(FORTUNE Magazine) – FORTUNE created its list of best cities in partnership with Arthur Andersen, whose Business Location Services practice consults with companies on location strategy, selection, and implementation.

Arthur Andersen used three research methods: (1) a survey of executives worldwide; (2) a survey of economic development organizations for major cities and an invitation through ambassadors and governors to nominate other cities for consideration; and (3) the firm's independent research network, including its offices around the world.

Arthur Andersen also conducted a focus group of some 25 partners who lead industry and functional practice areas to tap their insights on emerging business needs and how these might affect business location choices. For a copy of the research highlights developed by Arthur Andersen, fax your request to Dan Malachuk, Director of Business Location Services, Arthur Andersen, at 212-245-3211, or call 800-861-7041.

FORTUNE made the final ranking decisions, incorporating the results of Arthur Andersen's work with information and analysis by writers and researchers worldwide.

ATLANTA

Although it made its mark as purveyor to the world of fizzy sugar water, Atlanta also has a rich history of innovation. In 1975, Scientific-Atlanta provided the first cable satellite connection; Bell Labs in Atlanta was responsible for the first commercial application of fiber-optic cable in 1977; and Cox Communications transmitted the first phone call over a cable TV network in 1992. This telecommunications pathfinding promises to continue as Atlanta businesses such as BellSouth and CNN pave the way to an information economy.

Atlanta ships far more than voices, images, and data. It remains a vital hub for old-fashioned tangible products; 36 of the nation's 50 largest transportation companies have operations here.

Want more versatility? With plenty of ready labor--100,000 college students, thousands of military spouses--Atlanta should stay in the forefront as a back-office center. Delta Air Lines, MCI Communications, and Primerica Financial Services all have support facilities here; the IRS regional office is more than 3,000 strong.

To top it off, Atlanta is a notoriously great place to live. Says Arthur Mirante II, CEO of Cushman & Wakefield: "Quality of life is becoming more important as a location criterion, and Atlanta has gotten a lot of hype as a livable city."

Next summer hundreds of cultures will bind together in the 1996 Olympic Games. Atlanta is hoping the distinction of being an Olympic City will stick long after the games are over.

AUSTIN

When Austin built its state capitol in 1888, the edifice was larger than any other state capitol--seven feet taller, in fact, than the U.S. Capitol itself. That brash act pretty much sums up Austin: a small city that does things Texas Big. It's got one of the nation's largest institutions of higher learning in the University of Texas, which enrolls nearly 50,000 students, most of whom can be found cheering for the football team on Saturdays in autumn. Austin also boasts a world-renowned music scene.

But Austin is becoming more famous for its prowess in computing. Dell Computer, Advanced Micro Devices, IBM, Motorola, 3M, and Texas Instruments are among the high-tech companies with operations here, employing about 85,000. The city has a big concentration of software developers, and it ranked fifth in the nation last year in patent production.

Thanks to a relaxed lifestyle and abundant recreation opportunities in the surrounding hill country, Austin promises to remain popular with the kind of people (techies) who once would only consider the Pacific Northwest as a fit place to live.

Another Austin advantage: It's just 200 miles from Dallas and 165 from Houston, two other Best Cities. Austin is increasingly expanding links with the larger world too. A new international airport, Austin-Bergstrom International, will open in 1998, replacing a mothballed air force base.

BOSTON

Its colonial past gives Boston charm, but the city is squarely positioned for the future. It's a kind of mirror image of Seattle, a gateway to the Atlantic Rim--New England, Eastern Canada, and Western Europe.

A diverse economy kept the city insulated from some local computer industry meltdowns. But Route 128 is hot again, dotted with numerous high-tech firms. Boston has a thriving finance community, with Fleet Bank, Liberty Mutual Group, and Fidelity Investments, the nation's largest mutual fund company. A good chunk of what's left of the defense industry can be found near here--Lincoln Laboratory, Mitre, and Raytheon.

Boston has recently transformed a building once occupied by Digital Equipment in an industrial area known as Crosstown into the Boston Technology Development Center, an incubator for startups.

A critical mass of local colleges and universities promises to constantly replenish the supply of talent in the local economy. MIT graduates alone have founded more than 600 companies, employing 100,000 persons.

Maybe a future grad will dream up a solution to the city's maddening traffic problems, which transform usually mild-mannered Bostonians into the nation's most lunatic drivers. In the meantime, a $7.7 billion transportation project is under way, including a four-lane tunnel that will link downtown Boston and Logan Airport.

DALLAS/FORTWORTH

At the bottom of the Great Depression, city elders scrambled to raise $10 million to reel in the Texas State Fair. It's still here and now draws more than three million visitors a year. Dallas must love company: Its convention center is now the nation's second busiest, following a $113 million expansion. Three million people are expected to attend 650 conventions this year, spending more than $2 billion annually.

Not bad for a city with no major river, no port, no minerals--literally no natural advantages. Big D creates its own advantages. Foremost among them is the airport, smack in the middle of the Metroplex (as the Dallas/Fort Worth pair is known), which handles 2,500 flights a day and 50 million passengers a year, making it the world's second busiest.

One more unnatural advantage: The city is at the convergence of four major interstate highways, heading in four directions (connected, in every sense, by the Lyndon Baines Johnson Freeway). Naturally, Dallas pushed that fact hard as it lobbied to land the NAFTA Labor Secretariat's Office, which opened in September. The office will hear workplace disputes that arise out of NAFTA. Big D is also laying out a "telecommunications corridor" in the northern part of the Metroplex that features such companies as AT&T, MCI, and Northern Telecom.

The best-kept secret about Dallas is its neighbor, Fort Worth, where the old West meets the new. Housing costs are low, and there's plenty of room for growth. Downtown, Fort Worth is building a $60 million performing arts center.

And if Dallas is deals and insurance, Fort Worth is its muscle. AMR, Burlington Northern Santa Fe, Pier 1 Imports, Bell Helicopter Textron, and Tandy have headquarters here. There are about 100,000 manufacturing jobs, as many as in San Antonio and Austin combined. Fort Worth also has designs as a distribution center. FedEx is building a $250 million hub at Ross Perot Jr.'s Alliance Airport.

DENVER

Denver has finally opened its much maligned airport. The nation's largest, at 53 square miles, Denver International is twice the size of Manhattan--and more expensive, say its many critics. Yet the airport is projected to create 90,000 new jobs by 2010. Denver will need them, judging by the number of people migrating here.

Denver is booming again. Though once addicted to oil and gas, Denver gets less than 1% of current employment from energy. With powerhouses like TCI and US West, the city has established a presence in telecommunications. Same goes for financial services.

The city used bond issues to help revitalize the lower downtown "LoDo" area, now a designated historic district. It's become a hot neighborhood, filled with trendy bars and shops. Coors Field opened there this year and served as home to the Colorado Rockies baseball team. With the arrival of the NHL's Quebec Nordiques this year (renamed the Colorado Avalanche), Denver now boasts entries in all major sports.

It's a manageable city; most jobs are within a 30-minute commute. If that's not enough, the Rocky Mountains offer unlimited recreation, not to mention some of the most jaw-dropping scenery in the country, all within a two-hour drive of downtown.

HOUSTON

What's that? You want a building moved a couple of blocks? No problem. Houston will do just about anything for business.

After skidding on the oil collapse, Houston has huffed and puffed and gained back all the jobs lost during the no-go Eighties, and is adding 50,000 net new ones a year. This thanks to a diversifying economy led by companies such as Compaq Computer and BMC Software, and a renewed focus on such hallowed institutions as the Texas Medical Center and Johnson Space Center.

The Medical Center, which consists of 41 separate entities, has an annual operating budget of more than $4 billion and does advanced research in cancer treatment, immunology, and nutrition. Open-heart surgery was pioneered here. The center is now a main site of the genome project, a worldwide effort to map the human genetic structure. Dozens of biotech firms have sprouted nearby.

Johnson Space Center is mission control for America's manned space travel. There's a constant trickle-down of NASA technology to Houston firms such as Mestech Creation, which uses robotic technology to monitor traffic, and DiGraphics, a maker of risk-assessment software.

A surprisingly diverse population includes speakers of more than 15 Asian dialects, so businesses can market to Asian customers. And MCI tapped Houston's large Spanish-speaking labor pool, too, to staff a multilingual customer-support center.

Energy is Houston's global card, and the city is ever the player. Companies such as Enron now export power generation to developing nations.

NEW YORK

It's an awesome place that does things in a big way. This is a city that generates one-third of all overseas calls made in the U.S. Those phone lines carry $1 trillion in financial transactions on the average day, equal to one-fifth of the GNP. Boasts an executive at a New York economic development agency: "We just blow away any other city we can think of." Another thing about New Yorkers--they're so modest.

Of course the Big Apple also has big problems: Its infrastructure strains under the load, the public school system's a mess, services can suffer, and the tax structure dares companies to leave.

But NYC is nothing if not resilient. For years the Times Square area has been synonymous with vice. Now Walt Disney Co. and other big players plan to redevelop the neighborhood for family entertainment. Miracle on 42nd Street!

New York is still a big headquarters city, with 49 of the FORTUNE 500 calling it home. It's still an international power; more than 350 foreign banks have offices here. But increasingly, New York is also finding that it needs to foster the type of small high-tech ventures that are driving many other cities' growth. As a media capital, multimedia seems a natural transition. New York has more than 500 companies involved in multimedia, including such young companies as New York Online, R/GA Interactive, and SonicNet.

PHOENIX

Think of it as the anti-L.A. Thanks to great living conditions, a well-trained (and well-tanned) work force, and ground that stays put, Phoenix has pilfered 51 Los Angeles companies in the past four years and more than 5,500 new jobs. Says Mary Busacca, licensing and merchandising coordinator for Fox Animation Studios, which chose Sun City over La-La for its new production facilities: "Phoenix itself was the biggest selling point. We were drawn by the quality of life."

Other companies share the sentiment, especially chipmeisters like Intel, Motorola, and Microchip Technology. They're all building semiconductor plants here. Intel's $1.3 billion plant will employ 2,000 people when it opens late next year or in early 1997.

Phoenix is another growing back-office center and has added 32,000 such jobs in eight years. Charles Schwab, BankAmerica, and Discover Card have moved back offices here.

One more coup: British Airways will start direct service between Phoenix and London. That's the city's first nonstop off the continent. "A dream has really come true," said Mayor Skip Rimsza. "No more changing planes in Texas or Florida or New York. No more trucking goods to Los Angeles for the long haul to London."

SAN FRANCISCO BAY AREA

Yes, it's expensive. But you get what you pay for, and in downtown San Francisco that's a compact few dozen blocks crammed with banks, law firms, port facilities, a stock exchange, and a panoply of cultural institutions. It is the headquarters site for Bank of America, the nation's second-largest bank. Asian banks such as Sumitomo Bank of California as well as Union Bank have also set up American headquarters in the City by the Bay.

Draw a 30-mile radius around downtown San Jose, and any electronics company worth its gigabytes will fall within it. Silicon Valley churns out $25 billion in exports, more than all but four states: Michigan, New York, Texas, and Washington. In Emeryville, just in between Berkeley and Oakland, a biotech haven has sprung from a depressed industrial town.

First-rate colleges and universities feed the Bay Area's enormous appetite for nerds. Besides Berkeley and Stanford, there's San Francisco State University, acting as a premier multimedia training ground. Its graduates pour into local companies such as Ikonic Interactive, Macromedia, and PF. Magic. The University of California at San Francisco prides itself on being the "birthplace of biotech"; faculty members have gone on to found such companies as Chiron, Genentech, and Scios Nova. Bonds between industry and the academic community are bound to grow. Says Marty Glick, treasurer of Genentech: "In biotech, it's vital that R&D and manufacturing be physically close together."

SEATTLE

It has Boeing in aerospace, Microsoft in cyberspace, and Starbucks' coffee to make sure that everyone stays awake for the ride.

That's a triumvirate to do any city proud. Yet Boeing has peaked as an employer, so the city looks to other stars. There's Asymetrix, a software company booted up in 1985 by Microsoft co-founder Paul Allen. ZymoGenetics is one of a number of local biotech companies launched by graduates and faculty from the University of Washington. The school is the second-highest recipient of federal money after Johns Hopkins, drawing more than $450 million a year.

Seattle is a key Pacific Rim port. Six of the top ten destinations for Washington State exports are Asian countries. For cargo, the trip from Seattle is a day shorter to Asia than from Los Angeles. The city shipped about $32 billion in goods to 100 countries in 1993.

Seattle is a relaxed and forward-looking city, renowned for its "bike lane on every street" policy. Being surrounded by unparalleled natural beauty has made the city environmentally sensitive. How to handle the city's continuing growth is a passionately argued question.

FRANKFURT

The nicknames say it all: "Bankfurt" or "Mainhattan," a play on the city's mini-version of the New York skyline and location on the Main River. This is Germany's finance center. The country's biggest banks and some 277 foreign banks are located here, including Deutsche Bundesbank, Germany's central bank. Frankfurt is home to the world's fourth-largest stock exchange.

But Frankfurt is more than a buttoned-down money town. It responded quickly to the dropping of the Iron Curtain by setting up the largest number of direct flights to Eastern European cities. And international manufacturers find themselves well served by continental Europe's largest cargo capacity. "Many companies that have their headquarters elsewhere in Germany, like IBM, have their distribution facilities in Frankfurt," notes Michael Sturm, director of American affairs for the city's economic development arm. He adds that some 750 American companies are located in the greater Frankfurt area. Frankfurt's port on the Main has Germany's largest inland harbor facilities.

In a country still dominated by rather inefficient and expensive telecommunications, Frankfurt is also the first city to allow private companies access to the sprawling municipally owned cable network.

To accommodate the many cultures drawn by foreign business, Frankfurt has developed international schools. Specialization is high; two cater to Korean children, for example.

HONG KONG

Walk down any street, visit any office, merely touch down in Kai Tak Airport, and the dealmaking is almost palpable--it's in the air. This city is home to the operations of nearly 2,000 multinational corporations. It's a favorite hub for dealing with the People's Republic of China. And thanks to the hands-off attitude of the Hong Kong government, it's a haven for financiers and entrepreneurs.

Of course all this could evaporate after Hong Kong converts to a special economic region of the People's Republic. The PRC and Britain have agreed that Hong Kong would remain both capitalist and largely autonomous. But there have been some ominous rumblings from the mainland. When Hong Kong held elections for its legislature in September, the pro-China candidates were mostly defeated. Beijing reacted by repeating a threat to disband the legislature in 1997.

Optimists in Hong Kong figure that self-interest will prevent China from disrupting a city best known for its ability to make money. Many of the less hopeful among the citizenry have already lined up other options in the form of permits to live in Australia, Canada, the U.S., and Singapore.

LONDON

"When a man is tired of London, he is tired of life." Samuel Johnson's famous line, penned in 1777, may have even more meaning today. A dominant center for world finance, London supports an astounding cultural scene. On any given night there are up to 60,000 seats available at various plays, concerts, and other goings-on; typically you can expect more than 1,500 weekly cultural events.

Britain has historically taken a liberal approach to regulating commerce, one reason London is so attractive to the foreign banking community. London leads the world in foreign exchange trading and international bank lending; it is home to 520 foreign banks. The city exemplifies the industrialization of service. Financial, professional, and business service companies employ more than 700,000 people--more than the entire population of Frankfurt.

Canary Wharf, called London's "Little Manhattan" by hopeful promoters, is reviving after its developer's 1992 financial collapse. The Wharf's ultramodern buildings are now 75% occupied, and by 1998 the Jubilee line of the underground--one of the world's best subway systems--will connect the area to central London and big commuter railway stations. London's airports handle some 80 million passengers a year, with 41 million of them using Heathrow international airport.

London certainly has its rough spots, as any city does. But it remains relatively safe, tolerant, and easygoing. To some city dwellers it may be less exciting than New York and not as elegant as Paris. But its long history and distinction as the royal stomping ground give it a special charm.

PARIS

Too rude, too expensive, and way too many bureaucratic hassles: That's the knock on the City of Light. But faced with rising unemployment and tough competition from other European business capitals, government officials at every level are making a genuine and ongoing effort to lower costs, soften attitudes, and loosen the regulations that make international business people groan. According to Sylvain Valensi, president and general director of Goodyear France, government officials are now "more welcoming and participatory. When we need help, we get it--at municipal and national levels."

Stock market reform and privatization of major state-owned corporations are bringing in banks, insurance companies, and brokerage houses. Another notable shift: Regulations on foreign investments, which required the authorization of the Ministry of Finances, a truly dreaded bureaucracy, will be phased out at year-end.

More reasonable rents can be found now, too. Orsay, a suburb southwest of Paris, set up a high-tech office park with secretarial pools, short-term leases for startups, and annual rents of $20 per square foot, a third the cost of choice office space in downtown Paris.

As for the famous chilly attitude? "Merely a rumor," says Erich Wimmer, director of the European Science Center for San Diego-based Biosym/Molecular Simulations: "The reality is different. People who don't speak French get along very well here."

SINGAPORE

Business is grounded in dealmaking, and Singapore's government may provide the best deals of any across the globe. Foreign investors are attracted by incentives such as tax breaks for using Singapore as a regional headquarters and grants for constructing high-tech centers.

Singapore's reputation for being squeaky clean in business dealings delights companies, especially since they are often pressed for under-the-table payments in many other Asian lands. To keep multinationals in Singapore, the government is helping them move labor-intensive operations into neighboring countries with lower wages. The country has set up an industrial park on the nearby Indonesian island of Batam, where AT&T and Siemens, among others, have established factories. Singapore is now establishing similar factory sites--virtual Singapores--in China and India, with Vietnam to follow. Says Lim Swee Say, managing director of Singapore's Economic Development Board: "We'll host the high-value operations of companies in Singapore and their market-driven operations elsewhere in the region."

Companies won't find the cheapest labor in Singapore anymore. Wages are now as much as three times higher than in neighboring Malaysia. But at just over $5 an hour, they are a fraction of rates in Europe and the U.S. The labor supply is tight, though, and Singapore faces a constant challenge to maintain an attractive manufacturing base.

Singapore is wooing companies in Hong Kong with television ads that emphasize quality of life--spacious offices, inviting golf courses, roomy housing. Then comes the pitch: "It's a place to work. It's a place to grow. It's a place to cherish. It's Singapore." Catchy.

TOKYO

So crowded and hectic is this place that some residents say a visit to New York or Paris can be a welcome change of pace.

Currently there's a movement afoot to decentralize Tokyo. Last year 21 large firms left Tokyo for outlying areas, mostly for cheaper rents but also for a more pleasant environment. By 2002 the government plans to have relocated a number of offices from central Tokyo to surrounding prefectures.

Another space-reallocation project is Tokyo Teleport Town, a 1,100 acre artificial island in the city's harbor. Tokyo borrowed $10 billion to build what's touted as a community of the future, with office and apartment buildings outfitted for state-of-the-art telecommunications. Teleport Town's in trouble, though, and prospective tenants are backing out because of the economic downturn.

Telecommuting is another antidote to overcrowding. An increase in sales of fax machines, TV satellite dishes, and PCs, up nearly 35% in Japan last year, could be a precursor to more people working at home and avoiding commutes, which can last upwards of 12 hours each way. This could be a boon for women with children, who, if they happen to live in a distant 'burb, are effectively shut out of the work force.

TORONTO

Canada's hottest city is earning its place as "Silicon Valley North." A technology corridor now extends from downtown Toronto and north into the Ottawa Valley. Major players in Canada's $44.5 billion information technology market--Apple, Hewlett-Packard, Sun Microsystems--have headquarters and research centers here.

A unique animation industry has emerged from a renowned design program at nearby Sheridan College. Alias/Wavefront, which produced software for blockbusters such as Jurassic Park and Batman Forever, is one of the many prominent animation companies here. There's also a hefty industrial manufacturing base, led by the auto giants of the Big Three.

With occupancy costs as low as $15 a square foot, space is cheap. The vacancy rate, which peaked at 19% in 1993, has slowly notched downward to 16.5%. But the stagnant Canadian economy should keep prices in check.

Toronto is expensive by North American standards. But the weak Canadian dollar makes it a better deal for foreign companies and their employees. Executive homes in Toronto's Lawrence Park section average about $460,000.

But many residents are willing to look beyond prices to enjoy a city that offers fine universities, a national health care system, and a celebrated cultural scene.

Reporter Associates Andrea L. Prochniak and Kathleen Smyth