It's no secret that investors have sought to escape from 21/2 years of declining stock prices by running to the protection of bond funds. In so doing, last month they made the Pimco Total Return bond fund bigger than any stock mutual fund in the United States.

The Pimco bond fund, managed by Bill Gross, ended September with $64.5 billion in assets, Pimco Funds spokesman Jed Koenigsberg said. That surpassed Vanguard Group's 500 Index Fund, whose assets slipped to $62.8 billion, from $70.5 billion in August, spokeswoman Rebecca Cohen said.

Pimco Total Return's growth accelerated this year as concerns about corporate scandals and slow economic growth eroded confidence in stocks and led the Federal Reserve to keep interest rates at their lowest level in 41 years. Some investors are concerned that Pimco's reign may be short-lived if the economy improves next year and the Fed raises interest rates.

"Bill Gross is the bond guru," said Whitney Dow, an analyst at Financial Research Corp., a Boston-based financial services consulting firm. The manager's stature and Pimco Total Return's track record "are really the reasons why it's such a popular fund."

Gross, in an interview, said the Fed should lower interest rates, and when it does, a "little 25-basis-point move is not going to do much."

A "50-basis-point [move] is in order, and I suspect that many governors and voting members that opposed a reduction last time around are having second thoughts," he said.

Gross said last month that bonds would continue to outperform stocks and equities wouldn't be fairly valued unless the Dow Jones industrial average fell to 5000. He said he stands by that forecast. Gross has been buying longer-dated Treasurys, whose yields haven't dropped as much as others', and mortgage-backed debt with yields around 5 percent.

Pimco said he continues to avoid corporate bonds, which he calls "stock market proxies."

Vanguard 500, opened in 1976 by Vanguard founder John C. "Jack" Bogle, became the biggest stock or bond fund in March 2000, when the stock market peaked and the fund's assets surpassed those of Fidelity Investments' Magellan Fund, Cohen said.

Pimco Total Return overtook Fidelity Magellan in July.

The Magellan Fund had $53.5 billion in assets as of Sept. 30, down from $60.3 billion at the end of August, according to Fidelity's Web site.

The biggest mutual fund of all in the United States is Bank of America Corp.'s Nations Cash Reserves, a money-market fund that had $66.4 billion in assets as of Sept. 30, according to its Web site.

While investors put in $721 million more than they took out of Vanguard 500 in the first eight months of this year, the fund's assets shrank as the Standard & Poor's 500-stock index declined 20 percent, the Dow Jones industrial average fell 14 percent and the Nasdaq composite index dropped 33 percent.

"Stocks as an asset class have done poorly and bonds as an asset class have done well over [the past] three to five years, and therein lies part of the reason" for Pimco Total Return's growth, Gross said. More important, he said, "investors are fearful and are beginning to recognize the benefit of diversification."

Pimco Total Return has been this year's top-selling U.S. fund, taking in $10.2 billion from Dec. 31 to Aug. 31, according to Financial Research.

Pimco Total Return has outpaced Vanguard 500 and Magellan since the stock market hit its peak in March 2000.

The institutional shares of Pimco Total Return gained 29 percent from March 31, 2000, to the end of last month. In the same period, the "administrative" shares that individual investors would buy rose 28.42 percent, according to Lipper Inc., a New York-based fund research company owned by Reuters Group PLC. Magellan fell 46 percent and Vanguard fell 44 percent during the same period, according to Lipper. Vanguard spokesman John S. Woerth said the decline in assets at the company's 500 Index fund is a function of the stock market, not a "reflection on the popularity of indexing as a whole."

Stock and bond index funds accounted for about 40 percent of the $31.6 billion that Vanguard's long-term funds have taken in this year through Aug. 31. Vanguard is this year's best-selling fund group, according to Financial Research.

Vanguard doesn't talk about cash flows for individual funds, Woerth said.

"The Magellan Fund is closed to new investors, and that's not the case with either of the other two funds," Fidelity Investments spokeswoman Anne Crowley said. "We are not concerned about whether we have the largest fund or not."

Since 1997, only existing investors, and those whose retirement plans offer the fund, can invest in Magellan.

While Gross has managed to beat the performance of stock funds, he hasn't been able to outperform the bond market during the past year. As Pimco Total Return's institutional shares gained 7.82 percent in the past 12 months, according to Lipper, the Lehman Brothers U.S. aggregate bond index rose 8.6 percent.

Gross is beating the index over the past 3 years, gaining 9.72 percent a year compared with 9.48 percent for the Lehman index.

Gross started Newport Beach, Calif.-based Pacific Investment Management with Jim Muzzy, a co-worker at Pacific Life Insurance Co., in 1971. Allianz AG, a European insurer, bought 70 percent of Pimco for $3.3 billion in May 2000. Munich-based Allianz said it would pay Gross $200 million, or $40 million annually, for five years, to stay with the company.

Bill Gross, manager of the Pimco Total Return bond fund, in his Newport Beach, Calif., office. "Bill Gross is the bond guru," says analyst Whitney Dow.