Showing average performance, the University's endowment returned 16.8 percent for the fiscal year 1995 and rose to more than $7 billion, according to the soon-to-be-released annual letter of the Harvard Management Company (HMC).

Last year's endowment totaled approximately $6 billion.

Although better in absolute terms than last year's 9.8 percent, returns for this year, which concluded June 30, are less impressive because the domestic markets performed very well in the first half of 1995.

"While the absolute return of 16.8 percent is substantial, relative performance in fiscal 1995 was somewhat disappointing," President Jack R. Meyer wrote in the letter. "This is the first time in the last four years that we have fallen short of our performance benchmark."

Meyer had no comment when he was contacted yesterday.

The endowment's return was hurt by its diversification, which leads it to invest less in domestic equities than in other major funds. It was the same diversification, however, that led to last year's success.

"Large capitalization domestic equity was the asset class to own, and diversification into almost any other asset class hurts returns," Meyer wrote in the letter.

"The benefit of diversification is over the long-term, but when stocks are hot you get hurt," added a source close to HMC.

University officials contacted echoed Meyer's words from the letter.

"I think they [the returns] were good. Straight equities did better than the S&P [Standard and Poor's 500 stock index], though they didn't meet their benchmark," said Robert G. Stone Jr. '44, a member of the Corporation, Harvard's governing board.

"Therefore, they didn't do as well as they should have, but I'm quite pleased we did as well as we did," Stone added. "We compete against Yale and Princeton, and I'm sure we did quite well against them."

Yale's and Princeton's returns were not available yesterday.

Not everyone, however, expressed pleasure with the performance.

Long-time HMC critic and major University donor Albert F. Gordon '59 said he found the performance "run of the mill."

Gordon added that he has proposed to the University that large donors be allowed to have outside managers invest their endowment contributions.

"Now, I refuse to give to endowment because of the Management Company," he said. "If they let us choose to use outside managers, I've told them I'd give to endowment."