Document:

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                                                                  EXHIBIT 10.107

                                 AMENDMENT NO. 1
                       TO THE MASTER REPURCHASE AGREEMENT

         This is Amendment No. 1 (the "Amendment No. 1"), dated as of August 5,
2000 (the "Amendment Date"), by and between Merrill Lynch Mortgage Capital Inc.
("MLMCI"), Doral Financial Corporation, and Doral Mortgage Corporation
(collectively, "Doral") to that certain Master Repurchase Agreement dated as of
January 12, 1995 (the "Existing Repurchase Agreement").

                               W I T N E S S E T H

         WHEREAS, MLMCI and Doral have agreed, subject to the terms and
conditions of this Amendment No. 1, that the Existing Repurchase Agreement be
amended to reflect certain agreed upon revisions to the terms of the Existing
Repurchase Agreement

         WHEREAS, MLMCI and Doral have entered into that certain letter
agreement re: Master Repurchase Arrangement dated as of February ___, 2000 as
amended by Amendment No. 1 to the Commitment Letter (the "Commitment Letter"),
dated as of the date hereof.

         Accordingly, Doral and MLMCI hereby agree, in consideration of the
mutual premises and mutual obligations set forth herein, that the Existing
Repurchase Agreement is hereby amended as follows:

1.       All capitalized terms not otherwise defined herein have the respective
         meanings set forth in the Existing Repurchase Agreement.

2.       Representations and Warranties Exhibit D to the Master Repurchase
         Agreement is hereby amended by deleting sections (C.), (F.), (K.), (L.)
         and (N.) in their entirety, and replacing them, respectively, with the
         following language:

                  "(C.) upon recordation, the Mortgage will be a valid and
                  subsisting: (i) with respect to a Second Lien Mortgage Loan,
                  second lien or (ii) with respect to any other Mortgage Loan,
                  first lien, in each case, on the Mortgaged Property therein
                  described, and the Mortgaged Property is free and clear of all
                  encumbrances and liens having priority over the lien of the
                  Mortgage except for liens for real estate taxes and special
                  assessments not yet due and payable, easements, other matters
                  of public record generally acceptable to mortgage lenders and,
                  with respect to Second Lien Mortgage Loans, the applicable
                  prior lien. The Mortgage Loan creates a valid and subsisting
                  first or second lien, as applicable, on the property described
                  therein and the related obligor has full right to sell and
                  assign the Mortgage Note pursuant to this Agreement;"

                  "(F.) Except with respect to Delinquent Mortgage Loans, all
                  payments required to be made for each Mortgage Loan under the
                  terms of the Mortgage have been made;

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                  no Mortgage Loan is currently 30 days or more delinquent in
                  its payments ("Delinquent") or has been Delinquent more than
                  once during the prior twelve month period. No Delinquent
                  Mortgage Loan is currently 60 days or more delinquent in its
                  payments;"

                  "(K) each Mortgage Loan is covered by an ALTA mortgage title
                  insurance policy or other generally acceptable form of policy
                  of insurance (with, in the case of Pooled Mortgage Loans, all
                  requisite endorsements, acceptable to the relevant Agency
                  issued by and the valid and binding obligation of a title
                  insurer acceptable to such Agency) and qualified to do
                  business in the jurisdiction where the Mortgaged Property is
                  located, insuring the related Obligor, its successors and
                  assigns, as to the first, or, with respect to Second Lien
                  Mortgage Loans, the second, priority lien of the Mortgage in
                  the original principal amount of the Mortgage Loan; the
                  related Obligor, its successors and assigns, are the named
                  insured and the sole insured of such mortgage title insurance
                  policy; the assignment to MLMCI of the related Obligor's
                  interest in such mortgage title insurance policy does not
                  require the consent of or notification to the insurer; such
                  mortgage title insurance policy is in full force and effect
                  and will be in full force and effect and inure to the benefit
                  of MLMCI upon the sale of such Mortgage Loan to MLMCI under
                  this Agreement, and no claims have been made under such
                  mortgage title insurance policy; and no prior holder of the
                  related Mortgage, including the related Obligor, has done, by
                  act or omission, anything which would impair the coverage of
                  such mortgage title insurance policy;"

                  "(L.) Except for payment Delinquencies of more than 30 days
                  but less than 60 days with respect to Delinquent Mortgage
                  Loans, there is no default, breach, violation or event of
                  acceleration existing under the Mortgage or the related
                  Mortgage Note and no event which, with the passage of time or
                  with notice and the expiration of any grace or cure period,
                  would constitute a default breach, violation or event of
                  acceleration; and such Obligor has not waived any default,
                  breach violation or event of acceleration;"

                  "(N.) with respect to each Mortgage Loan with a loan-to-value
                  ratio greater than 80%, the excess over 75% is and will be
                  insured as to payment defaults by a policy of primary mortgage
                  guaranty insurance until the loan-to-value ratio is reduced
                  below 80%, provided, that no Second Lien Mortgage Loan shall
                  have a CLTV greater than 75%; all provisions of such primary
                  mortgage guaranty insurance policy have been and are being
                  complied with and such policy is in full force and effect; and
                  all premiums due thereunder have been paid; the related
                  Mortgage for any Mortgage Loan subject to such policy of
                  primary mortgage guaranty insurance obligates the mortgagor
                  thereunder to maintain such insurance and pay all premiums and
                  charges in connection therewith; the insurer for such policy
                  is an approved mortgage insurance company by an Agency; the
                  annual interest rate for the Mortgage Loan as set forth on the
                  related Mortgage Loan Schedule is net of any such insurance

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                  premium; if the Mortgage Loan is an FHA-insured or
                  VA-guaranteed loan, such insurance or guaranty is in effect;"

3.       Doral agrees to pay as and when billed by MLMCI all of the reasonable
         fees, disbursements and expenses of counsel to MLMCI in connection with
         the development, preparation and execution of this Amendment No. 1 or
         any other documents prepared in connection herewith and receipt of
         payment thereof MH be a condition precedent to MLMCI entering into any
         Transaction pursuant hereto.

4.       Effective Date. This Amendment shall become effective on the date (the
         "Amendment Effective Date") on which the following conditions precedent
         shall have been satisfied:

         (a)      On the Amendment Effective Date, MLMCI shall have received the
                  following, each of which shall be satisfactory to MLMCI:

                  (i)      this Amendment No. 1, executed and delivered by a
                           duly authorized officer of each of Doral and MLMCI;
                           and

                  (ii)     Amendment No. 1 to the Commitment Letter, executed
                           and delivered by a duly authorized officer of each of
                           Doral and MLMCI; and

                  (iii)    such other documents as MLMCI or counsel to MLMCI may
                           reasonably request.

         (b)      On the Amendment Effective Date, (i) Doral shall be in
                  compliance with all the terms and provisions set forth in the
                  Master Repurchase Agreement as amended by this Amendment No.
                  1, and the Commitment Letter, on its part to be observed or
                  performed, and (ii) no default or Event of Default shall have
                  occurred and be continuing on such debt.

5.       The parties hereto acknowledge that this Amendment No. 1, as amended
         from time to time, the Existing Repurchase Agreement, and the
         Commitment Letter, and all draft thereof, documents relating thereto
         and transactions contemplated thereby are confidential in nature and
         Doral agrees that, unless otherwise directed by a court of competent
         jurisdiction, they shall limit the distribution of such documents and
         the discussion of such transactions to such of its officers, employees,
         attorneys, accountants and agents as is required in order to fulfill
         its obligations under such documents and with respect to such
         transactions.

6.       Except as expressly amended and modified by this Amendment No. 1, the
         Existing Repurchase Agreement shall continue to be, and shall remain,
         in full force and effect in accordance with its terms.

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7.       This Amendment No. 1 shall be construed in accordance with the laws of
         the State of New York, and the obligations, rights and remedies of the
         parties hereunder shall be determined in accordance with such laws.

8.       This Amendment No. 1 may be executed in one or more counterparts and by
         different parties hereto on separate counterparts, each of which, when
         so executed, shall constitute one and the same agreement.

9.       The parties hereto agree that in the event there is any conflict
         between the terms of this Amendment No. 1, and the terms of the
         Existing Repurchase Agreement or the Commitment Letter, the provisions
         of this Amendment No. 1 shall control.

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                     [SIGNATURES COMMENCE ON FOLLOWING PAGE]

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         IN WITNESS WHEREOF, the parties have caused their names to be signed
hereto by their respective officers thereunto duly authorized as of the day and
year first above written.

                                         MERRILL LYNCH MORTGAGE
                                         CAPITAL INC.

                                         Purchaser

                                          By:   /s/ James B. Cason
                                             ----------------------------------
                                          Name:  James B. Cason
                                          Title:  Director

                                         DORAL MORTGAGE CORPORATION

                                         Seller

                                         By:    /s/ Mario S. Levis
                                             ----------------------------------
                                         Name:  Mario S. Levis
                                         Title:

                                         DORAL FINANCIAL CORPORATION

                                         Seller

                                         By:    /s/ Mario S. Levis
                                            -----------------------------------
                                         Name:  Mario S. Levis
                                         Title:

                                        6Exhibit 4.1

                  ---------------------------------------------

                        PINNACLE WEST CAPITAL CORPORATION

                                       TO

                              THE BANK OF NEW YORK

                                     TRUSTEE

                          First Supplemental Indenture

                           Dated as of March 15, 2001

                                       To

                                    Indenture

                          Dated as of December 1, 2000

                                   ----------

                           6.40% Senior Notes due 2006

                  ---------------------------------------------
<PAGE>
     FIRST SUPPLEMENTAL INDENTURE,  dated as of March 15, 2001, between Pinnacle
West Capital  Corporation,  a corporation  duly organized and existing under the
laws of the State of Arizona (herein called the "Company"), having its principal
office at 400 North Fifth Street,  Phoenix,  Arizona 85004,  and The Bank of New
York, a New York banking  corporation,  as Trustee (herein called the "Trustee")
under the  Indenture  dated as of December  1, 2000  between the Company and the
Trustee (the "Indenture").

                             RECITALS OF THE COMPANY

     The Company has  executed  and  delivered  the  Indenture to the Trustee to
provide for the issuance from time to time of its unsecured debentures, notes or
other evidences of indebtedness (the "Securities"), said Securities to be issued
in one or more series as in the Indenture provided.

     Pursuant to the terms of the Indenture,  the Company desires to provide for
the  establishment  of a new series of its  Securities  to be known as its 6.40%
Senior  Notes due 2006  (herein  called  the  "Notes  due  2006"),  the form and
substance  of such  Notes due 2006 and the  terms,  provisions,  and  conditions
thereof to be set forth as provided in the Indenture and this First Supplemental
Indenture.

     All things  necessary  to make this First  Supplemental  Indenture  a valid
agreement of the Company,  and to make the Notes due 2006,  when executed by the
Company and authenticated and delivered by the Trustee, the valid obligations of
the Company, have been done.

          NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

     For and in  consideration of the premises and the purchase of the Notes due
2006 by the  holders  thereof  (the  "Holders"),  and for the purpose of setting
forth,  as provided in the  Indenture,  the form and  substance of the Notes due
2006 and the terms,  provisions,  and conditions thereof, it is mutually agreed,
for the equal and proportionate benefit of all Holders of the Notes due 2006, as
follows:

                                   ARTICLE ONE

                         GENERAL TERMS AND CONDITIONS OF
                               THE NOTES DUE 2006

     SECTION 101. There shall be and is hereby authorized a series of Securities
designated  the "6.40%  Senior Notes due 2006"  limited in  aggregate  principal
amount to $300,000,000,  except as mentioned below, which amount shall be as set
forth in any  Company  Order for the  authentication  and  delivery of Notes due
2006. The Notes due 2006 shall mature and the principal shall be due and payable
together  with all accrued  and unpaid  interest  thereon on April 1, 2006,  and
shall be issued in the form of registered  Notes due 2006 without  coupons.  The
Company may, without the consent of the Holders, issue additional Notes due 2006
having  the  same  ranking  and the  same  interest  rate,  maturity  and  other
additional  terms as the  Notes  due  2006.  Any such  additional  notes  would,
together with the previously  issued Notes due 2006,  constitute a single series
of Securities under the

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<PAGE>
Indenture.  Any reference herein to the limitation in aggregate principal amount
of the Notes due 2006 shall take account of any such issuance and the limitation
(originally $300,000,000) shall be adjusted accordingly.

     SECTION  102.  The Notes due 2006  shall be  issued in  certificated  form,
except that the Notes due 2006 shall be issued initially as a Global Security to
and  registered  in the name of Cede & Co., as nominee of The  Depository  Trust
Company, as Depositary therefor.  Any Notes due 2006 to be issued or transferred
to, or to be held by, Cede & Co. (or any  successor  thereof)  for such  purpose
shall bear the depositary  legend in substantially the form set forth at the top
of the form of Note due 2006 in Article Two hereof (in lieu of that set forth in
Section 204 of the  Indenture),  unless  otherwise  agreed by the Company,  such
agreement to be confirmed in writing to the Trustee. Such Global Security may be
exchanged in whole or in part for Notes due 2006 registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of  Persons  other  than such  Depositary  or a nominee  thereof  only under the
circumstances  set forth in Clause (2) of the last  paragraph  of Section 305 of
the Indenture,  or such other  circumstances  in addition to or in lieu of those
set forth in Clause (2) of the last paragraph of Section 305 of the Indenture as
to which the Company shall agree,  such  agreement to be confirmed in writing to
the Trustee.  Principal  of, and premium,  if any, and interest on the Notes due
2006 will be payable,  the  transfer of Notes due 2006 will be  registrable  and
Notes due 2006 will be exchangeable  for Notes due 2006 bearing  identical terms
and  provisions,  at the  office or  agency of the  Company  in the  Borough  of
Manhattan,  The City and State of New York; PROVIDED,  HOWEVER,  that payment of
interest  may be made at the  option  of the  Company  by  check  mailed  to the
registered holder at such address as shall appear in the Security Register.

     SECTION  103.  Each Note due 2006 will bear  interest  at the rate of 6.40%
from  March  27,  2001 or  from  the  most  recent  Interest  Payment  Date  (as
hereinafter  defined) to which interest has been paid or duly provided for until
the principal thereof is paid or made available for payment,  payable on April 1
and October 1 of each year (each,  an "Interest  Payment  Date"),  commencing on
October  1,  2001,  to the  person  in  whose  name  such  Note  due 2006 or any
Predecessor Security is registered,  at the close of business on the March 15 or
September  15, as the case may be,  whether or not a Business  Day,  immediately
preceding  the  Interest  Payment  Date.  Any  such  interest   installment  not
punctually  paid or duly provided for shall forthwith cease to be payable to the
registered holders on such regular record date, and may be paid to the person in
whose  name  the  Note  due  2006  (or one or more  Predecessor  Securities)  is
registered at the close of business on a special  record date to be fixed by the
Trustee for the payment of such  defaulted  interest,  notice  whereof  shall be
given to the  registered  holders  of the  Notes due 2006 not less than ten days
prior to such  special  record  date,  or may be paid at any  time in any  other
lawful manner not inconsistent with the requirements of any securities  exchange
on which  the  Notes  due 2006 may be  listed,  and upon  such  notice as may be
required by such exchange, all as more fully provided in the Indenture.

     The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day  months.  Interest will accrue from March 27,
2001 to, but not  including,  the relevant  payment  date. In the event that any
date on which  interest is payable on the Notes due 2006 is not a Business  Day,
then  payment  of  interest  payable  on such  date  will  be  made on the  next

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<PAGE>
succeeding  day which is a  Business  Day (and  without  any  interest  or other
payment  in  respect  of any such  delay),  in each case with the same force and
effect as if made on such date.  A "Business  Day" shall mean any day,  except a
Saturday,  a Sunday or a legal  holiday in The City of New York on which banking
institutions are authorized or required by law, regulation or executive order to
close.  SECTION 104.  The Company may redeem the Notes due 2006 at any time,  in
whole or in part,  upon  notice as provided in the  Indenture,  at a  redemption
price equal to the greater of (1) the principal amount being redeemed or (2) the
sum of the present values of the remaining  scheduled  payments of principal and
interest on the Notes due 2006 being redeemed, discounted to the redemption date
on a  semi-annual  basis  (assuming a 360-day year  consisting  of twelve 30-day
months) at the Treasury  Yield plus 30 basis  points,  plus in each case accrued
interest to the redemption date.

     "Treasury  Yield" means,  for any redemption date, the rate per annum equal
to the  semi-annual  equivalent  yield to  maturity of the  Comparable  Treasury
Issue,  assuming  a price for the  Comparable  Treasury  Issue  (expressed  as a
percentage of its principal  amount) equal to the  Comparable  Treasury Price of
the redemption date.

     "Comparable  Treasury  Issue"  means the United  States  Treasury  security
selected by an Independent  Investment Banker as having a maturity comparable to
the remaining term of the Notes due 2006 that would be utilized,  at the time of
selection and in accordance with customary  financial  practice,  in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Notes due 2006.

     "Independent  Investment  Banker"  means  Salomon  Smith Barney Inc. or its
successor  or, if Salomon  Smith  Barney Inc. or its  successor  is unwilling or
unable to select the Comparable  Treasury Issue, one of the remaining  Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.

     "Comparable Treasury Price" means, for any redemption date, (1) the average
of the bid and asked prices for the Comparable Treasury Issue (expressed in each
case  as a  percentage  of its  principal  amount)  on the  third  business  day
preceding the redemption date, as set forth in the daily statistical release (or
any  successor  release)  published by the Federal  Reserve Bank of New York and
designated  "Composite 3:30 p.m. Quotations for U.S.  Government  Securities" or
(2) if that  release (or any  successor  release) is not  published  or does not
contain  those prices on that  business  day,  (A) the average of the  Reference
Treasury Dealer  Quotations for the redemption date, after excluding the highest
and lowest Reference  Treasury Dealer Quotations for the redemption date, or (B)
if the Company obtains fewer than four Reference Treasury Dealer Quotations, the
average of all of the Quotations.

     "Reference  Treasury Dealer  Quotations" means, for each Reference Treasury
Dealer and any redemption  date, the average,  as determined by the Trustee,  of
the bid and asked prices for the Comparable  Treasury  Issue  (expressed in each
case as a percentage of its principal  amount)  quoted in writing to the Trustee
by the  Reference  Treasury  Dealer  at 5:00  p.m.  on the  third  business  day
preceding the redemption date.

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<PAGE>
     "Reference Treasury Dealer" means (1) each of Salomon Smith Barney Inc. and
any other primary U.S. Government Securities dealer in New York City (a "Primary
Treasury Dealer")  designated by, and not affiliated with,  Salomon Smith Barney
Inc. and their respective successors,  provided,  however, that if Salomon Smith
Barney Inc. or any of its designees ceases to be a Primary  Treasury Dealer,  we
will appoint another  Primary  Treasury Dealer as a substitute and (2) any other
Primary Treasury Dealer selected by the Company.

     If the  Company  elects to redeem  less than all the Notes due 2006 and the
Notes  due 2006  are at the time  represented  by a  Global  Security,  then the
Depository  will select by lot the  particular  interest to be redeemed.  If the
Company  elects to redeem less than all of the Notes due 2006, and the Notes due
2006 are not represented by a Global Security,  then the Trustee will select the
particular  Notes due 2006 to be redeemed in a manner it deems  appropriate  and
fair.

     The  Trustee  shall be  under no duty to  inquire  into,  may  conclusively
presume  the  correctness  of, and shall be fully  protected  in acting upon the
Company's calculation of any Redemption Price.

     The Company shall give the Trustee written notice of the Redemption  Price,
promptly after the calculation thereof.

     Notwithstanding  Section 1104 of the  Indenture,  any notice of  redemption
given pursuant to said Section with respect to the foregoing redemption need not
set forth the Redemption Price but only the manner of calculation thereof.

     SECTION  105.  The Notes due 2006 shall be  defeasible  pursuant to Section
1302 or 1303 of the Indenture.

                                   ARTICLE TWO

                             FORM OF NOTES DUE 2006

     SECTION  201.  The  Notes  due  2006  and  the  Trustee's   certificate  of
authentication  to be endorsed  thereon are to be substantially in the following
forms:

Form of Face of Security:

UNLESS THIS  CERTIFICATE  IS PRESENTED BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY  TRUST  COMPANY,  A NEW YORK  CORPORATION  ("DTC"),  TO PINNACLE WEST
CAPITAL  CORPORATION OR ITS AGENT FOR  REGISTRATION  OF TRANSFER,  EXCHANGE,  OR
PAYMENT,  AND ANY CERTIFICATE  ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED  REPRESENTATIVE  OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER  ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE

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<PAGE>
HEREOF FOR VALUE OR  OTHERWISE  BY OR TO ANY PERSON IS WRONGFUL  INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                        PINNACLE WEST CAPITAL CORPORATION

                           6.40% Senior Note due 2006

No. _________                                                       $300,000,000
                                                             CUSIP No. 723484AB7

     Pinnacle  West  Capital  Corporation,  a  corporation  duly  organized  and
existing  under the laws of Arizona  (herein  called the  "Company",  which term
includes any successor Person under the Indenture  hereinafter referred to), for
value received, hereby promises to pay to Cede & Co., or registered assigns, the
principal  sum of Three  Hundred  Million  Dollars on April 1, 2006,  and to pay
interest  thereon from March 27, 2001 or from the most recent  Interest  Payment
Date to which  interest has been paid or duly  provided  for,  semi-annually  in
arrears on April 1 and October 1 in each year,  commencing  October 1, 2001,  at
the rate of 6.40%,  until the  principal  hereof is paid or made  available  for
payment.

     The interest so payable,  and punctually  paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in  whose  name  this  Security  (or  one or  more  Predecessor  Securities)  is
registered  at the  close  of  business  on the  Regular  Record  Date  for such
interest,  which  shall  be  March  15 or  September  15,  as the  case  may be,
immediately preceding the Interest Payment Date (whether or not a Business Day).
Any such  interest not so punctually  paid or duly  provided for will  forthwith
cease to be payable to the Holder on such Regular Record Date and may be paid to
the Person in whose name this Security (or one or more  Predecessor  Securities)
is registered at the close of business on a Special  Record Date for the payment
of such Defaulted  Interest to be fixed by the Trustee,  notice whereof shall be
given to Holders of  Securities  of this  series not less than ten days prior to
such Special  Record Date, or be paid at any time in any other lawful manner not
inconsistent  with the  requirements  of any  securities  exchange  on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.

     Payment of the principal of (and premium,  if any) and any interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York,  in such coin or currency of the United  States
of America as at the time of payment is legal  tender for  payment of public and
private debts;  provided,  however, that at the option of the Company payment of
interest  may be made by check  mailed to the  address  of the  Person  entitled
thereto as such address shall appear in the Security Register.

     Reference  is hereby made to the further  provisions  of this  Security set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

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<PAGE>
     Unless the  certificate of  authentication  hereon has been executed by the
Trustee  referred to on the reverse  hereof by manual  signature,  this Security
shall  not be  entitled  to any  benefit  under  the  Indenture  or be  valid or
obligatory for any purpose.

     IN WITNESS  WHEREOF,  the  Company has caused  this  instrument  to be duly
executed under its corporate seal.

                                        PINNACLE WEST CAPITAL CORPORATION

                                        By
                                           -------------------------------------
                                           Vice President

Attest:

-------------------------------------
Associate Secretary

Form of Reverse of Security.

     This  Security  is one of a duly  authorized  issue  of  securities  of the
Company (herein called the "Securities"), issued and to be issued in one or more
series  under an  Indenture,  dated as of  December 1, 2000  (herein  called the
"Indenture",  which  term  shall  have  the  meaning  assigned  to  it  in  such
instrument),  between the Company and The Bank of New York,  as Trustee  (herein
called the  "Trustee",  which term  includes  any  successor  trustee  under the
Indenture), and reference is hereby made to the Indenture for a statement of the
respective rights,  limitations of rights,  duties and immunities  thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the  Securities  are, and are to be,  authenticated  and  delivered.  This
Security  is  one of the  series  designated  on the  face  hereof,  limited  in
aggregate  principal amount to $300,000,000,  subject to increase as provided in
Section 101 of the First  Supplemental  Indenture,  dated as of March 15,  2001,
providing for such series of the Securities.

     The Securities of this series are subject to redemption  upon not less than
30 days' notice by mail at the option of the Company,  in whole or in part, from
time to time at a  Redemption  Price equal to the  greater of (1) the  principal
amount  being  redeemed  or (2) the sum of the present  values of the  remaining
scheduled  payments  of  principal  and  interest  on the Notes  due 2006  being
redeemed,  discounted to the redemption date on a semi-annual  basis (assuming a
360-day year  consisting of twelve 30-day  months) at the Treasury Yield plus 30
basis points, plus in each case accrued interest to the redemption date.

     If notice has been given as  provided  in the  Indenture  and funds for the
redemption of any  Securities  (or any portion  thereof)  called for  redemption
shall  have been made  available  on the  Redemption  Date  referred  to in such
notice, such Securities (or any portion thereof) will cease to

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<PAGE>
bear interest on the date fixed for such redemption specified in such notice and
the only right of the Holders of such  Securities  will be to receive payment of
the Redemption Price.

     Notice of any  optional  redemption  of  Securities  of this series (or any
portion  thereof) will be given to Holders at their  addresses,  as shown in the
Security  Register for such  Securities,  not more than 60 nor less than 30 days
prior to the date fixed for  redemption.  The notice of redemption will specify,
among other items,  the  Redemption  Price or, if not then known,  the manner of
calculation  thereof,  and the principal amount of the Securities of this series
held by such Holder to be redeemed.

     The Company may redeem the Notes due 2006 at any time, in whole or in part,
at a  redemption  price equal to the greater of (1) the  principal  amount being
redeemed  or (2)  the  sum of the  present  values  of the  remaining  scheduled
payments  of  principal  and  interest  on the  Notes due 2006  being  redeemed,
discounted to the  redemption  date on a semi-annual  basis  (assuming a 360-day
year  consisting  of twelve 30-day  months) at the Treasury  Yield plus 30 basis
points, plus in each case accrued interest to the redemption date.

     "Treasury  Yield" means,  for any redemption date, the rate per annum equal
to the  semi-annual  equivalent  yield to  maturity of the  Comparable  Treasury
Issue,  assuming  a price for the  Comparable  Treasury  Issue  (expressed  as a
percentage of its principal  amount) equal to the  Comparable  Treasury Price of
the redemption date.

     "Comparable  Treasury  Issue"  means the United  States  Treasury  security
selected by an Independent  Investment Banker as having a maturity comparable to
the remaining term of the Notes due 2006 that would be utilized,  at the time of
selection and in accordance with customary  financial  practice,  in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Notes due 2006.

     "Independent  Investment  Banker"  means  Salomon  Smith Barney Inc. or its
successor  or, if Salomon  Smith  Barney Inc. or its  successor  is unwilling or
unable to select the Comparable  Treasury Issue, one of the remaining  Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.

     "Comparable Treasury Price" means, for any redemption date, (1) the average
of the bid and asked prices for the Comparable Treasury Issue (expressed in each
case  as a  percentage  of its  principal  amount)  on the  third  business  day
preceding the redemption date, as set forth in the daily statistical release (or
any  successor  release)  published by the Federal  Reserve Bank of New York and
designated  "Composite 3:30 p.m. Quotations for U.S.  Government  Securities" or
(2) if that  release (or any  successor  release) is not  published  or does not
contain  those prices on that  business  day,  (A) the average of the  Reference
Treasury Dealer  Quotations for the redemption date, after excluding the highest
and lowest Reference  Treasury Dealer Quotations for the redemption date, or (B)
if we obtain fewer than four Reference Treasury Dealer  Quotations,  the average
of all of the Quotations.

     "Reference  Treasury Dealer  Quotations" means, for each Reference Treasury
Dealer and

                                        8
<PAGE>
any redemption date, the average,  as determined by the Trustee,  of the bid and
asked prices for the  Comparable  Treasury  Issue  (expressed  in each case as a
percentage  of its  principal  amount)  quoted in writing to the  Trustee by the
Reference  Treasury  Dealer at 5:00 p.m. on the third business day preceding the
redemption date.

     "Reference Treasury Dealer" means (1) each of Salomon Smith Barney Inc. and
any other primary U.S. Government Securities dealer in New York City (a "Primary
Treasury Dealer")  designated by, and not affiliated with,  Salomon Smith Barney
Inc. and their respective successors,  provided,  however, that if Salomon Smith
Barney Inc. or any of its designees ceases to be a Primary  Treasury Dealer,  we
will appoint another  Primary  Treasury Dealer as a substitute and (2) any other
Primary Treasury Dealer selected by the Company.

     If the  Company  elects to  redeem  less than all of Notes due 2006 and the
Notes  due 2006  are at the time  represented  by a  Global  Security,  then the
Depository  will select by lot the  particular  interest to be redeemed.  If the
Company  elects to redeem less than all of the Notes due 2006, and the Notes due
2006 are not represented by a Global Security,  then the Trustee will select the
particular  Notes due 2006 to be redeemed in a manner it deems  appropriate  and
fair.

     The Securities of this series will not be subject to any sinking fund.

     In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the  unredeemed  portion  hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.

     The Indenture contains  provisions for defeasance at any time of the entire
indebtedness  of the  Security or certain  restrictive  covenants  and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.

     If an Event of Default  with  respect to  Securities  of this series  shall
occur and be  continuing,  the principal of the Securities of this series may be
declared  due and  payable in the manner  and with the  effect  provided  in the
Indenture.

     The Indenture  permits,  with certain  exceptions as therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Company  and the rights of the  Holders of the  Securities  of each series to be
affected under the Indenture at any time by the Company and the Trustee  without
the consent of such Holders in certain limited circumstances or with the consent
of the  Holders of 66-2/3% in  principal  amount of the  Securities  at the time
Outstanding  of  each  series  to  be  affected.  The  Indenture  also  contains
provisions  permitting the Holders of specified  percentages in principal amount
of the  Securities  of each  series  at the time  Outstanding,  on behalf of the
Holders of all  Securities  of such series,  to waive  compliance by the Company
with certain  provisions of the  Indenture  and certain past defaults  under the
Indenture  and their  consequences.  Any such consent or waiver by the Holder of
this  Security  shall be  conclusive  and binding  upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration

                                        9
<PAGE>
of transfer  hereof or in  exchange  herefor or in lieu  hereof,  whether or not
notation of such consent or waiver is made upon this Security.

     As provided in and subject to the provisions of the  Indenture,  the Holder
of this  Security  shall not have the right to  institute  any  proceeding  with
respect to the Indenture or for the  appointment of a receiver or trustee or for
any other remedy thereunder,  unless such Holder shall have previously given the
Trustee  written  notice of a  continuing  Event of Default  with respect to the
Securities of this series,  the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the  Trustee  to  institute  proceedings  in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have  received  from the Holders of a majority in principal  amount of
Securities of this series at the time Outstanding a direction  inconsistent with
such  request,  and shall have failed to institute any such  proceeding,  for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit  instituted  by the Holder of this  Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.

     No reference  herein to the  Indenture and no provision of this Security or
of the Indenture  shall alter or impair the obligation of the Company,  which is
absolute and unconditional, to pay the principal of and any premium and interest
on this  Security  at the times,  place and rate,  and in the coin or  currency,
herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth,  the transfer of this Security is registrable  in the Security  Register,
upon  surrender of this Security for  registration  of transfer at the office or
agency of the  Company in any place where the  principal  of and any premium and
interest on this  Security are payable,  duly endorsed by, or  accompanied  by a
written  instrument  of  transfer  in form  satisfactory  to the Company and the
Security  Registrar  duly  executed by, the Holder  hereof or his attorney  duly
authorized in writing,  and thereupon one or more new  Securities of this series
and of like  tenor,  of  authorized  denominations  and for the  same  aggregate
principal amount, will be issued to the designated transferee or transferees.

     The Securities of this series are issuable only in registered  form without
coupons  in  denominations  of $1,000  and any  integral  multiple  thereof.  As
provided in the Indenture and subject to certain  limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of  Securities  of this  series  and of like  tenor  of a  different  authorized
denomination, as requested by the Holder surrendering the same.

     No service  charge shall be made for any such  registration  of transfer or
exchange,  but the Company may require  payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     Prior to due presentment of this Security for registration of transfer, the
Company,  the  Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this

                                       10
<PAGE>
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue,  and  neither the  Company,  the Trustee nor any such agent
shall be affected by notice to the contrary.

     All terms used in this Security  which are defined in the  Indenture  shall
have the meanings assigned to them in the Indenture.

     This Security shall be governed by and construed in accordance with the law
of the  State of New  York,  without  regard  to  conflicts  of laws  principles
thereof.

Form of Trustee's Certificate of Authentication.

                          CERTIFICATE OF AUTHENTICATION

     This is one of the Securities of the series designated  therein referred to
in the within-mentioned Indenture.

Dated: _____________________            THE BANK OF NEW YORK
                                        AS TRUSTEE

                                        By
                                           -------------------------------------
                                           AUTHORIZED SIGNATORY

                                  ARTICLE THREE

                        ORIGINAL ISSUE OF NOTES DUE 2006

     SECTION  301.  Notes  due  2006  in  the  aggregate   principal  amount  of
$300,000,000  (subject  to  increase  as  provided  in  Section  101) may,  upon
execution of this First Supplemental Indenture, or from time to time thereafter,
be executed by the Company and delivered to the Trustee for authentication,  and
the Trustee  shall  thereupon  authenticate  and deliver  said Notes due 2006 in
accordance with a Company Order delivered to the Trustee by the Company, without
any further action by the Company.

                                  ARTICLE FOUR

                           PAYING AGENT AND REGISTRAR

     SECTION  401.  The Bank of New York will be the Paying  Agent and  Security
Registrar for the Notes due 2006.

                                       11
<PAGE>
                                  ARTICLE FIVE

                                SUNDRY PROVISIONS

     SECTION  501.  Except  as  otherwise   expressly  provided  in  this  First
Supplemental  Indenture  or in the form of Notes due 2006 or  otherwise  clearly
required by the context hereof or thereof, all terms used herein or in said form
of Notes due 2006 that are  defined  in the  Indenture  shall  have the  several
meanings respectively assigned to them thereby.

     SECTION 502. The Indenture,  as heretofore supplemented and amended, and as
supplemented by this First Supplemental  Indenture,  is in all respects ratified
and confirmed, and this First Supplemental Indenture shall be deemed part of the
Indenture in the manner and to the extent herein and therein provided.

     SECTION  503.  The  Trustee  hereby  accepts  the trusts  herein  declared,
provided, created,  supplemented, or amended and agrees to perform the same upon
the terms and conditions herein and in the Indenture, as heretofore supplemented
and amended, set forth and upon the following terms and conditions:

     The Trustee shall not be  responsible  in any manner  whatsoever  for or in
respect of the validity or sufficiency of this First  Supplemental  Indenture or
for or in respect of the recitals  contained  herein,  all of which recitals are
made by the  Company  solely.  In  general,  each and every  term and  condition
contained in Article Six of the Indenture shall apply to and form a part of this
First Supplemental  Indenture with the same force and effect as if the same were
herein set forth in full with such omissions,  variations,  and  insertions,  if
any, as may be  appropriate  to make the same conform to the  provisions of this
First Supplemental Indenture.

     This  instrument  may be  executed in any number of  counterparts,  each of
which so executed shall be deemed to be an original,  but all such  counterparts
shall together constitute but one and the same instrument.

                                       12
<PAGE>
     IN WITNESS WHEREOF,  the parties hereto have caused this First Supplemental
Indenture  to be duly  executed,  and  their  respective  corporate  seals to be
hereunto affixed and attested, all as of the day and year first above written.

                                        PINNACLE WEST CAPITAL CORPORATION

Attest:

Betsy A. Pregulman
---------------------------
Associate Secretary

                                        By: Barbara M. Gomez
                                            ------------------------------------
                                            Barbara M. Gomez
                                            Treasurer

                                        THE BANK OF NEW YORK, as Trustee
Attest:

Remo J. Reale
---------------------------
Remo J. Reale
Vice President

                                        By: Walter N. Gitlin
                                            ------------------------------------
                                            Walter N. Gitlin
                                            Vice President

                                       13
<PAGE>
STATE OF ARIZONA    )
                    )  ss.:
COUNTY OF MARICOPA  )

     On the 26th day of March, 2001, before me personally came Barbara M. Gomez,
to me known,  who,  being by me duly  sworn,  did depose and say that she is the
Treasurer of Arizona Public Service Company,  one of the corporations  described
in and which executed the foregoing instrument;  that she knows the seal of said
corporation;  that the seal affixed to said  instrument is such corporate  seal;
that  it was so  affixed  by  authority  of  the  Board  of  Directors  of  said
corporation; and that she signed her name thereto by like authority.

                                        Debra L. Blondin
                                        ----------------------------------------
                                        Notary Public

My Commission Expires:

June 7, 2004
-------------------------------

STATE OF NEW YORK   )
                    )  ss.:
COUNTY OF NEW YORK  )

     On the 23rd day of March, 2001, before me personally came Walter N. Gitlin,
to me known,  who, being by me duly sworn,  did depose and say that he is a Vice
President  of The Bank of New York,  one of the  corporations  described  in and
which  executed  the  foregoing  instrument;  that  he  knows  the  seal of said
corporation;  that the seal affixed to said  instrument is such corporate  seal;
that  it was so  affixed  by  authority  of  the  Board  of  Directors  of  said
corporation; and that he signed his name thereto by like authority.

                                        William J. Cassels
                                        ----------------------------------------
                                        Notary Public

My Commission Expires:

May 16, 2002
-------------------------------

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