Sharp gains in Kamehameha Schools' investment portfolio boosted its endowment to about $7.7 billion during the 2005-2006 fiscal year, but schools officials cautioned they must be prepared for lean years when investment income falls short.

The state's largest private landowner and one of the nation's biggest private charities yesterday reported its revenues for the fiscal year ending June 30 rose to $897 million, topping the year before's $837.2 million.

The trust spent nearly $221 million to educate children of Native Hawaiian ancestry during its latest fiscal year, officials said, placing it on par with the trust's educational spending during the past five years.

"Kamehameha Schools was blessed in (fiscal) 2006 with a very strong financial performance. It serves us well as we continue to move forward in our schools and with communities to educate our people," said Dee Jay Mailer, the trust's chief executive.

Kamehameha Schools, which was established by the 1884 will of Princess Bernice Pauahi Bishop and educates children of Hawaiian ancestry, said a total of 6,715 students were enrolled at its preschools and Kapalama Heights and Neighbor Island campuses last year.

Kamehameha served another 22,000 children and adults through its various community outreach programs and support of 14 charter schools.

The school is bound by a Probate Court-approved policy that limits its spending to 2.5 percent to 6 percent of its average endowment value during the previous five years.

The $221 million spent last year is about 3.8 percent of the endowment's average value, which could renew calls for more of Kamehameha Schools' money to be spent on educational programs.

Robert Moore, a 1953 graduate of Kamehameha Schools, said he's encouraged by Kamehameha's attempts to broaden the schools' reach into the Hawaiian community.

But Moore said he believes the school would be able to serve more Hawaiian students if it were to charge higher tuition to students whose families could afford it. Under this plan, needy students would receive more financial aid, Moore said.

Kamehameha Schools heavily subsidizes the cost of educating its students. The school pays $12,763 to $13,434 of the annual tuition and other expenses for most of its kindergarten through 12th-grade students.

Families of most students pay $2,566 to $3,237 a year for tuition.

In its release, the trust said it generated a 17 percent total investment return for the year, which surpassed its goal of earning 5 percent more than the national inflation rate, which was 3.4 percent in 2005.

The trust's investments in energy companies jumped 32.3 percent, while its real-estate holdings rose 29.5 percent. Investments in non-U.S. companies increased 26.7 percent.

"While it's encouraging to have strong years like this, we know that factors beyond our control can push things in the other direction, too," said Kirk Belsby, the trust's vice president for endowment. "Peaks like this year help us smooth our valleys like we experienced in the periods between 2000 and 2002."

The trust's revenue fell to $174 million in the 2001-2002 fiscal year.

The latest investment results come less than a month after a 15-judge panel of the 9th U.S. Circuit Court of Appeals narrowly upheld the trust's century-old Hawaiian-preference admission policy.

In a dissenting opinion, Judge Alex Kozinski suggested that the school could avoid legal challenges if it would offer free education to students.

That, he said, would eliminate the contractual relationship the schools have with their students, a key issue in the civil rights case on behalf of a non-Hawaiian who sued to overturn the school's admission policy.

But trust officials said they believe such a move would not eliminate legal challenges. Students' grades, their adherence to a code of conduct, attendance and other factors could be considered part of a contractual relationship.

Still, some among Kamehameha's alumni say the schools can do more.

"There sure are a lot more Hawaiian kids they can be serving," said Hawaiian rights activist Walter Ritte, a 1963 Kamehameha Schools graduate.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.