  and the properties do
not  currently  require the use of the  Partnership's  cash  reserves to support
operations.  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. The debt modification agreement for The Lakes was structured
with certain debt service reserves and accrual features  intended to help absorb
interest  rate  fluctuations.  The Lakes Joint  Venture  currently has over $1.1
million of  lender-controlled  reserves in place to help cover  possible  future
debt service  shortfalls.  The additional  restricted  cash on the  accompanying
consolidated  balance  sheet as of June 30, 1997 of  approximately  $2.2 million
relates  to  operating  cash  accounts  of The  Lakes  Joint  Venture  in  which
disbursements  are  restricted  by the lender.  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  primary  letter of credit  which  collateralizes  the  Lincoln  Garden
mortgage loan expired during May 1997.  This letter of credit for Lincoln Garden
was  formally  extended on July 7, 1997 for a two-year  term.  The new letter of
credit will expire on May 3, 1999.  Despite this extension of the Lincoln Garden
letter of credit, management does not believe that the Partnership's interest in
the Lincoln Garden joint venture has any current or expected  future value based
on the estimated market value of the operating investment  property,  the amount
of the outstanding debt obligation and the co-venture  partner's priority return
for the repayment of prior advances.  Accordingly, the Partnership has initiated
discussions   with  the   co-venturer   regarding   the  possible  sale  of  the
Partnership's  interest for a nominal amount. No agreement has been finalized to
date, and there are no assurances that such a sale will be completed.

     As previously reported, the Partnership had also initiated discussions with
the issuer of the letter of credit on the Harbour Pointe  Apartments,  which was
scheduled  to expire on December 15,  1997.  Subsequent  to the end of the first
quarter,  on July 22,  1997,  the  letter of credit  issuer  approved  the joint
venture's  application for an extension of the letter of credit through December
2000. The new terms of the letter of credit  agreement  require the commencement
of regular bond sinking fund  contributions  of $240,000 per annum to be paid in
quarterly  installments of $60,000 beginning February 15, 1998. The terms of the
extension  also  increase  the  letter of  credit  fee to 1.25% per annum of the
outstanding  amount  of  $9,247,500,  payable  on a  quarterly  basis  beginning
February  15,  1998.  The joint  venture  will also be  required  to make annual
deposits to a lender-controlled  escrow account equal to 75% of Harbour Pointe's
annual net cash flow, as defined,  for each fiscal year,  beginning  with fiscal
1998.  All funds  deposited to the escrow  account will be returned to the joint
venture upon the earlier of the  termination  and  surrendering of the letter of
credit to the lender or the achievement of a 75% or less loan-to-value ratio, as
defined,  as  determined  solely by the lender.  Recent  improvements  in market
conditions and in the operating  performance  of the Harbour  Pointe  Apartments
have  increased  the  estimated  market  value of the  property to a level which
slightly  exceeds the  outstanding  first  mortgage loan  balance.  Nonetheless,
significant  additional  appreciation  would have to occur in order to achieve a
loan-to-value  ratio of less than 75%. As a result,  the effect of the new terms
of the  Harbour  Pointe  letter  of  credit  will be that the cash flow from the
property's  operations  will no longer be available  to cover the  Partnership's
operating  expenses.  However,  the  Partnership has sufficient cash reserves to
cover  operating  expenses  for the next  several  years.  With the  Partnership
focusing  on  potential  disposition  strategies  for its  remaining  investment
properties  and  targeting  a  liquidation  within the next 2-to-3  years,  such
reserves  should be adequate to meet the  Partnership's  liquidity  needs during
this period.

     As  previously  reported,  the  Reimbursement  Agreement  which governs the
secured debt obligations of The Lakes Joint Venture contains certain restrictive
covenants,  including,  among others, a requirement that the venture provide the
lender,  in  September  1994 and  September  1996,  with  certified  independent
appraisals of the operating property  indicating the value of the property to be
equal to or greater than $92 million and $100 million, respectively.  Failure to
provide  such   appraisals   is  defined  as  an  event  of  default  under  the
Reimbursement  Agreement. In February 1996, the lender issued a formal notice of
default to the Joint Venture pursuant to the  Reimbursement  Agreement.  For the
past several years,  the Managing  General Partner has had discussions  with the
lender regarding possible changes to the appraisal requirements. During the most
recent  discussions  between the  Partnership  and the lender,  which took place
during  the first  quarter of fiscal  1998,  the lender  indicated  a  potential
willingness to waive the minimum appraised value  requirements in exchange for a
principal  paydown to be funded from  existing  cash reserves of The Lakes Joint
Venture and an increase in the currently payable portion of the letter of credit
fee. However, no definitive  agreement has been reached 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.  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 ultimately  grant any relief in connection
with these appraisal covenants. If management cannot reach an agreement with The
Lakes'  mortgage  lender  regarding  the appraisal  covenants,  the lender could
choose to initiate foreclosure proceedings. The outcome of this situation cannot
presently be determined.

     The Lakes at South Coast  Apartments had an average  occupancy level of 96%
for the  quarter  ended June 30,  1997,  which was below the 98% average for the
prior quarter.  This change was anticipated and is the outcome of steps taken by
the  property's  leasing  team to test the market's  sensitivity  to rental rate
increases.  The leasing staff implemented rent increases of 5% on lease renewals
signed during the quarter  ended June 30, 1997.  According to surveys taken from
tenants who moved from the property during the quarter,  the most common reasons
given were job  transfers,  purchase of homes and, to a much lesser  extent,  to
reduce their rental payments. The property's leasing team plans to continue with
this rent  increase  program in the second  quarter.  The Lakes' local market of
7,560 rental units in 25 apartment  communities has recently  benefited from the
economic  recovery in California and has an average  occupancy  level of 96%. As
previously  reported,  the market's healthy  conditions of high occupancy levels
and  escalating  rental  rates has resulted in the  development  of new units in
Orange County. Recently,  approximately 1,220 units in four apartment properties
were completed, and two additional projects are in the process of being approved
for development. Of the four completed properties, two are substantially leased,
one is still in lease-up,  and the other is a family-oriented  apartment project
that does not compete with The Lakes. Despite the new competition,  The Lakes is
expected to continue to experience improved operating performance as a result of
the property's  strong position in the marketplace and the area's strong job and
population  growth. The rapidly improving market conditions in the Orange County
area have resulted in an increase in the estimated  market value of The Lakes in
recent months.  Subsequent to the quarter ended June 30, 1997,  the  Partnership
has  received  certain  unsolicited   expressions  of  interest  from  potential
purchasers  of The  Lakes  which  suggest  that a sale  price in  excess  of the
outstanding balance of the secured indebtedness might be achievable.  Management
is currently in the process of completing a market analysis in order to conclude
whether such  expressions  of interest are truly  reflective  of the  property's
current  market  value,  to  assess  the  near  term  potential  for  additional
appreciation and to determine the appropriate  timing for a possible sale of the
property.  The major  expenditures  being scheduled at The Lakes for fiscal 1998
include  exterior  painting,  roof  repairs and  renovations  to the  property's
clubhouse.   These  improvement  projects  are  expected  to  cost  a  total  of
approximately $1.1 million. As part of the ongoing  negotiations with the lender
on The Lakes, as discussed further above,  management of the Partnership and the
lender  continue  to discuss the  possible  release of certain  restricted  cash
amounts  to pay  for  these  improvements.  Completion  of the  improvements  is
dependent upon the outcome of these negotiations.

     At June 30, 1997, the Partnership and its  consolidated  joint ventures had
available cash and cash equivalents of approximately  $3,432,000.  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.  In addition,  The Lakes
Joint Venture had a restricted  cash balance of $3.3 million,  which  represents
amounts  available  at the  discretion  of the lender for  future  debt  service
shortfalls,  principal  paydowns or operating  expenditures of the venture.  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 June 30, 1997
--------------------------------

     The Partnership's net loss decreased by $213,000 for the three-month period
ended June 30,  1997,  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 $224,000  (including the  co-venturers'  share of consolidated
ventures' losses) which was partially offset by an increase in the Partnership's
share  of  unconsolidated  venture's  loss of  $11,000.  Operating  loss,  which
includes the  consolidated  results of The Lakes and Harbour  Pointe,  decreased
mainly  due  to  an  increase  in  rental  income  and  decreases  in  interest,
depreciation  and  property  operating  expenses.  Rental  income  increased  by
$131,000 primarily due to an increase in rental rates and occupancy at The Lakes
at South Coast Apartments.  Interest expense decreased by $45,000 due largely to
a decline in the variable  interest  rate on the first  mortgage loan secured by
The Lakes at South Coast  Apartments  as well as a reduction in the  outstanding
principal balance of the other debt secured by The Lakes. Depreciation decreased
by  $115,000  as a result  of  having  various  five-year  assets  become  fully
depreciated  at The Lakes Joint Venture during fiscal 1997.  Property  operating
expenses  declined mainly as a result of lower repairs and maintenance costs and
utilities expense at The Lakes Joint Venture. The favorable changes in operating
loss were partially offset by a $102,000 decrease in other income from The Lakes
Joint Venture,  due to a refund of real estate taxes  received  during the prior
year.

     The Partnership's share of unconsolidated  venture's loss, which represents
the operating  results of the Lincoln Garden Joint Venture  increased by $11,000
in the  current  period due to a decrease in rental  income of  $24,000.  Rental
income decreased as a result of a decline in average  occupancy when compared to
the same period in the prior year.


<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings

                          NONE

Item 2. through 5.        NONE

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:            NONE

(b)  Reports on Form 8-K:

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


<PAGE>






                 PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.


                                   SIGNATURES

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


                                    PAINEWEBBER DEVELOPMENT
                                    PARTNERS FOUR, LTD.


                                    By:  Fourth Development Fund Inc.
                                         Managing General Partner




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



Dated:  August 14, 1997