A physically based cloud parameterization package, which includes the Arakawa-Schubert (AS) scheme for subgrid-scale convective clouds and the Sundqvist (SUN) scheme for nonconvective grid-scale layered clouds (hereafter referred to as the SUNAS cloud package), is incorporated into the National Center for Atmospheric Research (NCAR) Community Climate Model, Version 2 (CCM2). The AS scheme is used for a more reasonable heating distribution due to convective clouds and their associated precipitation. The SUN scheme allows for the prognostic computation of cloud water so that the cloud optical properties are more physically determined for shortwave and longwave radiation calculations. In addition, the formation of anvil-like clouds from deep convective systems is able to be simulated with the SUNAS package. A 10-year simulation spanning the period from 1980 to 1989 is conducted, and the effect of the cloud package on the January climate is assessed by comparing it with various available data sets and the National Center for Environmental Protection/NCAR reanalysis. Strengths and deficiencies of both the SUN and AS methods are identified and discussed. The AS scheme improves some aspects of the model dynamics and precipitation, especially with respect to the Pacific North America (PNA) pattern. CCM2's tendency to produce a westward bias of the 500 mbar stationary wave (time-averaged zonal anomalies) in the PNA sector is remedied apparently because of a less locked-in heating pattern in the tropics. The additional degree of freedom added by the prognostic calculation of cloud water in the SUN scheme produces interesting results in the modeled cloud and radiation fields compared with data. In general, too little cloud water forms in the tropics, while excessive cloud cover and cloud liquid water are simulated in midlatitudes. This results in a somewhat degraded simulation of the radiation budget. The overall simulated precipitation by the SUNAS package is, however, substantially improved over the original CCM2. ¿ 1999 American Geophysical Union