The Dow Jones Industrial, Transportation and Utilities Averages are maintained and reviewed by editors of The Wall Street Journal. Adding and removing companies from this index does not take place very often and when it does, it is a result of some dramatic change in the company.

There are no strict guidelines for deciding which stocks are selected to be added or removed however a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the sector(s) covered by the average.

Unlike the DJTA (Dow Jones Transportation Average) and DJUA (Dow Jones Utilities Average), which include only transportation and utilities stocks, the DJIA is not limited to traditionally defined industrial stocks. Instead, the index serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods.

Calculation
The Dow Jones averages are unique in that they are price weighted rather than market capitalization weighted (like the Nasdaq or S&P 500). Their component weightings are therefore affected only by changes in the stocks' prices, in contrast with other indexes' weightings that are affected by both price changes and changes in the number of shares outstanding.

When the averages were initially created, their values were calculated by simply adding up the component stocks' prices and dividing by the number of components. Later, the practice of adjusting the divisor was initiated to smooth out the effects of stock splits and other corporate actions.

The current divisors values are as follows: DJIA 0.122834016, DJTA 0.20882618 and DJUA 1.24310307

The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.

Today the NASDAQ Composite includes over 3,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.

Index eligibility is limited to specific security types only. The security types eligible for the Index include foreign or domestic common stocks, ordinary shares, ADRs, shares of beneficial interest or limited partnership interests, and tracking stocks. Security types not included in the Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities. The Index does not contain securities of investment companies.

(Source: Nasdaq)

The S&P 500 index is probably the most commonly referenced U.S. equity benchmark. You will often see mutual fund performance compared to the S&P 500.(did the fund outperform or underperform the S&P 500).

The S&P 500 is not comprised of simply the 500 largest U.S. stocks. Instead, it consists primarily of leading companies from a wide variety of different economic sectors. The index started with 23 identified sectors, but today contains over 100 unique sectors. Most analysts choose to use the S&P as their preferred benchmark index thanks to its diversified sector coverage as well as its market value weighting. Because the index is weighted by market cap, the largest firms have the greatest impact on the S&P's value.

CRITERIA FOR INDEX ADDITIONS

U.S. Company. Determining factors include location of the company’s operations, its corporate structure, its accounting standards and its exchange listings.

1. Market Capitalization. Companies with market cap in excess of US$ 5 billion. This minimum is reviewed from time to time to ensure consistency with market conditions.
2. Public Float. There must be public fl oat of at least 50%.
3. Financial Viability. Companies should have four consecutive quarters of positive as-reported earnings, where as-reported earnings are defi ned as GAAP Net Income excluding discontinued operations and extraordinary items.
4. Adequate Liquidity and Reasonable Price. The ratio of annual dollar value traded to market capitalization for the company should be 0.30 or greater. Very low stock prices can affect a stock’s liquidity.
5. Sector Representation. Companies’ industry classifi cations contribute to the maintenance of a sector balance that is in line with the sector composition of the universe of eligible companies with market cap in excess of US$ 5 billion.
6. Company Type. Constituents must be operating companies. Closed-end funds, holding companies, partnerships, investment vehicles and royalty trusts are not eligible. Real Estate Investment Trusts (REITs) and business development
7. companies (BDCs) are eligible for inclusion. Continued index membership is not necessarily subject to these guidelines. The Index Committee strives to minimize
8. unnecessary turnover in index membership and each removal is determined on a case-by-case basis.
   
   
   CRITERIA FOR INDEX REMOVALS

1. Companies that substantially violate one or more of thecriteria for index inclusion.
2. Companies involved in merger, acquisition, or signifi cantrestructuring such that they no longer meet the inclusion criteria.

The S&P SmallCap 600 Index invests in a basket of small-cap equities. A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion (although this can vary from index to index).

The S&P SmallCap 600 Index consists of 600 small-cap stocks. Unlike the larger Russell 2000, which also tracks small-cap stocks, the S&P 600 has more stringent requirements for inclusion. Standard & Poor's adds new stocks to the index based not only on size, but also on financial viability, liquidity, adequate float size, and other trading requirements. This ensures that the index is comprised of higher-quality firms than its larger counterpart. Since the index contains only small firms, it represents a mere 3% of the value of the overall market. The S&P SmallCap 600 Index is market value weighted, meaning that larger firms have a greater influence on the index's performance than smaller firms. The index is relatively evenly distributed, as the top 10 holdings represent only 5% of the index’s value. The index's current holdings range in size from $60 million to over $3 billion, with the average company boasting a market cap of around $750 million. There are also S&P 600 growth and value indexes.

The S&P MidCap 400 Index tracks a diverse basket of medium-sized U.S. firms. A mid-cap stock is broadly defined as a company with a market capitalization ranging from about $2 billion to $10 billion. Although the S&P 400 is not as popular as some of the larger indices (such as the S&P 500), it is an important benchmark for many fund managers who invest in this segment. This index contains solid firms with good track records that are simply not large enough to be included in the much larger S&P 500 index.

The S&P 400 index consists of 400 equities. The stocks are chosen based on market capitalization, liquidity and industry representation. The index contains firms that are situated in size between the S&P 500 Index and the S&P SmallCap 600 Index. It is a market-weighted index, meaning that larger firms have more influence on the index's performance than smaller ones. The average size of a firm in this index is between $1-4 billion. When taken together, the 400 components of the S&P MidCap 400 Index represent about 7% of the total market value of U.S. equities. The top 10 holdings are quite balanced and represent about 8% of the fund. This makes the index much less concentrated than its large-cap index peers, where top holdings can often represent 30-40% of an entire index's value. There are also S&P Midcap 400 growth and value indexes.

(Source: Standard & Poor's and Others)

The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected. 

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

(source: Russell)

The Wilshire 5000 is considered the "total market index." Designed to track the value of the entire stock market, the index was started in 1974 by Wilshire Associates soon after computers made the daily computation of such a large index possible. Though it is the nation's broadest-based index, and probably the most accurate reflection of the overall market. Not as many investors are aware of this index because it is not frequently cited in the financial press as a gauge for the market’s return. The reason for this is that it is often considered "too broad" a definition of the market. Most practitioners prefer to use the S&P 500 as a proxy for the overall market, especially since it encompasses 70% of its market value. The remaining 30% of the market, which consists primarily of small-cap stocks, is generally considered to be represented by the Russell 2000 Index. The Dow Jones Industrial Average is also mentioned frequently and it still seems to be the index most people associate with investing.

The Wilshire 5000 is comprised of virtually every stock that meets three criteria:

1)  The firm’s headquarters are based in the U.S.
2)  The stock is actively traded on a U.S. exchange.
3)  The stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter, stocks).

Though the index started with--as the name implies--5,000 firms, it actually contains around 6,700 today. The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index. This is similar to the S&P 500 and Nasdaq.