The composition of the Dow Jones Industrial Average is set to change next week, with Kraft Foods Inc. replacing American International Group Inc., Dow Jones & Company reported today.

The decision to remove AIG was a result of its “effective nationalization” and its very low stock price, said John A. Prestbo, editor of Dow Jones Indexes. The major insurance and financial services company has been on the index since April 2004.

“We are refraining at this point from adding another stock in the financial industry because of the extremely unsettled conditions,” said Robert Thomson, the managing editor of The Wall Street Journal who oversees the composition of the index. “We realize this decision leaves the Dow Jones Industrial Average under-weighted in financials, and we will address this situation in due course.”

Dow Jones decided to add Kraft since the index had no representation in food products, Thomson said.

The changes won’t cause any disruption in the level of the index, since the divisor used to calculate the Dow from its components’ prices on their respective home exchanges will be changed prior to the opening on Sept. 22, when the change becomes effective. This procedure prevents any distortion in the Dow’s reflection of the U.S. stock market, the company said in a release.

The composition of the index was last changed in February, when two stocks out of 30 were replaced.

IE