A fundamental component of an Earth System Model under development at UCLA for studies on global change is a coupled GCM of the atmosphere-ocean system. This paper reviews the most recent developments of this coupled model. Focus is on the impact of clouds on the climate simulations of tropical Pacific and the revisions of the parameterization of cloud processes. Sensitivity experiments with the GCM indicate that tropical Pacific climate is highly sensitive to the optical properties of high-level clouds and to the geographic distribution of low-level stratus clouds. The performance of the coupled GCM is significantly improved with revised PBL formulation, ozone determination, shortwave processes, and vertical mixing of momentum by dry convection.