Harvard sustained a small deficit of $4.5 million in the last fiscal year resulting from a three percent increase in University operating costs, according to the annual University Financial Report released Friday morning.

The report, which describes Harvard’s financial position and goals, also includes letters from several University leaders, many of which detail the broad University initiatives, such as the Harvard Initiative for Learning and Teaching and MIT and Harvard’s joint virtual learning venture EdX.

The deficit of the last fiscal year, which ended on Jun. 30, 2012, is larger than the $109,000 deficit of FY2011. The increase is partially due to a five percent increase in compensation costs, which account for roughly half of the total University operating expenses. Overall, the $4.5 million figure represents just slightly more than .1 percent of the total annual revenues, which last year climbed to $4 billion to meet increasing costs.

“Adjusting to and planning for new and sustained financial realities will be a significant priority for the entire University leadership team,” University President Drew G. Faust wrote in her letter in the report.

To support increasing costs, the endowment payout rate rose from 5.3 percent to 5.5 percent—the upper limit of the University’s target range for this rate, which refers to the proportion of the endowment that is distributed to fund University operations.

Citing the 2008 global financial crisis, Vice President for Finance and Chief Financial Officer Daniel S. Shore and Treasurer James F. Rothenberg ’68 wrote that the University has experienced a “more turbulent second chapter” of the past decade as the endowment fell and non-endowment sources of revenue such as tuition and research sponsorship increased only slightly. But over the past fiscal year, Harvard managed to trim down its total accrued debt, from $6.3 billion to $6 billion.

“We have spent the last several years pursuing opportunities to be more efficient and effective without compromising our ability to fulfill our teaching and research mission,” Shore and Rothenberg wrote.

The report also looked ahead to the University’s future aspirations. In her letter, Faust mentioned “new directions and new capacities” and University-wide projects such as HILT, EdX, and Allston development. “Sustaining momentum in all these areas will be a high priority in the months to come,” Faust wrote.

Shore and Rothenberg expanded on Faust’s laundry list, including three focus areas for the future: reducing redundancies in programs such as Harvard University IT to increase efficiency, evaluating employee benefits to balance University responsibilities with its budget, and developing plans for a capital campaign to grow Harvard.

“Success will require a tolerance for ambiguity, an openness to different ways of doing things, a commitment to experimentation, an underlying confidence in our ability to implement a sustainable economics model, and abiding passion for the University and its impact in the world,” Shore and Rothenberg wrote.

The report also includes a letter from Harvard Management Company CEO Jane L. Mendillo, who discussed this year’s 0.05 percent drop in the endowment, which was valued at $30.7 billion on Jun. 30. HMC, which manages the University’s endowment, released a report in Sept. announcing the dip. However, Mendillo noted that for the third year in row, endowment returns remained higher than the policy portfolio—a set of benchmarks for each asset class—which Mendillo described as “beating the markets.”

“The markets during the last year continued to be choppy and highly sensitive to unresolved macroeconomic headwinds,” Mendillo wrote. “In this context we are pleased that the endowment held steady and was able to provide substantial support to the University.”

—Staff writer Samuel Y. Weinstock can be reached at sweinstock@college.harvard.edu.