By Michael J. Martinez
The Associated Press

NEW YORK - Dow Jones & Co. is reshuffling its benchmark industrial average for the first time in more than four years, ousting AT&T Corp., International Paper Co. and Eastman Kodak Co. in favor of financial services company American International Group Inc., telephone carrier Verizon Communications and drug maker Pfizer Inc.

The moves, announced Thursday and due to take effect at the start of trading April 8, were designed to give a more accurate snapshot of the overall U.S. economy, said John Prestbo, editor of Dow Jones Indexes and markets editor of The Wall Street Journal, which manages the index.

"Our main focus in this particular group of changes was not who do we kick out or replace. It was to recognize the trend of the growth of the financial or health-care sectors," Prestbo said. "When it came to selecting companies to leave the Dow to make room for the new ones, we took recognition of another trend, and that is basic-materials stocks have become less important, less weighty in the market."

Although composed of just 30 companies, including Cincinnati's Procter & Gamble, Prestbo defended the Dow Jones Industrial Average as an accurate barometer of the markets. He noted that it has closely tracked the much broader Standard & Poor's 500 Index, which sees more use among financial analysts.

"It's simply the best known stock index in the world," he said. "People who talk about the market in terms of what's happening today, or over the past five years or whatever, speak the language of the Dow."

The Journal's top editors evaluate and select the components of the Dow. Prestbo stressed that the selections are not made with investment goals in mind, nor are they considered recommendations on which stocks are better investment choices.

Membership in the Dow has little overall effect on most portfolios. Most mutual funds and other investments track broader rival S&P 500. But Dow membership has an enormous emotional impact for the companies and their investors.

"Everybody looks at the Dow. It's a sign that your company really is one of the engines of the economy," said Jim Raphalian, head of institutional trading at Schwab Soundview Capital Markets. "But on the other hand, it's not so much an investment index as a balanced snapshot of the market."

AT&T had been a Dow component since 1939. International Paper had been included in the index since 1956, while Kodak had been part of the Dow since 1930.

Kodak spokesman Gerard Meuchner downplayed the company's removal from the Dow, even though the struggling film and imaging company has been one of the index's worst-performing stocks.

"Membership in any index has no bearing on our ability to manage the company for profitable growth," Meuchner said.

AT&T Corp. said that while the company and the telecommunications industry have suffered from soft demand in recent years, the company remains "a bellwether of the U.S. economy."

International Paper did not return calls seeking comment.

The stocks leaving the index fell in trading on Wall Street. Kodak lost $1.07 to $25.10, AT&T slipped 27 cents to $19.30 and International Paper fell 8 cents to $42.18.

Those slated to join the Dow fared far better. Pfizer was up 54 cents at $35.59, Verizon gained 36 cents to $36.90 and AIG jumped $1.97 to $73.32.

Dow: Who's in, who's out, who's there

Effective Thursday, the makeup of Dow Jones Industrial Average will change. Some Dow facts:

History

The Dow Jones Industrial Average was created by Charles H. Dow as a 12-stock index in 1896 and has become the primary barometer of the U.S. stock markets. Only one company, General Electric Co., remains part of the Dow from that time, and even it was removed and brought back a number of times.

Who's in this time

American International Group Inc., Verizon Communications and Pfizer Inc.

Who's out this time

AT&T Corp., International Paper Co. and Eastman Kodak Co.

The other 27

3M Co., Alcoa Inc., Altria Group Inc., American Express Co., Boeing Co., Caterpillar Inc., Citigroup Inc., Coca-Cola Co., EI DuPont de Nemours & Co., Exxon Mobil Corp., General Electric Co., General Motors Corp., Hewlett-Packard Co., Home Depot Inc., Honeywell International Inc., Intel Corp., International Business Machines Corp., Johnson & Johnson, JP Morgan Chase & Co., McDonald's Corp., Merck & Co. Inc., Microsoft Corp., Procter & Gamble Co., SBC Communications Inc., United Technologies Corp., Wal-Mart Stores Inc., Walt Disney Co.

When it last changed

The 30-stock index underwent changes Nov. 1, 1999, when four of the 30 stocks were replaced. At that time, two Nasdaq-traded stocks, Microsoft Corp. and Intel Corp., became the first Dow components not listed on the New York Stock Exchange. Home Depot Inc. and SBC also joined.

How it's calculated

The Dow Jones Industrial Average is price-weighted rather than market-capitalization weighted. Index weightings are affected by changes in the stocks' prices, not by both price changes and changes in the number of shares outstanding.

Values once were calculated by adding up the component stocks' prices and dividing by the number of components. Later, the divisor was adjusted to smooth out the effects of stock splits and other actions and now stands at 0.13500289. To get the average, add all 30 stocks' prices and divide by 0.13500289.

The Associated Press; Enquirer research