Lower costs and improved investment performance caused Harvard's fiscal situation to improve over the past year, according to the University's financial report for 1993.

The report, which was made public yesterday, said the University's attempts to review costs not related to compensation and financial aid in the search for savings are meeting with success. In 1993, Harvard saw its deficit shrink to $21 million from last year's $37 million shortfall.

In addition, an improved return on investments helped increase Harvard's endowment to $5.8 billion, up from $5.1 billion in 1992.

"It's been a good financial year," Vice President for Finance Robert H. Scott, who is a co-author of the report, told the Harvard Gazette. "But the environment we're in is still a difficult one, requiring us to plan carefully for the long term. We have to use our resources as efficiently as possible if we're going to be as successful as we'd like to be."

Reductions in costs were made possible by changes such as a switch in vendors--which led to saving of 20 to 40 percent on office supplies.

The University's deficit reduction plans do notend there. The report claims that by forcing eachbudgetary unit to include the cost of facilityrenewal in its plan, Harvard will be able tobalance its budget with the cost of maintainingfacilities included.

The University also hopes to consolidate travelarrangement and reap a 10 to 20 percent discountin the future because of its large purchasingpower.

"We've been working hard on controllingexpenses and reshaping the use of resource, notjust generating more from existing ones," saidDirector of Financial Services E. Lyndon Tefft."New and better way are always looked for."

Total expenses last year did rise by 6.4percent to $1.327 billion, including an $89million provision for the replacement offacilities.

But total revenues rose by an even greater 7.9percent to $1.305.9 billion leading to thedecreased budget deficit.

Financial gifts to the school also reached anall-time high last year at $222 million, with $103million in gifts for capital, $77 million forcurrent use and $42 million for research byprivate sponsors, the report said.

The University's endowment grew 16.7 percent in1993, its largest percentage increase since 1987.

Financial aid costs grew at only 5.2 percentthis year, which also helped close theUniversity's budget gap. The report attributedthis slow growth to the nationwide economicrecovery that has left students and their familiesbetter able to cope with the costs of college.

The saving are not likely to continue in thelong-run, though, because decreased governmentalfinancial aid contributions will probably force ahigher contribution by the University, the reportsays .

The report repeatedly emphasizes the need forforesight and planning to ensure the success ofthe University in coming years.

It praises the University for the completion ofthe first phase of an extensive planning processfocused both on academic and non-academicpriorities. "The University improved significantlyits planning for its future," the report says.

The report goes on to discuss the difficulty ofmaintaining instructions of higher education in anational environment where the "pace of change isescalating."

The report says: "The financial implications ofthe need to adapt are clear; institutions mustrethink their programs, streamline theirorganizations, reduce their bureaucracy andincrease productivity if they are to completeeffectively.