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, 1998

                                    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, 1998 and March 31, 1998 (Unaudited)
                              (In thousands)

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

Operating investment properties:
   Land                                          $   18,190     $   18,190
   Buildings and improvements                        78,336         78,336
                                                 ----------     ----------
                                                     96,526         96,526
   Less accumulated depreciation                    (31,368)       (30,710)
                                                 -----------    ----------
                                                     65,158         65,816

Cash and cash equivalents                             2,335          1,551
Restricted cash                                       2,157          2,580
Accounts receivable                                       -              6
Prepaid and other assets                                 21             72
Deferred expenses, net                                  591            608
                                                -----------    -----------
                                                $    70,262    $    70,633
                                                ===========    ===========

                     LIABILITIES AND PARTNERS' DEFICIT

Accounts payable and accrued expenses           $       487    $       387
Accrued interest and fees                             4,979          4,823
Tenant security deposits                                566            566
Mortgage loans payable                               91,648         92,120
Co-venturers' share of net assets of
  consolidated ventures                               1,124          1,124
Partners' deficit                                   (28,542)       (28,387)
                                                -----------    -----------
                                                $    70,262    $    70,633
                                                ===========    ===========




                          See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
             For the three ended June 30, 1998 and 1997 (Unaudited)
                      (In thousands, except per Unit data)

                                                1998          1997
                                                ----          ----

Revenues:
   Rental income                               $ 2,795     $ 2,649
   Interest income                                  46          60
   Other income                                     64         131
                                               -------     -------
                                                 2,905       2,840

Expenses:
   Property operating expenses                   1,072         871
   Real estate taxes                               186         234
   Interest expense                              1,039       1,143
   Depreciation                                    658         653
   General and administrative                      105          63
                                               -------     -------
                                                 3,060       2,964
                                               -------     -------

Operating loss                                    (155)       (124)

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

Co-venturers' share of consolidated
  ventures' losses                                   -           8
                                               -------     -------

Net loss                                       $  (155)    $  (163)
                                               =======     =======

Net loss per Limited Partnership Unit          $ (3.53)    $ (3.72)
                                               =======     =======

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








                          See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
          For the three months ended June 30, 1998 and 1997 (Unaudited)
                                 (In thousands)

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

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

Balance at March 31, 1998                     $ (2,602)        $(25,785)
Net loss                                            (8)            (147)
                                              --------         --------
Balance at June 30, 1998                      $ (2,610)        $(25,932)
                                              ========         ========

























                          See accompanying notes.


<PAGE>


                   PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                For the three months ended June 30, 1998 and 1997
          Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
                                 (In thousands)
                                                          1998       1997
                                                          ----       ----
Cash flows from operating activities:
   Net loss                                           $   (155)  $   (163)
   Adjustments to reconcile net loss to net
       cash provided by operating activities:
     Depreciation                                          658        653
     Amortization of deferred financing costs               17         15
     Amortization of deferred gain on forgiveness
       of debt                                             (85)       (85)
     Partnership's share of unconsolidated
       venture's loss                                        -         47
     Co-venturers' share of consolidated ventures'
       losses                                                -         (8)
     Changes in assets and liabilities:
      Accounts receivable                                    6          -
      Accounts receivable - affiliates                       -         (1)
      Prepaid and other assets                              51       (115)
      Accounts payable and accrued expenses                100        328
      Accrued interest and fees                            156        251
      Tenant security deposits                               -        (24)
                                                      --------   --------
         Total adjustments                                 903      1,061
                                                      --------   --------
         Net cash provided by operating activities         748        898
                                                      --------   --------

Cash flows from financing activities:
   Decrease in restricted cash                             423        259
   Repayment of principal on long-term debt               (387)      (421)
                                                      --------   --------
         Net cash provided by (used in) 
           financing activities                             36       (162)
                                                      --------   --------

Net increase in cash and cash equivalents                  784        736
Cash and cash equivalents, beginning of period           1,551      1,562
                                                      --------   --------
Cash and cash equivalents, end of period              $  2,335   $  2,298
                                                      ========   ========

Cash paid during the period for interest              $    951   $    962
                                                      ========   ========






                         See accompanying notes.


<PAGE>


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


1.  General and Planned Liquidation
    -------------------------------

      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, 1998. 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, 1998 and March 31, 1998 and revenues and expenses
for each of the three-month periods ended June 30, 1998 and 1997. Actual results
could differ from the estimates and assumptions used.

      The  Partnership  originally  invested the net  proceeds of the  offering,
through joint  venture  partnerships,  in six rental  apartment  properties.  As
discussed further in the Annual Report, the Partnership's  operating  properties
have  encountered  major adverse  business  developments  which,  to date,  have
resulted in the loss of three of the original investments to foreclosure and the
sale of the  Partnership's  interest in one joint venture for a nominal  amount.
Subsequent to the  resolution  of the default  status of the debt secured by The
Lakes at South Coast Apartments in fiscal 1998 (see Note 5), management analyzed
whether it would be in the Limited  Partners' best interests to continue to hold
the two remaining  assets (The Lakes and Harbour Pointe) or to pursue  potential
sale opportunities with a goal of completing a liquidation of the Partnership in
the near term. Based on such analysis,  management  concluded that a liquidation
of the  Partnership  should be undertaken if favorable  prices for The Lakes and
Harbour Pointe could be achieved.  Under the terms of the Partnership Agreement,
the affirmative vote of Limited Partners who own 51% or more of the total number
of  outstanding  units of limited  partnership  interest in the  Partnership  is
required to approve the sale of all, or substantially  all, of the Partnership's
assets.  On May 4,  1998,  the  Partnership  furnished  a  Consent  Solicitation
Statement  to the  Limited  Partners  which  sought  the  approval  to sell  the
Partnership's  two remaining assets and,  thereafter,  to liquidate and dissolve
the Partnership (collectively,  the "Sale and Liquidation").  Effective June 18,
1998, the results of the Consent Solicitation Statement were finalized,  and the
Sale and  Liquidation  was  approved  by the  required  affirmative  vote of the
Limited  Partners.  Management's goal is to complete the Sale and Liquidation by
the end of calendar year 1998.  There can be no  assurances,  however,  that the
sales of the remaining  assets and the  liquidation of the  Partnership  will be
completed within this time frame.

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

      Included  in  general  and   administrative   expenses  for  each  of  the
three-month  periods  ended  June 30,  1998 and  1997 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 the three-month
periods  ended  June 30,  1998  and 1997 is  $1,000  and  $2,000,  respectively,
representing  fees  earned  by an  affiliate,  Mitchell  Hutchins  Institutional
Investors, Inc., for managing the Partnership's cash assets.

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

      At June 30, 1997, the Partnership had an investment in one  unconsolidated
joint  venture  which owned an operating  investment  property  (Lincoln  Garden
Apartments), as discussed further in the Annual Report. The unconsolidated joint
venture was accounted for by using the equity method because the Partnership did
not have a voting control interest in the venture.  Under the equity method, the
investment  was  carried at cost  adjusted  for the  Partnership's  share of the
unconsolidated venture's earnings,  losses and distributions.  The Partnership's
policy is to recognize its share of  unconsolidated  venture's  operations three
months in arrears.

    On September 18, 1997, the Partnership sold its general partnership interest
in the joint venture which owned the Lincoln Garden Apartments to its co-venture
partner for $25,000.  In effecting  such sale,  management  considered  that (i)
during  recent  years,   the  operating   performance   of  Lincoln  Garden  had
deteriorated,  (ii) since its inception,  the  Partnership had not received cash
flow from this investment and no cash flow from this asset was projected for the
future, and (iii) the joint venture partner had a priority position in the joint
venture due to certain  loans  which it  advanced to the joint  venture to cover
prior  operating  deficits.   In  addition,   management   determined  that  the
outstanding  first mortgage loan balance on the Lincoln  Garden  property was in
excess of its market  value and that future  increases in the  property's  value
were  unlikely.  Because the property  offered  little or no  opportunity  for a
return of equity, the Partnership negotiated a sale of its position to its joint
venture  partner for a nominal  amount.  The sale was structured in two parts to
minimize the  negative tax  consequences  to the Lincoln  Garden joint  venture.
Accordingly,  the Partnership received $19,000 in September 1997 for the sale of
75% of its  interest in the joint  venture and will  receive a final  payment of
$6,000 in September 1998 for the remaining 25% of its interest.  As of September
18,  1997,  the  Partnership's  remaining  position  in the  joint  venture  was
converted to a limited  partnership  interest,  and the Partnership will have no
continuing  involvement  in the  operations of the Lincoln  Garden joint venture
through the date in September 1998 when its limited partnership interest will be
redeemed  for $6,000.  Consequently,  the  Partnership  wrote off the  remaining
equity method  carrying  value of its investment in Lincoln Garden during fiscal
1998.  This  write-off  resulted in a gain of  $2,528,000  because the venture's
prior  equity  method  losses  had  exceeded  the  total  of  the  Partnership's
investments  and advances in the joint  venture.  The  Partnership  recorded its
share of the venture's operating losses up through the date of the September 18,
1997 sale transaction.

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

                         Condensed Summary of Operations
                    For the three months ended March 31, 1997
                                 (in thousands)
                                                          1997
                                                          ----

    Rental revenues                                     $  252
    Interest and other income                               16
                                                        ------
                                                           268

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

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

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

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

4.  Operating Investment Properties
    -------------------------------

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

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

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

      The following is a combined summary of property operating expenses for the
Harbour Pointe  Apartments and The Lakes at South Coast Apartments for the three
months ended March 31, 1998 and 1997 (in thousands):

                                               1998        1997
                                               ----        ----
      Property operating expenses:
        Repairs and maintenance             $   515       $   185
        Utilities                               130           124
        Management fees                         100            99
        Other operating and administrative      327           463
                                            -------       -------
                                            $ 1,072       $   871
                                            =======       =======

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

      Long-term  debt on the  Partnership's  balance  sheet at June 30, 1998 and
March 31, 1998 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.                                 539            926

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

     Deferred gain from  forgiveness  of
     debt     (net    of     accumulated
     amortization  of $2,305  and $2,220
     at March 31, 1998 and  December 31,
     1997,  respectively).                           2,973          3,058
                                                   -------        -------  
                                                   $91,648        $92,120
                                                   =======        =======

      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. During calendar 1997, the interest rate averaged 3.78%
(3.62% in 1996). The Bonds are secured by the Harbour Pointe  Apartments.  As of
March 31, 1998 and  December 31,  1997,  the fair value of this debt  obligation
approximated its carrying value.

      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  partnership  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 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 was  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.  Effective  December 15,
1997,  the bank  extended the letter of credit  through  December 15, 2000.  The
agreement  provides  for an annual fee equal to 1.25% per annum on the letter of
credit.  In  addition,  the joint  venture is  required to make  quarterly  bond
sinking fund deposits of $60,000  beginning on February 15, 1998 under the terms
of the letter of credit.  Also pursuant to the  agreement,  the joint venture is
required to make  payments  equal to 75% of annual net cash flow,  as defined in
the agreement to serve as additional collateral. Any funds held will be released
upon the termination of the letter of credit,  payment of the outstanding  bonds
or the achievement of a 75% loan-to-value ratio.

      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
(ranging from 2.95% to 4.50% during calendar 1997), and is payable in arrears on
the first of each month.  As of March 31, 1998 and December  31, 1997,  the fair
value of this debt obligation approximated its carrying value.

      The loan is secured  by a first  deed of trust  plus all future  rents and
income  generated by the  operating  investment  property.  Bond  principal  and
interest  payments are secured by an  irrevocable  letter of credit  issued by a
bank in the amount of $76,569,000,  expiring December 15, 1998. The Venture pays
an annual letter of credit fee equal to 1.3% of the outstanding amount,  payable
83% monthly with the  remaining  17% deferred  and paid in  accordance  with the
Reimbursement  Agreement  (Unpaid  Accrued  Letter of Credit Fees).  Such Unpaid
Accrued  Letter of Credit Fees were  $1,905,000 and $1,863,000 at March 31, 1998
and December 31, 1997,  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.  As discussed further in Note 1,
the  Partnership  is  planning  to sell its  remaining  assets  and  complete  a
liquidation of the  Partnership  by December 31, 1998.  There are no assurances,
however that the sale of the remaining assets will be completed within this time
frame. In the absence of a sale of The Lakes at South Coast  Apartments on or by
December  15,  1998,  the letter of credit  referred  to above  would have to be
extended or replaced.

      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, 1998,  leaving an outstanding  principal balance of
$3,411,000 as of March 31, 1998. 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
$5,588,000 through March 31, 1998,  leaving an outstanding  principal balance of
$539,000 as of March 31, 1998.

      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 $5,279,000, 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  March  31,  1998,  $2,973,000  and
$3,058,000, 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, 1998 and 1997.
With the exception of the 1991 Developer Loan described above, it is impractical
to estimate the fair value of the other secured  indebtedness of The Lakes Joint
Venture due to the unique terms of the loans.

      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.  As of March 31, 1997,  The Lakes Joint  Venture had not provided the
lender  with an  appraisal  which met either  the  $92,000,000  or  $100,000,000
requirement.  Effective  September  18,  1997,  the lender  waived  the  minimum
appraised  value  requirement in accordance with the provisions of the Amendment
to  Reimbursement  Agreement  and Limited  Waiver,  and as of March 31, 1998 and
December  31,  1997 the  Joint  Venture  was in  compliance  with the  covenants
required by the 1991 Developer Loan.




<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, 1998 under the heading  "Certain  Factors  Affecting Future
Operating  Results",  which could cause actual results to differ materially from
historical  results  or  those  anticipated.   The  words  "believe,"  "expect,"
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

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

      As discussed further in the Annual Report, subsequent to the resolution of
the default status of the debt secured by The Lakes at South Coast Apartments in
fiscal 1998,  management  analyzed whether it would be in the Limited  Partners'
best  interests  to  continue  to hold the two  remaining  assets  or to  pursue
potential  sale  opportunities  with a goal of completing a  liquidation  of the
Partnership in the near term. Based on such analysis,  management concluded that
a liquidation of the  Partnership  should be undertaken if favorable  prices for
The  Lakes  and  Harbour  Pointe  could  be  achieved.  Under  the  terms of the
Partnership  Agreement,  the affirmative vote of Limited Partners who own 51% or
more of the total number of outstanding units of limited partnership interest in
the Partnership is required to approve the sale of all, or substantially all, of
the Partnership's  assets.  On May 4, 1998, the Partnership  furnished a Consent
Solicitation Statement to the Limited Partners which sought the approval to sell
the  Partnership's  two  remaining  assets and,  thereafter,  to  liquidate  and
dissolve the Partnership (collectively,  the "Sale and Liquidation").  Effective
June 18, 1998, the results of the Consent Solicitation Statement were finalized,
and the Sale and  Liquidation was approved by the required  affirmative  vote of
the Limited Partners.  Management's goal is to complete the Sale and Liquidation
by the end of calendar year 1998. There can be no assurances,  however, that the
sales of the remaining  assets and the  liquidation of the  Partnership  will be
completed within this time frame. The operations of The Lakes and Harbour Pointe
have been stabilized as a result of debt  restructurings,  and the properties do
not  currently  require the use of the  Partnership's  cash  reserves to support
operations. Without these restructurings,  the properties would most likely have
been lost through foreclosure  actions by the respective lenders.  Each of these
properties  was financed with  tax-exempt  revenue bonds issued by local housing
authorities. These restructured debt obligations bear interest at variable rates
that, for the past several  years,  have remained 3 to 4 percent per annum below
comparable  conventional  rates. Such favorable rates have allowed The Lakes and
Harbour  Pointe to  generate  excess  cash flow after the  payment of  operating
expenses and first  mortgage debt service  obligations.  This cash flow has been
used to maintain these  properties in competitive  condition and, in the case of
The Lakes, to pay interest and principal on other secured indebtedness  incurred
in connection with the 1991 debt  restructuring.  If interest rates were to rise
dramatically, The Lakes and Harbour Pointe joint ventures would require advances
from the Partnership in order to continue  paying their  operating  expenses and
debt service obligations.  In addition, the letter of credit that guarantees and
secures the principal and interest  payments of The Lakes'  secured debt expires
on December 15, 1998. If the letter of credit is not extended by this expiration
date,  such debt will  become  immediately  due and payable and would need to be
repaid from the proceeds of a sale of The Lakes or a refinancing of the debt. If
such a sale or  refinancing  could not be  accomplished,  the property  could be
subject to foreclosure by the lender.  Given the high level of debt  encumbering
The  Lakes  (which  includes  the first  mortgage  indebtedness,  other  secured
indebtedness  incurred in connection with the  restructuring,  deferred interest
and  deferred  letter  of credit  fees),  there  can be no  assurances  that the
Partnership  would be able to extend the  existing  letter of credit or obtain a
substitute  credit facility.  This impending  letter of credit  expiration was a
contributing  factor to management's  decision to pursue a sale of the remaining
assets and a liquidation of the  Partnership to be completed prior to the end of
calendar 1998.

      Management  believes that the recent improved  conditions in the apartment
segment  of the real  estate  market  have  caused  the  values of The Lakes and
Harbour  Pointe to increase  during  recent  months to a point where such values
exceed the outstanding balances of the properties' debt encumbrances.  The Lakes
is located in an extremely  strong Orange County,  California  apartment  market
that continues to gain momentum.  The improved  market  conditions in the Orange
County area have  resulted in a  significant  increase in the  estimated  market
value of The Lakes in recent months.  In calendar 1997, the unemployment rate in
Orange County  declined to 3.5% as compared to 5.1% in Orange County in 1995 and
9.4% for all of California at the bottom of its depressed economic conditions in
1993. Additionally, the population in Orange County has grown an estimated 11.4%
since  1990.  As a  result  of these  improved  economic  conditions,  apartment
occupancy  levels and rental rates have grown beyond  pre-recession  levels with
some properties  reporting annual  increases  greater than 15%. The local market
reported an average  occupancy level of approximately  95% for calendar 1997, as
well as rental  rate  increases  of 10% to 15% since the  beginning  of calendar
1997.  The Lakes'  occupancy  level reached 99% in January 1997,  and since that
time rental rates have been substantially increased. Despite such increases, the
occupancy  level  remains in the high 90% range.  Management  believes  that the
concurrence of aggressive apartment buyers who have access to an abundant supply
of low cost capital seeking investment opportunities,  the low interest rates on
The Lakes' secured debt  obligations  and the dramatic  increase in rental rates
and operating  efficiencies have created value in The Lakes that may not persist
if any one or all of the favorable conditions were to change. Management further
believes that the dramatic rental rate increases in the Orange County market may
also be an  indication  that the market is  approaching  its peak.  As a result,
management retained a national brokerage firm in November 1997 to begin a formal
marketing program for the purpose of soliciting  proposals to acquire The Lakes.
During the fourth quarter of fiscal 1998, the property was marketed extensively.
Sales packages were  distributed to 200  international,  national,  regional and
local  prospective  purchases.  During  the  quarter  ended June 30,  1998,  the
Partnership received offers from 14 prospective buyers. Supplemental information
on the property was then  provided to the top seven  bidders with a  requirement
that best and final offers be returned by April 30, 1998.  The highest offer was
from a qualified buyer and met the  Partnership's  sale criteria.  In June 1998,
the  Partnership  executed a purchase and sale agreement  with this  prospective
buyer for an amount in excess of the outstanding debt obligation. However, since
this sale  transaction  remains  contingent  upon,  among other  things,  formal
approval by a number of third parties of the assumption of the tax-exempt  bonds
secured by The Lakes, there are no assurances that a sale will be consummated.

      As previously  reported,  in early fiscal 1998 the  Partnership  initiated
discussions  with the  issuer of the  letter of  credit  on the  Harbour  Pointe
Apartments,  which was  scheduled  to expire on December  15,  1997.  During the
second  quarter of fiscal 1998,  the letter of credit issuer  approved the joint
venture's  application for an extension of the letter of credit through December
2000. The new terms of the letter of credit  agreement  require the commencement
of regular bond sinking fund  contributions  of $240,000 per annum to be paid in
quarterly  installments of $60,000 beginning February 15, 1998. The terms of the
extension  also increased the letter of credit fee from 1% to 1.25% per annum on
the  outstanding  amount of $9,247,500,  payable on a quarterly  basis beginning
February  15,  1998.  The joint  venture  will also be  required  to make annual
deposits to a lender-controlled  escrow account equal to 75% of Harbour Pointe's
annual net cash flow, as defined,  for each year beginning in calendar 1998. All
funds deposited to the escrow account will be returned to the joint venture upon
the earlier of the termination  and  surrendering of the letter of credit to the
lender or the achievement of a loan-to-value ratio equal to or less than 75%, as
determined solely by the lender. Recent improvements in market conditions and in
the operating  performance of the Harbour Pointe  Apartments  have increased the
estimated  market value of the property to a level which exceeds the outstanding
first mortgage loan balance.  Nonetheless,  significant additional  appreciation
would have to occur in order to achieve a loan-to-value ratio of 75% or less. As
a result,  the effect of the new terms of the  Harbour  Pointe  letter of credit
will be that the cash  flow  from the  property's  operations  will no longer be
available to cover the Partnership's  future operating  expenses.  However,  the
Partnership  has sufficient  cash reserves to cover  operating  expenses for the
next several  years.  With the  Partnership  focusing on  potential  disposition
strategies for its remaining  investment  properties and targeting a liquidation
within the next year, such reserves should be adequate to meet the Partnership's
liquidity  needs during this period.  During the fourth  quarter of fiscal 1998,
the Partnership  initiated  discussions with several real estate brokerage firms
in order to define potential marketing strategies for selling the Harbour Pointe
property and  solicited  marketing  proposals  from three of these firms.  After
reviewing their respective  proposals and conducting extensive  interviews,  the
Partnership  selected  a  national  firm that is a leading  seller of  apartment
properties encumbered by tax-exempt bond financing.  During the first quarter of
fiscal 1999, a marketing  package was  finalized,  and  extensive  sales efforts
began in May  1998.  As a result of such  efforts,  several  offers to  purchase
Harbour Pointe were received.  On August 10, 1998, a purchase and sale agreement
was signed with a prospective  buyer.  However,  since this transaction  remains
continent upon, among other things,  satisfactory  completion of the buyer's due
diligence and formal  approval by a number of third parties of the assumption of
the tax-exempt  bonds secured by Harbour Pointe,  there are no assurances that a
sale will be consummated.

      As  discussed  further in the Annual  Report,  on  September  18, 1997 the
Partnership  agreed to sell its  general  partnership  interest  in the  Lincoln
Garden joint venture to its  co-venture  partner for $25,000.  In effecting such
sale,  management  considered  that  (i)  during  recent  years,  the  operating
performance of Lincoln Garden had  deteriorated,  (ii) since its inception,  the
Partnership  had not received  cash flow from this  investment  and no cash flow
from this  asset  was  projected  for the  future,  and (iii) the joint  venture
partner had a priority  position in the joint venture due to certain loans which
it advanced to the joint venture to cover prior operating deficits. In addition,
management  determined that the  outstanding  first mortgage loan balance on the
Lincoln  Garden  property  was in excess  of its  market  value and that  future
increases in the property's  value were unlikely.  Because the property  offered
little or no opportunity for a return of equity,  the  Partnership  negotiated a
sale of its position to its joint venture partner for a nominal amount. The sale
was  structured  in two parts to minimize the negative tax  consequences  to the
Lincoln Garden joint venture.  Accordingly,  the Partnership received $19,000 in
September 1997 for the sale of 75% of its interest in the joint venture and will
receive a final payment of $6,000 in September 1998 for the remaining 25% of its
interest. As of September 18, 1997, the Partnership's  remaining position in the
joint  venture  was  converted  to  a  limited  partnership  interest,  and  the
Partnership will have no continuing involvement in the operations of the Lincoln
Garden  joint  venture  through  the date in  September  1998  when its  limited
partnership interest will be redeemed for $6,000. Consequently,  the Partnership
wrote off the  remaining  equity  method  carrying  value of its  investment  in
Lincoln  Garden  during  fiscal  1998.  This  write-off  resulted  in a gain  of
$2,528,000  because the  venture's  prior equity  method losses had exceeded the
total of the  Partnership's  investments and advances in the joint venture.  The
Partnership  recorded its share of the venture's operating losses up through the
date of the September 18, 1997 sale transaction.

      At June 30, 1998, the Partnership and its consolidated  joint ventures had
available cash and cash equivalents of approximately  $2,335,000.  Such cash and
cash  equivalents  will be used  for the  working  capital  requirements  of the
Partnership  and the  consolidated  ventures  and, to the extent  necessary  and
economically  justified,  to fund the Partnership's  share of any future capital
improvements or operating  deficits of its remaining joint venture  investments.
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 June 30, 1998
--------------------------------

      The Partnership reported a net loss of $155,000 for the three months ended
June 30, 1998 as  compared to a net loss of $163,000  for the same period in the
prior year.  This  decrease in net loss is primarily  attributable  to a $47,000
decrease in the Partnership's  share of unconsolidated  venture's loss which was
partially offset by a $31,000 increase in the Partnership's  operating loss. The
Partnership's  share of  unconsolidated  venture's loss,  which  represented the
operating results of the Lincoln Garden joint venture,  decreased as a result of
the sale of the  Partnership's  interest in the Lincoln  Garden joint venture in
September 1997, as discussed further above.

      The increase in the  Partnership's  operating  loss is  attributable  to a
$96,000  increase in operating  expenses which was partially offset by a $65,000
increase in operating revenues.  Expenses increased mainly due to an increase in
property  operating  expenses from the  consolidated  joint  ventures and higher
Partnership  general and administrative  expenses which were partially offset by
decreases in interest expense and real estate taxes. Property operating expenses
increased by $201,000 largely due to increased  repairs and maintenance costs at
The Lakes as a result of exterior painting  performed during the current period.
The  increase  in  general  and  administrative  expenses  was  mainly due to an
increase  in legal fees  relating  to the  potential  sale of the  Partnership's
operating  properties  and  Partnership  liquidation-related  matters.  Interest
expense decreased due to the significant paydown of principal which has occurred
on the long-term debt secured by The Lakes over the past two years.  Real estate
taxes decreased due to a reduction in the tax rate at The Lakes. The increase in
rental  revenues was primarily due to increases in rental rates at The Lakes and
a  combination  of increases in effective  rental rates and occupancy at Harbour
Pointe.  The increase in rental  revenues was partially  offset by a decrease in
other income  mainly as a result of a decline in furniture  rental income at The
Lakes in the current 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, 1998