"HORRIBLE HANNA" they called her on the banners they waved in May 1979. The slogan was part of a demonstration by about 1,500 Unversity of Chicago students against the presentation of a $25,000 award by their president, Hanna Holborn Gray, to former secretary of defense Robert S. McNamara for "outstanding contibutions to international understanding." That evening of jeers, fiery speeches, billcyclubs and arrest (25 picked up, no charges) concluded with a deputy police superintendent being smacked in the face with a sticky red substance (later identified as a Sara Lee strawberry cheesecake). It also marked the last substantial conforntation, in a string of them that spring, for Gray, the self-styled "old-fashioned Bryn Mawr feminist" inaugurated as the university's first woman president in July 1978.

With that kind of a year for openers, it's no wonder that her second -- completed in July -- seemed a bit dull to the public and press. Fortunately, said Gray in an interview last month near the second anniversary of her installment as president of the university, it has left her free to deal with a problem common to all private insitutions -- money -- and one particular to the University of Chicago -- image.

The U. of C. is occasionally caricatured as a place for eggheads who disdain all forms of exercise except chess. In a classic Second City sketch, "Football Comes to the University of Chicago," one player describes the ball as having the shape of a "demipolytetrahedron"; another confuses left guard with Kierkegaard, and the center is reluctant to hand the ball to the quarterback between his legs because "I hardly know him."

"There's the belief that [the university] . . . is strictly for exceptional students," said Gray, drawing on a Parliament, "that your normally-gifted and extracurricularly-interested person need not apply. . . . They wonder whether it's even legitimate for University of Chicago students to have fun."

As part of an image-changing campaign Gray has instituted two huge annual parties, each featuring three bands -- "one blues, one jazz, and the other an old-fashioned one for people like myself and my husband," she says one party-goer, "she ended up dancing half the night" with students, thereby enhancing her own image as well as the university's. Gray is generally conservative in both dress and demeanor. (Her clothers sense is described by some as "blah," and her hairstyle has been updated from her last year's coiffure, likened to Big Nurse's in One Flew Over the Cuckoo's Nest . She bristles at comparisons between herself and another top female leader in Chicago -- the flamboyant and unpredictable Mayor Jane Byrne.

"I don't see any reason why people who happen to be women should be compared with one another," she says brusquely. "Clearly we have very different kinds of positions and tasks."

Gray and her husband Charles are not newcomers to Chicago. In the 1960s they were members of the university's history department. She even worked briefly in the world of Chicago politics -- serving as, of all things, a Democratic precinct captain. "I worked for John Kennedy's campaign, not local elections," she explains.

In July 1978, after an absence of six years, she returned to Hyde Park to take over what Newsweek has called "the most prestigious academic post ever held by a woman." Her appointment followed a nine-month search, involving some 180 serious candidates, to find a successor to interim president John Wilson. At the time she was acting president of Yale, having taken over in the spring of '77 when Kingman Brewster resigned to become ambassador to the Court of St. James'. Before that, she had been Yale's first women provost and before that was the first woman to become dean of arts and sciences at Northwestern. When she was tapped by Chicago, she also had been in the running for the Yale presidency, which eventually went to its humanities director, A. Barlett Giamatti. Many believe she wouldn't have gotten it, however, because of resistance from alumni who noted she was (obviously) female and (equally obvious) wasn't an Old Blue.

The university that did choose her is not only one of the country's blue-chip private institutions, but (with Stanford) one of the youngest in its class, having been founded in 1891 by John D. Rockefeller. The University of Chicago is known for its graduate faculty, for the 47 Nobel Prizes won by its past or present teachers, students or researchers, for its 130 or so alumn who are now presidents of other American colleges and universities, and for its over-the-years celebrities from Enrico Fermi to Mike Nichols to Saul Bellow. It has an enrollment of 7,850 a faculty of 1,020, a tuition ranging from $5,100 (the College) to $6,300 (the Graduate School of Business), a budget a $348 million -- and a current deficit of $3.5 million.

Rather than resorting to Draconian across-the-board cuts, Gray has proposd a four-year plan to balance the budget through such measures as energy conservation by computer monitoring and reduction of faculty and staff through attrition. She has also succeeded in raising the level of alumni contributions by 22 percent.

One source of financial trouble is declining enrollment in the graduate division, primarily due to the dwindling job market for teachers. To help make up for the drop, Gray has taken the controversial step of expanding the number of undergraduates from 2,700 to 3,000 over the next several years.

"Classes will be larger," complains David Glockner, editor of the undergraduate newspaper, The Chicago Maroon. "We have very few classes over 35, and students feel we'll be losing the qualities that distinguish us from a Harvard or a Yale."

"I think many students are overreacting," says Gray. We want to meet our undergraduates' expectations of small classes, but not in a ridiculous way. A combination of lectures and seminars is a good mix.

There isn't a theological virtue in a class of eight as opposed to a class of 38. Plus, the added students will give us a bigger critical mass to enhance our extracurricular activities."

To those who worry that Gray will cozy up to big business and march to their tune for money, she says, "The general concern that gifts will have strings attached and that the sources of funding will force undesirable policies is a threat that has been with universities for as long as they've existed. We are sensitive to it, and I hope we'll resist. . . . Certain forms of money aren't worth it."

To an outsider, Gray display a blend of charm and toughness. Her answers to questions are long and thoughtful and often ponderous -- but she is also quick to laugh at the absurd and mundane. To some students and faculty members, however, she comes across as a rather, well, hard-hearted Hanna. A number describe her as being "humorless" and "severe."

"In her earlier years here, she was known as the Iron Maiden," says one professor. "She appears to be cool, calm, no sypmathetic at all." Some of his colleagues disagree. "It's rather cruel to call her 'humorless,'" says a member of the history department. "She believes in getting things done. She doesn't waste time with small talk. But that's not a weakness, especially considering the great pressures of her job."

"She works terribly hard," says her administrative assistant Gregory Campbell. "She's definitely an evening person. I never have any hesitation about calling her at 11 or 11:30 p.m."

One faculty member complains that Mrs. Gray is not concerned with the "higher ideals of education -- as opposed to just keeping the place going in a grim, heavy-handed march toward financial stability."

Conversely, she has enthusiastic supporters, one of whom is Dean of the College Jonathan Smith. "Hanna's a very shrewd lady," he says. "The most notable thing she's done is to come clean with the whole university, to articulate what its problems . . . She's also gone after what I think is the greatest single drawback of this institution: its self-imposed isolation. She realizes that this is part of a national enterprise and that it's OK to find out what other universities are doing and to find out that our problems aren't unique. We've tended to think that we have the boils of Job and no one else does. As for the complaints that she's preoccupied with finances, if she wasn't I'd be irritated. This isn't an era for messianic leaders, taking us to higher plateaus. Basically, we have to make sure the institution continue to function."

Gray was born in Heidelberg, Germany, and came to the United States in 1934, when her father, Hajo Holborn -- a distinguished historian -- was dismissed from his academic posts for opposing the Nazi party. They settled in New Haven, where he taught at Yale until his death in 1969. t

Her upbringing, she remembers, was considerably more strict than that of her American peers. (The Holborns became naturalized citizens in 1940). Nevertheless, she says she was "a brat." Her ambition was to become, of all things, a radio comedienne. (Fred Allen and Edgar Bergen/Charlie McCarthy were the only radio programs she was allowed to listen to, apart from the news and classical music.) Instead of going into show business, she entered Bryn Mawr at age 15, and after graduating summa cum laude in 1950, studied at Oxford on a Fulbright scholarship and went to Harvard, where she met Charles Montgomery Gray, a fellow graduate student, whom she married in 1954.

The Grays, who have no children live in the president's 25-room house on the campus close by Rockefeller Chapel. His specialty is English law, and he teaches in both the College and law school; Hanna Gray plans to teach a course this year in Renaissance intellectual history. When not absorbed in university business, she enjoys listening to classical music, swimming, playing tennis and darts, spending time on her farm in northeastern Vermont, watching the Chicago Bears "On television only -- I like being comfortable"), and reading. "I like history, biography, novels," she says, then chuckles, remembering a recent reference to Kim Novak. "Someone asked her what she read, and she answered, 'Oh, mostly prose and poetry.'"

Gray adds that she hasn't had any hassle in her two years at the U. of C. over being a woman, except for a press that treats her as a feminist trailblazer -- gutsy and determined -- a blend, perhaps, of Amelia Earhart and Jackie Robinson. (Last fall, the first woman president of the University of Chicago, first woman provost of yale, and first woman dean of arts and sciences at Northwestern became the first woman Pulitzer Prize board member.)

"It gets a little tiresome," she says. "The 'first this' and 'first that' suggest that one is kind of a freak. But obviously it wouldn't happen if there were just lots of women doing all these things all the time. And the sooner the better."

Added about students today, she said "There's a tendency to generalize and sterotype student generations. Those today are characterized not by apathy or a lack of concern about social issues as you often hear, and not by some simple self-absorption or vocationalism, but by a sense of complexity.

"By that I mean that many students are very seriously interested in social issues but aren't as prone as students were in the '60s to believe that there's one large overreaching solution, a single revolution. . . . There is more of a sense that change has to come about through a multitude of people working together at particular things and less a sense of rejecting everything that isn't perfect.

"There's also anxiety about the future, the concern over careers, and the kind of life they're going to lead. I don't see any apathy. Of course as a '50s student, I never did think of mine as the 'silent generation.'"

As for the McNamara incident, almost everyone seems to have forgotten it by now. (The service award wasn't given this year and Gray-appointed committee designed to study the selection process has voted to form another committee.) Several students, however, wouldn't let the memory fade. On the first anniversary of that volatile May evening, a small group sat down in the middle of the stret and had, in effect, an eat-in. The fare? Strawberry cheesecake, of course.