University-wide academic planning is producing definitive results, but Harvard continues to face challenges in the financial arena, President Neil L. Rudenstine said in his annual open letter to the Harvard community released yesterday.

In the letter, directed to Harvard's faculty and staff, Rudenstine said the planning process would be described more specifically later in the year in a report to the Board of Overseers and in meetings with faculty and staff.

In an interview yesterday, Rudenstine said he hopes the letter will provide a framework for the workings of the academic planning process, necessary to coordinate the funds which are anticipated from the capital campaign expected to kick off this spring.

He said he wished he had been able to elaborate further on the relationship between cost-cutting measures and the effects of the campaign in the letter.

"It doesn't look like a complicated climate, but it is a complicated climate," he said. "On the one hand, we're continuing to whack away at the budget...At the same time, we're going to go out and raise a lot of money--we've already raised some-- and millions of dollars are going to come in."

Rudenstine said the meetings with faculty andstaff will concern what can--and cannot--beexpected from the campaign.

While the University is hoping to get somemoney for unrestricted use, most major gifts aredonated for specific areas, he said.

"Many of the things in the campaign are forvery targeted things," he said. "You can't takemoney that comes in for student financial aid andapply it to faculty and staff salaries...[Donors]don't want to give to bail us out of thedeficit--they want to give to make somethingbetter."

Rudenstine said in his letter that he expectscosts to keep rising despite reviews andmoney-saving measures, citing financial aid,library materials, scientific equipment andphysical plant restoration as some of the majorcauses of rising expenses.

He added, however, that he believes thatHarvard must not sacrifice its standards simply tosave money.

"Excellence is not a quality we can preserve bysomehow keeping things in place," he said.

"But we will also have to demonstrate that theUniversity--like the rest of our society andworld--is managing its affairs in a prudent andeffective way," he said