If the U.S. stock market ever drops out of the sky, most mutual fund managers won't be packing parachutes.

The cash reserves that stock funds keep in short-term interest-bearing investments are down to a 27-year low of 4.3 percent, according to the Investment Company Institute.

This reserve promises to stay skimpy for the foreseeable future. Because of the pressures on them to squeeze out the best performance numbers possible, many stock fund managers wouldn't dare increase their reserves significantly even if they thought it was a good idea.

This isn't all bad, and it doesn't necessarily portend disaster. You can argue that the policy of staying "fully invested" that many funds follow today has helped prevent bear markets.

What's more, fund investors, unlike fund managers, have built up a healthy reserve a record $1.6 trillion-plus in money market funds, almost 20 percent more than they had a year ago. In theory at least, investors could move some of this money into stock funds when prices fell, giving stock managers the cash they would need to bid for stocks.

Even so, the stock funds' situation is enough to unsettle anybody who's been feeling all snug and warm in the lap of the bull market.

"How comfortable is cash?" says Steve Leuthold, chairman of the investment research firm Leuthold Group in Minneapolis. "Well, consider that in a mere 10 days following the 1987 crash, net redemptions amounted to 4.5 percent of equity mutual fund assets."

Simple math suggests that if fund investors redeem more than the amount of reserves in the funds, fund managers will have to sell stocks to meet the redemptions. That can create a spiral that leaves everybody dizzy.

Before you call your fund group demanding stepped-up safety precautions, though, give some thought to what you'd be asking your manager to do.

Many stock funds began de-emphasizing cash reserves years ago, taking the position that their main job was to pick stocks using a consistent style. Asset allocation, or shifting money from one class of investments to another, was deemed the customer's business.

As recently as autumn 1990, when stocks tumbled in advance of the Gulf War, ICI data showed cash reserves as high as 12.9 percent. They've been in a steady decline since, eventually coming at yearend 1999 to their lowest level since they stood at 4.2 percent in December 1972 just before a two-year bear market.

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