Despite a significantly smaller-than-expected budget shortfall in fiscal 1992, the Faculty of Arts and Sciences will face a bleak financial future if the University's upcoming capital campaign does not provide a massive infusion of funds, according to FAS administrators.

In a letter to professors dated December 3, Dean Jeremy R. Knowles acknowledged that campaign revenues would be channeled toward sustaining the Faculty's current range of programs, rather than for broadening its offerings, as administrators had earlier hoped.

"In earlier and less troubled times our prospects seemed unlimited," Knowles said. "Alas, it is now clear that...the major portion [of campaign funds] will be needed to strengthen our commitments to such fundamental and continuing activities as need-blind admissions to the College and the recruitment and retention of a world-class faculty."

Knowles reiterated in his report that the budget situation is improving, but urged the Faculty to continue its belt-tightening efforts.

Still, the dean and other administrators conceded that Harvard's financial prospects are largely contingent on the performance of the national economy.

Of particular concern, according to Knowles, is the future of financial aid. A growing gap between college tuition costs and median family incomes, a decrease in governmental loans and grants and heightened scholarship competition among universities are some of the most serious dilemmas facing the Faculty, he said.

Director of Financial Aid James S. Miller said Harvard and other universities are increasingly relying on capital campaigns to maintain their financial aid programs.

"A successful campaign could really sustain the programs for 10 years or so," Miller said. "I think that the conventional wisdom is that colleges have to engage in campaigns every 10 to 12 years."

Miller said that more Harvard students are now on financial aid than at anytime in the College's history.

"It truly reflects the poor economy [and] certainly exacerbated the demand for institutional support," he said. "There are pressures on the financial aid program that haven't ex- isted for 10 or 12 years."

Miller said that Harvard has no intention ofaltering its current needbased tuition assistancepolicy in favor of the merit-based scholarshipsincreasingly offered by other universities.

"I do not see us resorting to meritscholarships to compete," he said. "We have askedfamilies to do more, we've asked students to domore. I think we're trying to share the burden ofpaying for college."

But Knowles said the fact that more capitalcampaign funds will be funneled into financial aidthan was previously expected will make itdifficult for the Faculty to fund other projects.

"New programs will necessarily have to grow bysubstitution, with new activities replacingexisting functions rather than always beingincremental to them," he said.

The dean said certain new initiatives wouldlikely be priorities for applying the moneyHarvard hopes to raise. Chief among these, Knowlessaid, would be the creation of fellowships thatwould allow graduate students to finish theirdissertations more quickly, without having to relyon teaching income.

Other projects Knowles outlined included: