(FORTUNE Magazine) – This year in FORTUNE's Best Cities for Business ranking, the mighty get even mightier: The top five are nothing less than veteran all-stars. The bad news is that there are no big surprises. (Sorry, New Orleans and Austin, Texas, it's not that we don't love you, it's just, well, business.) The good news is that there are no emerging cities with ridiculously named tech sectors, no "Broadband Forest" or "Wireless Falls," as we've seen in the past. No, this year's group is a solid collection of business capitals that have distinguished themselves by adapting to an environment where radical change is not only inevitable but the source of growth and reinvention.

To assist FORTUNE in compiling the list, researchers at Arthur Andersen weighed statistical data from dozens of private and public sources, paying critical attention to four criteria--a city's overall business environment (new business growth, diversity of industries, number of FORTUNE 500 headquarters); the cost of doing business there (tax and fiscal policies, commercial real estate prices); the caliber of the local work force (education level, retention rate, management experience); and quality of life (housing, schools, commutes). To add a human element, the Best Cities ranking also includes the opinions of more than 1,700 top-level executives worldwide about where they like to do business. With these multiple components, the final list that emerged--topped by New York City, San Francisco, Chicago, greater Washington, D.C., and San Jose--is a good indicator of not only where business is thriving today but also where it will be happening tomorrow. (For the complete data and rankings, see www.fortune.com.)

1 New York City

In a 1995 appearance on The Late Show With David Letterman, Mayor Rudolph Giuliani displayed the infamous local attitude by proposing a new slogan for the Big Apple: "Our city can kick your city's ass." He's pleased with the irony now. "That may have been a boast," the feisty Giuliani told FORTUNE. "But it turned out to be a reality." Thanks to the Giuliani administration's corporation-friendly tax breaks, existing businesses have stayed in New York City and flourished, and new ones have crowded in--Webvan and H&M, to name two in the past year. Which is not to say that New York has become civilized. Step into a crosswalk--with a walk sign!--and cabs will still try to kill you. One-bedroom apartments in the less gritty but by no means pristine East Village rent for more than $3,000 a month, and New York remains among the top cities on our list for violent crime. Then again, ask any person on the street, and he'll tell you New York is cleaner, safer-feeling, and more prosperous-looking than it was a few years ago.

The revitalization is most dramatic in an area that has become synonymous with the city's new image: Times Square. With the amount of cash being dumped into never-ending construction and expansion along Broadway--more than $2 billion in private investment this year alone--the Great White Way could be renamed the Great Green Way. During the past five years flashy new corporate towers have popped up like Broadway productions, thanks to financial incentives designed to bring big business to a part of town better known in the past for peep shows and petty thieves. Now Morgan Stanley Dean Witter and Nasdaq stand alongside media heavies like Bertelsmann, Reuters, Viacom, and Conde Nast. Tourist-friendly Uber-retailers like the Virgin Megastore, ESPN Zone, WWF, and the Warner Studio store fill every block. A record 27 million visitors basked in the neon glow of it all this year.

The boom in construction isn't limited to commercial space. Real estate mogul Donald Trump leads the charge of the private-development brigade. When it's completed next month, his 856-foot Trump World Tower, in the U.N. Plaza, will be the world's tallest residential structure. While he has managed projects outside New York, Trump prefers to work in the city whenever possible. "When you leave New York and go someplace else to do business, you just have to slow it down a notch," he says. Manhattan prices keep profits high. "People say to me, 'Wouldn't it be good to build in different cities?' " explains Trump. "I say, 'If you can get five, six, or seven times per square foot in New York, why go to another city to do one fifth the amount of business?' Plus, everyone's here, so you don't really have to leave."

It's a sentiment shared across industries. Says another New York heavy hitter, Bear Sterns Chairman Alan "Ace" Greenberg: "New York is one of the centers of the universe as far as the financial industry is concerned. I can't think of our home office being in any other location." The Gallup Organization moved its offices into Midtown this year for the same reason. "We had been serving New York from our Princeton, N.J., office," says Larry Emond, Gallup's chief of marketing. "We simply realized that we couldn't be taken seriously as a professional services firm if we didn't have a big office in New York City."

New York is also attracting businesses whose bottom line depends on creative capital. When Austrian designer Helmut Lang, revered in fashion circles for his avant-garde and cerebral style, decided he had to move his fast-growing enterprise out of Vienna in 1998, his choice for a headquarters shocked the fashion crowd. Instead of picking Milan or Paris, he relocated his entire operation to SoHo. "New York is the realm of the modern world," says Lang. "It's au courant in a very natural way and keeps you alive and mobile and doesn't let you settle in your achievements--the energy and the combination of greatness and madness gives you a lot of inspiration." Lang, in a partnership with Prada, plans six new boutiques worldwide and a made-to-measure studio in Manhattan. Lang is also building a series of post-modern perfumeries that are part fragrance store, part European apothecary; the U.S. flagship is on Greene Street.

A similar passion for the New York vibe drives Larry Meistrich, founder of the Shooting Gallery, a cutting-edge new-media operation and independent-film production house. "There's always someone to knock you off your pedestal," says Meistrich, whose studio produced the Oscar-winning film Sling Blade. He says the big advantage about New York City is that it's extremely film-friendly. Production permits are free, police protection is free, and the fire department will close down bridges. This year the city hosted the crews of 209 films, including The Insider, Meet the Parents, and Girlfight, and pulled in $1.3 billion from TV productions alone.

2 San Francisco

The late local columnist Herb Caen called San Francisco "Baghdad by the Bay" for its exotic atmosphere--but that was when San Francisco's most remarkable distinction was being America's most photogenic city. It's still beautiful, but now that distinction is overshadowed by its growing business prowess. Conveniently bumped up against the fertile laboratory known as Silicon Valley (some people even refer to San Francisco as a suburb of the Valley--drive the 101 freeway during rush hour and you'll see why), San Francisco is the poster city for new media and a global hub for e-commerce, software, and content development. More than 1,000 technology firms employ over 40,000 people; that number is expected to rise nearly 25% by year-end. More than 700 biotech firms are in the Bay Area, including Genentech. With so much commerce, it may be time to change San Francisco's unofficial slogan, the City of Peace and Love, to the City of Work and Money.

There's no better place to observe how many radical changes the Internet has brought the economy. Eight years ago San Francisco had 6% unemployment and high commercial vacancy rates. Now both, as well as the residential rental market, have done a 180-degree turn; for example, commercial real estate in the South of Market (SoMa) area has jumped from $6.30 a square foot five years ago to $60 a square foot today.

The scarcity of space in a city renowned for politics led to competing initiatives on the November ballot; growth lost. "There's a lot of tension [over expansion] in the city right now, and people are saying that dot-com is the problem," says Jonathan Nelson, CEO of the Internet consulting firm Organic, which designs Websites for the likes of Yahoo, Hewlett- Packard, and Target. Organic outgrew its current digs in SoMa and is moving into a massive 211,000-square-foot space. "If you've got a good economy and you don't create more space, the rents will just escalate--that's economic pressure," says Nelson. Regardless, he is confident that business in San Francisco will continue to thrive. "The city's got that sort of California optimism--not the flaky optimism of L.A. but the pragmatic optimism of Northern California," he says. "The Internet first happened here for a reason. That 'I can do better' idea is taken at face value as opposed to the utter cynicism that is a little more typical of other places in the world."

Few people in San Francisco's hospitality industry are complaining about the swelling dot-com population. In fact, there are more bars and restaurants per capita in the Bay Area than in any other city in the country. "My business is driven by the young, high-tech work force that logs 60-hour weeks and then parties superhard on the weekends," says San Francisco native Steve Engelbrecht. His two packed bars, the Skylark and the Blind Tiger, will be joined by a third, the Chi Chi, in April. "Working and socializing are connected here--people don't come to San Francisco just to settle down and have a quiet existence."

3 Chicago

Despite some bad press recently (it lost its title as the world's largest futures exchange to the Frankfurt Eurex last year), Chicago still managed to land at No. 3. That's because Chicago is no one-trick pony. It is the Second City when it comes to headquarters for FORTUNE 500 companies--corporations like McDonald's, Motorola, and Illinois Tool Works. Manufacturing, technology, and professional services are all growing steadily. Ford, for example, is building the country's largest parts factory there. Chicago's five-year budget for technology development alone is nearly $2 billion, and the city has more computer programmers than Silicon Valley. Plus, when it comes right down to it, how many industries want to take their conferences and trade shows to Frankfurt? Meeting in the middle makes a lot more sense. "Conventions have always been a big industry for us," says the affable Mayor Richard Daley. "We let them know that we're glad they're here." This year the city estimates convention-business revenues of about $6.3 billion, up more than 15% from last year.

And so Chicago's secret is revealed: location, location, location. Besides the lovely lakeside downtown, some world-class architecture, and Michigan Avenue's Magnificent Mile--Chicago's answer to Fifth Avenue--the stand-out attraction for doing business in Chicago is its geography. The city is still the nation's transportation center, making trips to either coast relatively painless (once you get out of O'Hare airport, that is). "I just spoke to one of our executives who is traveling out West," says Tootsie Roll President Ellen Gordon, who has led the candy maker's long-running success for more than 20 years. "He's coming back today. Since so much of our business is domestic and this country is so big, being in Chicago makes it much easier."

Chicago's role as a distribution center is also critical to the success of manufacturing companies and businesses that rely on moving freight. Take Plitt Seafood. In 1984 the wholesale fish supplier had a mere $400,000 in revenues. Today it's no longer just a landlocked fishmonger: This year's revenues will be close to $40 million. "We've actually become an international company," says owner Bob Sullivan, sounding surprised. "Because Chicago's a great hub, we sell across the U.S. and into Europe now." Sullivan claims his shipping network is so tight he can get mahi-mahi from Kauai, Hawaii, to downtown Chicago faster than it can make it to market in Maui. "There might be a local boat on the island that comes in at five o'clock at night," he says. "There's a midnight plane that's going to fly overnight into Chicago. It'd be here by morning. That same product will still be waiting in Hawaii for a smaller plane just to go to another island."

4 Greater Washington, D.C.

Think of the greater Washington, D.C., area as a kind of scientific holy trinity. There's the life-science industry quickly spreading around the National Institutes of Health in Montgomery County, Md. Then there's the industry in northern Virginia's tech corridor that some folks around the Beltway are referring to as the "dead sciences"--primarily Internet, telecom, and optical-networking companies. Finally, there's D.C.'s main industry, run by lawyers, lobbyists, special-interest groups, and of course, civil servants; call it the weird science. Combined, greater D.C. has a heck of a lot of very smart people. In fact, of all the cities surveyed, the Washington area has the highest percentage of people with bachelor's degrees or higher.

Using tax breaks and special zoning laws to recruit biotech companies, Montgomery County has created a sort of self-supporting drug-industrial compound. Venture capitalists have moved into the area to provide funds, medical research institutions are busy churning out patents for new vaccines, and the FDA is just down the road to facilitate the approval of the next panacea. Companies manipulating human DNA in suburban Maryland may sound like an X-Files episode today, but with biotech firmly sighted in the cross hairs of Wall Street investors, it may be one of the most significant waves of the future (for more on this area, see First). Meanwhile, down in Virginia, companies such as AOL, Corvis, Ciena, WorldCom, and Nextel are settling in along Route 267 and developing the next stage of Internet infrastructure.

Even D.C. proper is getting in on the change game. The new downtown, or Pennsylvania Quarter, as they're calling it, was at one time so infested with drug addicts and prostitutes that police routinely closed off the streets at night. Now there are chic art galleries, hotels, bars, and restaurants, all within five blocks of the MCI Arena and close to a gigantic hole in the ground that will be the new convention center. "One of the great things about this neighborhood is that D.C. code required residential space to be built along with the commercial development," says restaurateur Michael Sternberg, a part owner of the Caucus Room, a popular new spot in the 'hood for lawyers and lobbyists. Mayor Anthony Williams has been busy luring businesses like Sternberg's into the city. "We've got supermarkets coming back to the city that haven't been here in years," he says. "Kmart and Home Depot are moving here, and we've got a number of incentives out there, and we've been very, very aggressive in using them." Williams' pro-business approach has even attracted a few tech companies to the district. XM Satellite Radio, for example, recently moved into the north of Massachusetts Avenue (NoMa) area. XM's CEO, Hugh Panero, doesn't even want to talk about the company's new space. "I'm reluctant to brag about D.C. because I'm going to expose what I think is a hidden gem that many people don't know about," he says.

5 San Jose

If you're into historic preservation, San Jose probably isn't the place for you. Though established in the wake of the gold rush in 1850 and the first city to be chartered by the State of California, San Jose is losing remnants of its pioneer past to increasing suburban sprawl. After a sleepy 100 years as an agricultural community focused on processing dried fruit and manufacturing orchard supplies, it has slowly evolved into what is now Silicon Valley's capital of the new new thing--new ideas, new businesses, new houses, and nouveaux riches. According to FORTUNE's research, the people of San Jose make the most money and live in the most expensive homes in the country; the median house price is $449,000. Always the brainier but less attractive sister of the clever and gorgeous San Francisco, San Jose scored lowest in the culture category, but leads the list with the lowest levels of violent crime and unemployment. Who's got time for the opera (it does have one) when you're reinventing the world?

San Jose is home to giants like Adobe Systems and Cisco Systems, along with roughly 6,000 smaller high-tech companies. The Knight-Ridder newspaper chain also has its headquarters in San Jose, and so do increasing numbers of contractors, lawyers, venture capitalists, recruiters, and other professionals that pop up in boom towns. Without question, San Jose is booming. Adobe is going to build a third tower downtown and is looking for a fourth to accommodate the roughly 250 new employees it adds each quarter. Downtown projects that combine retail and residential space (more time saving!) are sprouting up. But the big development news is the recently approved site for a 6.5-million-square-foot Cisco campus in South San Jose's Coyote Valley. Unanimously approved by the city council and widely protested by affordable-housing advocates and environmentalists, in five years the project will ultimately house 20,000 Cisco employees. Of the 600 acres the campus will occupy, some of which are now a pumpkin patch, more than half have been designated to remain open land. "A lot of companies go where the real estate is cheaper," says Christine Garvey, Cisco's head of real estate. "For us it's critical that we are where there is a pool of skilled workers."

feedback: mborden@fortunemail.com

FORTUNE created its list of the best cities for business in partnership with the Business Location Practice of Arthur Andersen. In compiling this list, Andersen used three kinds of research: (1) a survey of executives worldwide, (2) a survey of economic development organizations for 160 cities, and (3) independent research done by Andersen. The information was analyzed to select cities that satisfied basic business-location needs and also demonstrated significant growth and wealth creation over a five- to ten-year period. FORTUNE made the final ranking decisions, incorporating the results of Arthur Andersen's work with information and analysis supplied by writers and researchers. Arthur Andersen's research highlights are available on the Internet at www.arthurandersen.com/realestate, or you may obtain a copy by faxing your request to Dan Malachuk, Andersen's director of Business Location Services, at 212-708-8815.