(FORTUNE Magazine) – The firms on FORTUNE's fifth annual Best Companies for Minorities list aren't immune to the problems currently plaguing corporate America. No. 12, Lucent, has sacked half its workers. No. 14, Xerox, is shedding assets and struggling to turn its business around. No. 2, Sempra Energy, is under post-Enron regulatory scrutiny, as are many other energy firms these days. But despite such adversity, these companies have not abandoned their commitment to hiring, promoting, and retaining talented employees of all races. Quite the opposite, in fact. At our average top-50 corporation this year, ethnic minorities constitute 24% of the officials and managers, for example, up from 23% in 2001 and 17% in 1998. They make up 19% of the board members, up from 11% last year.

And this year's winner is...mortgage giant Fannie Mae, which takes the No. 1 spot on our list for the first time, thanks largely to its many powerful minority executives. Rounding out the top five are Sempra Energy, fast-food company Advantica (Denny's parent and last year's No. 1), Baby Bell SBC Communications, and that other fast-food company, McDonald's.

To determine which companies make the list and where they rank, we sent extensive surveys to all of the FORTUNE 1,000, plus the 200 largest privately held U.S. companies; a total of 134 responded. We wanted to know not just how diverse their work force is as a whole, but also whether that diversity extends to the executive suite: How many directors and officers are black, Hispanic, Asian, or Native American? What portion of management? We also looked at compensation: Are bonuses tied to progress on diversity? How many of the 50 highest-paid employees are people of color? (The number for this elite group tops out at 13; Applied Materials takes that honor.) And we checked how a company spends its money: Does it buy supplies from minority-owned businesses? Does it use a minority-owned investment firm to underwrite its stock and bond offerings? Finally, we crunched the numbers and gave each company an overall grade. (For more details, go to www.fortune.com/diversity.)

Will a multiracial work force remain a priority for corporate America? Definitely, says Ray Hood-Phillips, diversity chief at No. 3 Advantica--but probably with less fanfare. For example, Advantica recently shuttered its formal minority-mentoring program because it had "run its natural course," she says. Diversity doesn't require a special program, after all, when it has become an integral part of the way a company does business.

Rank 2002 (2001) COMPANY 2001 revenues (millions)

No. of minorities % minorities TOP- OFFICIALS BOARD OF PAID AND WORK MINORITIES DIRECTORS 50 MANAGERS FORCE ASIAN AS A % OF BLACK NEW HIRES HISPANIC NATIVE AMERICAN 1 (2) FANNIE MAE Washington, D.C. $50,803

5 of 18 10 29.1% 42.8% 12.0% 47% 26.3% 4.2% 0.3%

Thanks to a high percentage of minorities at all levels of management, the mortgage buyer and reseller--run by black CEO Franklin Raines--moves up one notch this year to capture the top slot from fast-food operator Advantica.

2 (5) SEMPRA ENERGY San Diego $8,029

4 of 14 9 29.3% 48.0% 8.3% 50% 10.3% 28.7% 0.8%

The Southern California natural gas and electricity distributor, with a heavily Hispanic work force, makes the top five for a fourth year running. Not bad for a four-year-old company.

3 (1) ADVANTICA Spartansburg, S.C. $1,391

3 of 10 5 31.1% 49.6% 4.6% 46% 10.3% 34.5% 0.2%

The parent company of Denny's may be a victim of its own success. Now that minorities are well represented throughout management, the company has discontinued its formal minority-mentoring program, helping dethrone our former No. 1.

4 (8) SBC COMMUNICATIONS San Antonio $45,908

3 of 21 5 28.7% 37.7% 4.4% 45% 19.8% 12.9% 0.6%

Few companies spend more money with minority-owned businesses than this Baby Bell. Last year $2.1 billion--17% of its spending--went to minority-owned firms that handle everything from software to construction services.

5 (3) MCDONALD'S Oak Brook, Ill. $14,870

2 of 16 9 37.8% 55.0% 4.3% 37% 18.2% 29.3% 3.3%

The fast-food giant boasts the largest proportion of minority managers--37.8%--of any company in our top 50. The roughly $3 billion it spends with minority-owned firms isn't small potatoes either.

6 (20) PNM RESOURCES Albuquerque $2,352

3 of 8 7 33.2% 47.9% 0.8% 51% 1.8% 41.0% 4.4%

Located in a state where minorities are a majority, the New Mexico utility has the highest percentage of both Hispanics and Native Americans on its payroll of any company on our list.

7 (4) SOUTHERN CALIF. EDISON[1] Rosemead, Calif. $12,184

2 of 11 9 26.6% 43.1% 8.4% 54% 8.5% 25.3% 0.9%

The struggling utility is still recovering from the California energy crisis. Its record on diversity hasn't suffered, however. Minorities now make up 32% of corporate officers--including the only female Native American officer in the top 50.

8 (18) U.S. POSTAL SERVICE Washington, D.C. $65,834

2 of 11 16[2] 31.0% 36.2% 6.9% 54% 21.4% 7.4% 0.6%

With more employees than either of the Dakotas has residents, the U.S. Postal Service employs more minorities than any company on our list--278,000. That's unlikely to change: Most of the 180,000 hired last year are people of color.

9 (17) FREDDIE MAC McLean, Va. $35,523

3 of 18 8[3] 27.3% 32.0% 13.0% 49% 15.2% 3.5% 0.3%

The foundation arm of this Fannie Mae sibling focuses on organizations serving at-risk children and families in the D.C. metropolitan area--most of which help minorities. Management also gets kudos for its diversity.

10 (10) BELLSOUTH Atlanta $24,130

2 of 13 12 26.2% 30.9% 0.8% 39% 25.3% 4.6% 0.2%

The Baby Bell, whose service area extends through the South and to 16 countries worldwide, spreads the wealth: Of the 50 most highly compensated employees, 12 are minorities.

11 (16) UNIONBANCAL CORP. San Francisco $2,912

3 of 11 5 37.8% 56.0% 25.9% 61% 8.3% 21.3% 0.5%

The bank, which has branches in California and the Pacific Northwest, named Monica Lozano, COO of La Opinion, the largest Spanish-language daily in the U.S., to its board last year. Its internal management, too, is racially mixed.

12 (9) LUCENT TECHNOLOGIES Murray Hill, N.J. $25,132

1 of 6 6 23.1% 29.6% 13.6% 44% 10.0% 5.7% 0.3%

To stem losses, the struggling telecom equipment maker has laid off more than half its staff, cutting its work force from 97,000 to 42,000 in 2001. But the percentage of minorities edged higher, from 27.7% to 29.6%.

13 (28) CONSOLIDATED EDISON New York $9,634

3 of 13 3 20.7% 36.0% 3.6% 50% 20.6% 11.6% 0.1%

Responsibility for diversity extends to Con Ed's entire management: Each of the 2,100 officials and managers is reviewed and compensated based in part on the hiring, promoting, and retaining of minorities.

14 (6) XEROX Stamford, Conn. $16,502

2 of 13 10 23.0% 30.2% 5.0% 44% 16.5% 8.0% 0.7%

The company is fighting a racial-discrimination suit from six current and former employees (it denies wrongdoing), yet it's diverse at the top: Nine of Xerox's 40 corporate officers are minorities, as are ten of its 50 highest-paid employees.

15 (13) PEPSICO Purchase, N.Y. $26,935

4 of 15 7 16.4% 26.6% 2.2% 33% 13.6% 10.3% 0.4%

Ads for its Aquafina-brand water promise "nothing," and that's what managers could get if they fail to make diversity a priority. The soft drink maker links bonuses to diversity performance.

16 (48) COLGATE-PALMOLIVE New York $9,428

1 of 8 5 26.6% 29.3% 6.6% 43% 12.8% 9.8% 0.2%

Increases in minority representation in senior management and the return of the former ambassador to South Africa, Del Lewis, to its board help propel the company up 32 notches from last year's list.

17 * WYNDHAM INTERNATIONAL Dallas $2,105

2 of 19 4 29.0% 60.8% 4.4% 61% 21.8% 34.0% 0.5%

With minorities constituting more than 60% of its work force--the highest of the 50--the hotelier vaults onto our list for the first time. After tripling its business with minority vendors in one year, it takes top honors in purchasing as well.

18 (7) SILICON GRAPHICS Mountain View, Calif. $1,854

0 of 4 9 24.1% 23.1% 12.7% 33% 3.8% 6.3% 0.3%

Even after trimming its payroll by nearly a third in 2001, the workstation maker is a good place for minorities. It is the only company on our list in which minorities are better represented in management than in the work force as a whole.

19 (19) HYATT Chicago $3,950

N.A. 3 35.8% 59.3% 11.5% 57% 20.5% 26.7% 0.5%

The work force and management of this hotel chain are so multihued that its diversity-training program is offered with simultaneous translations in Spanish, Chinese, Vietnamese, Arabic, and Bosnian.

20 (38) PROCTER & GAMBLE Cincinnati $39,244

2 of 16 5 16.7% 16.7% 2.4% 17% 11.3% 2.7% 0.4%

The producer of soap (Tide, Ivory) and soap operas (Guiding Light, As the World Turns) posted the largest increase in minorities among the highest-paid employees--from none in 2000 to 10% in 2001--of any company on our list.

21 * DTE ENERGY Detroit $7,849

2 of 12 6 18.4% 27.1% 1.9% 39% 23.5% 1.1% 0.5%

After a year's absence, the Michigan electric and gas holding company returns to the list by upping its minority hires and boosting purchases from minority-owned businesses, buying everything from power transformers to pension services.

22 (12) HILTON HOTELS Beverly Hills $3,050

1 of 14 3 28.3% 57.6% 8.1% 58% 19.9% 29.0% 0.6%

The hospitality giant's legal department requires outside law firms to employ a certain number of minority and women lawyers and partners. Those that don't measure up won't receive any of Hilton's business until they do.

23 (15) LEVI STRAUSS San Francisco $4,259

2 of 14 9 32.7% 56.5% 7.9% 47% 9.5% 38.9% 0.2%

Outside the four hotel chains, the jeans maker boasts the most diverse overall work force on our list. That's in spite of slumping sales and market share that have forced the company to slash its U.S. staff.

24 (41) MARRIOTT INTERNATIONAL Bethesda, Md. $10,152

3 of 11 2 23.3% 59.3% 9.4% 62% 25.6% 24.0% 0.4%

More than 62% of new hires are minorities, giving the world's biggest lodging company top honors in that category. And Marriott isn't a bad place to work your way up: A third of Marriott's managers began in hourly positions.

25 (26) UNITED PARCEL SERVICE Atlanta $30,646

3 of 13 5 27.9% 35.1% 2.5% 52% 20.8% 11.1% 0.7%

More than half of all new employees hired are minorities, and the shipping company could soon have a black man at the top. The head of U.S. operations, Calvin Darden, is being groomed to take over as CEO.

26 (14) APPLIED MATERIALS Santa Clara, Calif. $7,343

0 of 9 13 28.4% 39.8% 24.6% 51% 5.4% 9.5% 0.3%

With 13 minorities among its 50 highest-paid employees--more than any company in the top 50--the world's largest maker of semiconductor manufacturing equipment makes the list for the fifth year in a row.

27 (31) WASHINGTON MUTUAL Seattle $17,692

2 of 17 6 28.6% 39.0% 10.4% 45% 10.4% 17.6% 0.6%

The nation's largest thrift helped create a large minority-owned business by persuading four building maintenance outfits--three of which were owned by minorities--to join forces and operate nationally. WaMu is its first customer.

28 (24) TIAA-CREF New York $24,231

6 of 28 4 27.2% 46.8% 9.0% 50% 27.5% 10.2% 0.0%

The percentage of minorities hired jumped from 42% to 50% at the pension and mutual fund company in 2001. Three-quarters of the firm's 48 interns last year were minorities too.

29 (33) AMERICAN EXPRESS New York $22,582

2 of 12 7 19.5% 27.5% 5.1% 35% 13.5% 8.4% 0.5%

The financial services giant, run by black CEO Kenneth Chenault, moves up four spots, in part because of recent increases in minority representation throughout the company's management ranks.

30 * PG&E CORP. San Francisco $22,959

4 of 9 10 17.9% 30.4% 10.9% 33% 6.5% 11.3% 1.7%

The holding company (whose Pacific Gas & Electric unit is reorganizing under Chapter 11) clocks in with the most diverse board on the list, led by the Hispanic chairman, CEO, and president, Robert D. Glynn Jr.

31 (30) VERIZON COMMUNICATIONS New York $67,190

3 of 16 7 20.7% 29.5% 3.7% 42% 19.0% 6.4% 0.4%

The largest of the Baby Bells more than doubled the number of minorities among its 50 highest-paid employees last year, from three to seven. It also ties executive pay to hiring, mentoring, and promoting minorities.

32 (49) COCA-COLA Atlanta $20,092

1 of 12 9 19.0% 32.1% 3.2% 40% 21.0% 7.3% 0.5%

Vanilla may be the newest Coke flavor, but after settling a $192 million racial-discrimination suit in 2000, the soft drink maker wants to ensure management is anything but. Minorities now make up 30% of its executive committee.

33 (37) AVON PRODUCTS New York $5,995

3 of 11 6[4] 19.4% 30.9% 4.5% 36% 15.8% 10.4% 0.3%

The cosmetics company (run by Asian-American Andrea Jung) directed most of its $42 million in charitable contributions last year to its Breast Cancer Crusade, which targets medically underserved women, many of them minorities.

34 * CISCO SYSTEMS San Jose $22,293

2 of 13 4 26.8% 41.0% 33.6% 56% 2.7% 4.5% 0.3%

Cisco hasn't made our list since 1998. But the networking company returns this year, thanks to greater diversity in both work force and management: The percentage of minorities hired jumped from 39.5% in 2000 to 56.2% in 2001.

35 (45) ABBOTT LABORATORIES Abbott Park, Ill. $16,285

3 of 14 8 16.1% 29.6% 9.2% 31% 12.3% 7.2% 0.9%

In the past two years the pharmaceuticals company retained minority-owned financial services firms for a share repurchase plan, pension programs, life insurance policies, and a $3.25 billion bond offering.

36 (29) NORDSTROM Seattle $5,634

2 of 9 5 28.0% 38.4% 10.7% 40% 12.2% 14.3% 1.1%

Minorities represent a healthy 28% of the department store chain's management, a statistic that's likely to hold in years to come; 28% of employees on track for management positions are minorities as well.

37 (21) S.C. JOHNSON & SON Racine, Wis. $4,500

2 of 9 7 11.0% 13.2% 1.9% 33% 6.1% 4.7% 0.4%

Though the Wisconsin-based company, which makes products like Windex and Ziploc bags, has the least diverse work force on our list, minorities are well represented in the executive ranks.

38 (22) J.P. MORGAN CHASE New York $50,429

2 of 15 5 27.7% 40.8% 7.5% 45% 21.8% 11.1% 0.4%

The financial services giant didn't escape the industrywide investment-banking downturn, but it is banking on a diverse future. Of the 79 people being groomed for senior management, 35 are minorities.

39 (25) DARDEN RESTAURANTS Orlando $4,021

5 of 13 7 17.7% 35.9% 2.5% 37% 13.0% 18.9% 1.5%

The parent company of Red Lobster and Olive Garden restaurants has the second most ethnically diverse set of directors on our list; nearly 40% of the seats are held by minorities.

40 (34) PITNEY BOWES Stamford, Conn. $4,691

3 of 12 7 23.0% 43.4% 5.4% 46% 27.6% 10.1% 0.3%

Blacks make up 27.6% of the mailing-equipment producer's work force, the second-largest percentage on our list. The company requires all its managers to undergo diversity training.

41 * BANK OF AMERICA Charlotte, N.C. $52,641

2 of 8 3[5] 23.5% 43.4% 10.2% 53% 18.8% 13.8% 0.6%

The bank has hired more than 1,500 people, many of them minorities, through its welfare-to-work program. And it plans to spend at least 15% of this year's purchasing dollars with businesses owned by minorities, women, and the disabled.

42 * KNIGHT-RIDDER San Jose $2,900

2 of 11 7 17.6% 29.4% 3.6% 48% 17.1% 8.3% 0.4%

The newspaper publisher wants to find journalists of color while they're young. Each year the company brings in more than 80 minority interns, many of whom are later hired as staff.

43 * EASTMAN KODAK Rochester, N.Y. $13,234

3 of 14 5 12.8% 0.6% 4.4% 39% 9.8% 6.1% 0.3%

The company has shed jobs, cut costs, and sold its copier unit, but it's expanding its diversity program, including establishing an external advisory council on diversity issues. That helps put Kodak on our list for the first time.

44 (46) ALLSTATE Northbrook, Ill. $28,865

1 of 12 4 20.4% 28.6% 3.8% 35% 16.8% 7.5% 0.4%

When it comes to diversity, this insurer has a head start: It launched its first affirmative action program back in 1969. Today 25% of management's merit pay is linked to diversity performance.

45 * INTEL Santa Clara, Calif. $26,539

1 of 11 6 18.5% 31.6% 19.1% 43% 3.2% 8.6% 0.8%

The company sponsors 100 "computer clubhouses" in underserved communities, where mentors help local youth develop a variety of computer-related skills. Minorities make up an impressive 19% of Intel's corporate officers.

46 * AFLAC Columbus, Ga. $9,598

4 of 18 4 21.2% 38.0% 1.5% 48% 32.2% 3.8% 0.4%

Yes, the duck knows supplemental insurance, but the duck also knows diversity: Aflac makes its debut on the list with a greater proportion of black employees--32.2% of the work force--than any of the top 50.

47 * CITIGROUP New York $112,022

3 of 16 5 16.7% 27.7% 5.9% 39% 12.6% 8.8% 0.4%

The largest financial services company in the nation registered a net gain in diversity in 2001, reentering the list after a one-year absence. A greater number of senior minority managers gets the credit here.

48 * PRUDENTIAL FINANCIAL Newark, N.J. $27,177

3 of 21 3[6] 15.3% 21.6% 5.3% 30% 11.3% 4.8% 0.2%

The company chose the Williams Capital Group, a minority-owned firm, as one of seven co-managers for its recent $3 billion IPO. In all, 16 of the 57 underwriters used by Prudential are owned by minorities.

49 (39) FORD MOTOR Dearborn, Mich. $162,412

1 of 15 6 17.9% 24.7% 2.2% 41% 19.1% 3.0% 0.4%

A rough economy and management shakeup have hit the bottom line, but Ford--the only car company in the top 50--remains committed to a mixed work force: All managers are required to undergo diversity training.

50 (36) UAL Elk Grove Township, Ill. $16,138

2 of 12 2[7] 23.2% 32.6% 12.3% 43% 10.5% 9.3% 0.4%

Despite cutting 20,000 employees from its payroll, the parent of United Airlines maintained a relatively diverse work force. However, the company slips from No. 36 last year, in part because of the departure of a minority director.

* Not on last year's list. [1]Subsidiary of Edison International. [2]Of 85. [3]Of 48. [4]Of 51. [5]Of 58. [6]Of 55. [7]Of 40.