Due to a transmission error, the terms of the proposed Dean Witter Organization-Reynolds Securities merger were described incorrectly in Tuesday's editions of The Washington Post. Under the proposed terms, the outstanding Dean Witter common stock will remain unchanged and each share of common stock of Reynolds will be converted into six-tenths of a share of common stock of the resulting company, Dean Witter Reynolds Organization, Inc.

The biggest merger in the history of the securities industry was announced today with a preliminary agreement between the Dean Witter Organization Inc. and Reynolds Securities Inc. to join forces.

The combined organization, to be known as Dean Witter reynolds Inc. will have headquarters in San Francisco and will rank second to total revenues behind Merrill Lynch and Co. - though still a distant second - and third in total capitalization behind Merrill Lynch and Salomon Brothers.

The merger must still be approved by the shareholders of the two firms, which are both publicly held. Dean Witter has its annual meeting scheduled for December, and Reynolds will call a special meeting for the same month. A closing is expected to take place, if other hurdles are surmounted, next Jan. 3.

The largest shareholder in Witter Reynolds - after the combined employee benefit funds of the two firms - will be the Banque Arabe et International Investisement, a Paris based investment bank, which last year purchased 10 per cent of Reynolds and increased its stake earlier this year to 16 per cent. It will own 6 per cent of the new firm.

he Banque Arabe is 50 per cent owned by Arab institutions such as the Kuwait Investment Company and the government of Abu Dhabi, with the other 50 per cent held by a group of leading western banks such as the Bank of America, Barclays Bank of Great Britain, and the Dresdner of West Germany.

The melding of these two large, nationwide, essentially-retail-oriented, and consistently profitable securities firms is perhaps the most dramatic example yet of the aftermath of the unfixing of brokerage commission rates 2 1/2 years ago and in advance of the completion of a nation market system for the trading of securities.

Ironically, the increasingly keen competition for both the individual and institutional investors brokerage dollars is the reason given for the merger wave that many think will reduce the ranks of brokers to about 10 nationwide firms and a handful of regionals.

Today's merger announcement was one of the best kept secrets in a long time on Wall Street, with the investment community's rebountable grapevine not picking up any advance inklings that something was brewing.

It culminated negotiations that began only a month ago when Reynolds Securities chairman Robert M. Gardiner approached the Dean Witter Organization about a possible merger, with talks proceeding quickly.

Under the proposed terms, the outstanding Dean Witter common stock will be converted into six-tenths of a common share of the resulting company.

Besides the merger of the two parent holding companies, Dean Witter and Co. and Reynolds securities Inc, the two broker-dealer subsidiaries, will be combined under the name of Dean Witter Reynolds Inc.

Because Dean Witter had offices mainly concentrated n the west and Reynolds in the east, officers of the two firms said a merger will keep the branch office system of each basically intact since there is little overlap.

[Reynolds Securities operates one of the largest retail brokerage and investment businesses in the Washington area, with offices at 1785 K St. NW, 1701 N. Ft. Myer St. in Arlington, 1 Bankers Square in Alexandria and 4421 Willard Ave. in Chevy Chase, all under the supervision of southeast division vice president Melvin O. Wright. president Leslie J. Silverstone.]

[Dean Witter has one area office, at 1776 K St. NW, managed by vice Wright and Silverstone said any decision on combining area operations would not be made until the proposed merger is completed.]

As the merger is arranged, Dean Witter is acquiring Reynolds securities, with officers from the San Francisco-based brokerage firm which was founded in 1924 and long held closely by the Witter family, essentially in control.

William M. Witter, now chairman of the board and chief executive officer of Dean Witter organization Inc. will hold the same position in Dean Witter Reynolds Organization Inc. Robert M. Gardiner of Reynolds will be vice chairman of the parent holding company and vice chairman and chief operating officer of the broker-dealer subsidiary. Robert M. Swinarton, vice chairman of Dean Witter Orgnization, will hold the same position in the new holding company.

Andrew J. Melton Jr. will be chairman of the board and chief executive officer of the new broker dealer subsidiary and president of that holding company. Melton was just named chairman and chief executive officer of Dean Witter and Co.

Dean Witter, for its fiscal year ending Aug. 31, reported earnings of $12.6 million on revenues of $239.5 million. Reynolds had earnings of $8.8 million for the year ending Dec. 31, 1976, on revenues of [WORD ILLEGIBLE] lion, and earned $2.7 million for the six months ending June 30, 1977, on revenues of $743 million.

Dean Witter's net worth as of Aug. 31 was $103.4 million, and Reynolds' net worth on June 30 was $62.8 million. Witter has 146 brokerage offices with 2,200 account executives in 39 states and Reynolds has 84 U.S. offices with 1,350 account executives.

Even after combination, the new firm would fall short of Merrill Lynch, the industry leader, which in 1976 reported income of $106.6 million on $1.12 billion in revenues. Capitalization of Merrill Lynch at the end of 1976 was $632 million.

The benefits of the merger, as outlined by officials at a news conference, were not so much cost savings as an increase in the investment products ithat the combined firm can offer to clients and a boost in capitalization to allow it to be more aggressive in securities market-making.

Despite the compatibility of the two firms, they differ on one key issue confronting the industry - whether the Securities and Exchange Commission should order and end a New York Stock Exchange rule that prohibits member firms from trading away from the exchange floor.

The NYSE opposes lifting so-called Rule 390 until a national securities market is in place, claiming that a series of fragmented dealer markets could develop. And Gardiner, a member of the NYSE board, has supported that position.

Dean Witter, which has indicated it might begin making its own markets in about 50 high-volume Big Board issues should the off-board trading rules be removed, is one of the few firms in the industry advocating their outright elimination.

The two firms tried to paper over their differences today.