STRICTLY BUSINESS: SO, WHO OR WHAT, ARE THE DOW JONES INDUSTRIALS?

The Dow Jones industrial average topped 4,900 more than 10 days ago, prompting thoughts by stock brokers that the Dow just could hit 5,000 for the first time in history.

A week ago today, the Dow flirted with the 5,000 mark, actually topping it at 5,003 before settling back to close at 4,983.09.

A day later, the Dow hit 5,000 again, this time gradually increasing to a closing figure of 5,023.55, the first time in the history of the 99-year-old Dow industrials.

It didn't stop there. A day later, the Dow added another 18 points to its closing total, at 5,041.

The Dow Jones industrial average has surged more than 1,200 points in 1995, from its 3834.44 close in 1994 to more than 5,041 last week, jumping more than 55 points during a two-day span.

Over the past dozen years, the Dow has climbed from about 1,000 to its new high of 5,000-plus. It topped 2,000 for the first time in January 1987. The Dow hit 3,000 on April 17, 1991, 4,000 on Feb. 23, and closed at 5,025 Nov. 21.

So, what is the Dow?

For an answer to this question, we turned to some people who are in the know -- stock investment professionals.

The Dow Jones industrial average was invented 98 years ago, in 1896, by Charles Henry Dow, not to be confused with Herbert Henry Dow.

Charles Henry was a publisher of the Customers Afternoon Letter, a stock market newsletter that was a forerunner to his now-famous Wall Street Journal.

Herbert Henry, meanwhile, was an early leader in the U.S. chemical industry. He founded the Dow Chemical Co. at about the same time Charles Henry was founding the Dow.

The first Dow had only 11 stocks -- nine of them railroads, which reflects the importance of the iron horse in the 19th century.

The Dow Average increased over the years, reaching 30 on Oct. 1, 1928. It still consists of 30 stocks, although many of the companies have changed.

The Average is still maintained by Dow Jones & Co., which publishes the Wall Street Journal and Barron's.

The Dow Jones & Co. should not be confused with Edward D. Jones & Co., a completely separate company and one of our sources for a look at the former's history.

The Dow industrials have changed, with the most recent changes in 1991 when Walt Disney, J.P. Morgan and Caterpillar became Dow 30 stocks, replacing Navistar, USX and Primerica.

Some companies, which have been with the Dow since it became a 30-stock average in 1928, have had name changes. One such stock is Exxon, which was formerly known as Standard Oil of New Jersey.

Changes in the Dow are made solely at the discretion of Dow Jones & Co., because the Dow is privately owned and maintained.

The "Dow Divisor"

It is calculated by totaling the most recent prices of each of the 30 stocks and dividing by 0.317153418, which is the current "Dow Divisor," which has been adjusted for stock splits and other changes in the Dow over the years.

For a listing of the current 30 Dow Stocks, we turned to the Wall Street Journal. Most of them are familiar names, including Coca Cola, Disney, McDonald's, Procter & Gamble and Sears. The complete list, in alphabetical order:

AT&T, Allied Signal, Alcoa, American Express, Bethlehem Steel, Boeing, Caterpillar, Chevron, Coca Cola and Disney.

DuPont, Eastman Kodak, Exxon, General Electric, General Motors, Goodyear, IBM, International Paper, McDonald's and Merck.

MMM, Morgan J.P., Philip Morris, Procter & Gamble, Sears, Texaco, Union Carbide, United Technologies, Westinghouse and Woolworth.

The Dow, say some market executives, could reach 6,000 to 6,500 by the year 2000, up from 6 to 9 percent a year.

Two major investment companies with branches in Cape Girardeau -- Edward D. Jones & Co. and A.G. Edwards & Sons Inc. -- rate the Dow stocks for their clients.

Good year for some investors

This year has been a good one for some investors. The Dow has increased by more than 30 percent, and topped the 5,000 mark for the first time.

This may all be happy news for many investors, but it could also create some sad faces when April 15 rolls.

Although the deadline for federal income taxes is still more than four months away, now is the time for investors to start taking a look at strategies that may help them at tax time.

Investors may have earned significant capital gains in 1995, points out Marsha Limbaugh, local branch manager for A.G. Edwards & Sons Inc., 97 N. Kingshighway. "But, you may have to pay a lot of taxes on those gains," she said.

Many investors may not know about some strategies that can, not only strengthen their portfolios, but also improve their tax situation, Limbaugh said.

"Deferring capital gains offers some good tax-reducing opportunities," she said. "One means of deferring long-term gains is to "sell short against the box."

This strategy is for investors who believed a stock's price may have peaked now, and may decline soon. It allows an investor to lock in current profits now without recognizing the capital gains until next year.

Limbaugh cites an example.

Suppose you want to sell your 100 shares of XYZ stock, which you paid $20 a share for five years ago, for $50 a share now. But, you don't want to claim the gain until 1996. "You could borrow 10-0 share of the XYZ stock from your brokerage firm, and then sell those shares at the current price of $50 per share, thus locking in the gain but deferring the accompanying tax," said Limbaugh.

Tax reducing strategies

The investor can repay the borrowed share in two ways. (1) If the stock's price drops to $40 in 1996, you could then buy 100 shares at $40 and deliver them to your broker to close out your "short" position. This would result in a $10 per share gain in 1996 and you would continue to hold your original 100 shares. Or, (2), should the stock's price jump, to say $60, in 1996, you may deliver the 100 share you purchased five years ago to close out the short sale and recognize the $30 gain in 1996."

Another strategy for stocks involved taking profits on highly appreciated stocks to offset losses on poor-performing stocks.

"With the market as high as it has been, it wouldn't hurt investors to take some profits and reduce their positions in certain stocks," said Limbaugh.

Standard & Poor's has rated the most profitable groups in 1995 include electronic equipment manufacturers, medical products companies and computer software makers. Along with profit taking, you can sell some of your under-achieving stocks to offset some gains and keep your 1995 tax bill manageable."

Investors can apply losses dollar-for-dollar to offset capital gains first, and then to ordinary income up to $3,000, said Limbaugh. "Any additional losses can be carried forward and be used to offset gains and income in future years."

Investors can also implement another tax-reducing strategy by "doubling up" on stocks whose prices have dropped significantly but still meet investment objectives.

To double up, said Limbaugh, investors simple buy an identical amount of the same stock and then sell the original amount. However, investors must double up at least 31 days before selling the original stock holdings, or the loss will fall victim to the "wash sale" rule and be disqualified. If this happens, investors cannot include the losses on 1995 tax returns. The last day to double up on stocks is Tuesday.

These and other tax tips are included in a recently published A.G. Edwards tax-planning publication, "Tax Saver," which is available at no cost at A.G. Edwards offices, which are located at more than 530 sites in 48 states and the District of Columbia.

Random IRS audits

More than 150,000 taxpayers across the United States may find letters from the Internal Revenue Service (IRS) next month, informing them that their return has been selected for a tax audit.

About every five years, the IRS conducts the Taxpayer Compliance Measurement Program (TCMP). The TCMP audits cover individual and business tax returns, selected at random.

The audits, said Nova L. Felton, public affairs officer of the St. Louis District IRS office, are thorough, line-by-line audits.

Ronald J. Lambert, district IRS director, said he supports the TCMP program.

Taxpayers should always keep good records, including receipts, canceled checks and other documentation, just in case they are confronted with TCMP audit, noted Lambert. The taxpayers should be ready to verify all income, deductions and exemptions stated on the return.

Additional information concerning the audit process is available in the free IRS Publication 556, "Examination of Returns, Appeals Rights and Claims for Refund." The publication is available by calling 1-800-829-3676.