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The Standard & Poor's 500 is an unmanaged index of 500 large-company stocks generally considered representative of the U.S. stock market. Although widely reported, many investors are not aware of what composes this index. Click "Full Article" for a look at how companies are listed in, and removed from, this important index.

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It is a market-weighted index, meaning it factors in the differences in individual stock size by multiplying the price of each by the number of shares outstanding. Thus, larger companies have a greater influence on the index than smaller companies.

While investors cannot invest directly in an index, approximately $1.5 trillion is invested in index funds designed totrack the performance of the S&P 500 (Source: Standard & Poor's Corporation, 2009). And a huge number of individuals and mutual funds use the returns of the S&P 500 to benchmark their portfolio's performance.

Decisions regarding the removal and addition of companies to the S&P 500 are made by the Index Committee at Standard & Poor's Corporation. Companies cannot apply for inclusion in the index and decisions are made based on public information. Several factors can cause a stock to be removed from the S&P 500:

Mergers and acquisitions- Mergers and acquisitions are reviewed to determine whether the remaining company should be removed or left in the index. Historically, this has been the most common reason for removal.

Bankruptcy- A company is immediately removed from the index when bankruptcy is filed.

Restructuring- A major restructuring is thoroughly analyzed to determine whether the company should remain in the index or be removed.

Lack of representation- Companies can be removed from the index if they no longer meet current criteria for inclusion and/or they are no longer representative of their industry group. Factors that could lead to removal include a decline in market size, belonging to a declining industry, or illiquidity of the stock.

When a stock is removed, it is replaced by a company meeting the following criteria:

Liquidity- Liquidity is measured as average monthly trading volume divided by shares outstanding. That number must equal 0.3 for New York Stock Exchange and American Stock Exchange shares and 0.6 for Nasdaq shares. The Index Committee also looks at the stock's price history, attempting to minimize the number of single-digit-priced stocks in the index.

Ownership- Sufficient shares must be available for investors to purchase. Two conditions must be met -no single entity can own more than 50 percent of the outstanding shares and multiple entities may not hold more than 60 percent of the outstanding shares.

Fundamental analysis- The company must have at least four quarters of positive operating net income. However, occasionally, a company with a loss will be included if it would have been profitable except for a loss due to a merger or acquisition.

Market capitalization- While there are no strict dollar values, the company must be a leading company in a leading U.S. industry. Generally, market capitalization is over $4 billion.

Sector representation- The Index Committee attempts to keep each sector's weight in the index proportionate to that sector's weighting in the universe of stocks.

While changes to the S&P 500 used to be fairly rare, they have increased in recent years.