The Kennedy Center and the National Symphony Orchestra yesterday announced an agreement to merge administrative functions, eliminate duplications and save the two organizations more than $1 million in annual operating expenses.

NSO Executive Director Stephen Klein described the status of the orchestra in relation to the Kennedy Center under the new agreement as "something like that of a medical school as part of a university." Many details of the affiliation -- the "nuts and bolts," according to Klein -- are still to be worked out.

The orchestra's marketing, sales, fund raising and accounting will be integrated into the Kennedy Center's administrative operations. Its assets and liabilities will be transferred to the Kennedy Center, which will be entitled to NSO revenues and responsible for NSO expenses. Those assets will include endowment receipts and pledges totaling approximately $15 million, which will become part of a combined endowment.

The estimated savings are projected on the basis of a study by Arthur Andersen & Co. Staff reductions were not discussed in yesterday's announcement, but Klein did say that "down the line, there will be staff changes. We will try to find the best people for each role."

* Roger Stevens, chairman of the Kennedy Center, and Virginia Mars, president of the NSO, said the affiliation is intended to "strengthen" both organizations.

Stevens said the arrangement would make the NSO "a very important part of the national cultural center" and that the affiliation was motivated partly by the fact that the orchestra was "having a hard time getting along financially . We wanted to help in any way we can."

The arrangement has been approved by the NSO board and approval by the Kennedy Center board is expected at its next regular meeting in August.

The orchestra's artistic policies, repertoire and performance schedules will remain the responsibility of the NSO board of directors and the music director, who will continue to be appointed by the board as in the past, Stevens said.

The NSO's budget will be subject to the approval of a joint operating committee of NSO and Kennedy Center trustees, but within the limits of that budget, the NSO board will have freedom in the hiring of the orchestra's artistic personnel. The structure of the board and its system for recruiting new members will remain unchanged.

Benefits to the orchestra, besides a substantial reduction of expenses, are expected to include more extensive opportunities to tour, make recordings and get more exposure on radio and television. As part of its affiliation with the national performing arts center, the orchestra is expected to participate more actively in the center's educational programs and to increase its attention to American composers and soloists.