It was not the sort of thing regular readers of The New York Times expect to see. At the top of yesterday's front page, a two-column headline announced "A Correction: Times Was in Error On North's Secret Fund Testimony. Colonel, at Hearings, Has Not Said That President Was to Be Kept in the Dark About the Project."

A sizable article explained that a Saturday Times story incorrectly reported that Lt. Col. Oliver North had said the late William Casey had not intended to inform President Reagan about a secret fund to underwrite intelligence operations. The fund's existence had been revealed Friday by North during the Iran-contra hearings.

The size and prominence of the correction, which like the original article carried the byline of veteran Times reporter Fox Butterfield, was virtually unprecedented for any news organization. The Times usually runs its corrections on Page 3, and yesterday readers of the corrections column there were directed to the front-page story.

"It does jump out at you," said Wall Street Journal Washington Bureau Chief Al Hunt.

The elaborate correction was the subject of much conversation and some consternation at The Times, both in New York and at its Washington bureau.

"I think some of my staff was surprised by the prominence it had on Page 1," said Washington Bureau Chief Craig Whitney, "but the reason for that was the desire to be forthcoming and open to our readers. If that causes morale problems in my staff, it shouldn't and I hope with time I can remedy that."

The correction said that the Saturday article "went beyond Colonel North's actual words and stated incorrectly that he had testified that neither the President nor Congress were to be informed about the secret fund.

"In fact, the colonel has given no testimony so far that Mr. Casey intended to keep the existence of the fund secret from the President. On this point he has been asked only whether Mr. Reagan or others knew about the fund."

North did say in testimony that he and Casey "never discussed whether the entity to be financed initially with profits from the Iran arms deal would require Presidential approval of its operations or be subject to Congressional oversight."

The article explained, "The Times discovered its error in reviewing transcripts of Friday's testimony. No members of the Iran-contra investigative committees or their legal staffs complained that the article went further than the colonel's testimony."

Butterfield was on the Hill covering the hearings yesterday and could not be reached for comment. Allan M. Siegal, a Times assistant managing editor designated by Executive Editor Max Frankel to answer inquiries about the correction, said the mistake occurred because "we misremembered a part of the hearing."

Times Foreign Editor Joseph Lelyveld, whose department has been handling the hearing stories, said he noticed Friday evening that the assertion about Casey's intentions was not supported in the story by North's testimony. Lelyveld said he asked that this problem be addressed before the article ran. He left the office for the day without seeing the inserts he had requested, Siegal explained, "and somehow there was a slip of communications, a failure of communications, within The Times and we never got quotes to back that up. Somehow, bells never went off which should have alerted us that we couldn't find backup for that."

When Lelyveld saw the first edition of the paper late Friday night, he realized no support for the statement had been added.

"We had been told that we were essentially correct," said Lelyveld, "so my complaint at midnight was that it hadn't been supported."

But Saturday, editors studied the hearing transcript and, after the deadline for the Sunday paper had passed, decided that a correction would have to be made. Lelyveld suggested a small front-page box directing readers to a story inside the paper, but Frankel, Managing Editor Arthur Gelb and others felt that would not be enough.

"We always say to our staff that errors should be corrected as prominently as they're made," said Siegal, who has responsibility for corrections. "We don't often get put to a test this extreme -- thank heaven -- but in this case, the error occurred in the lead story of the paper in the second paragraph and in two of the three lines of the headline -- and this paper runs few headlines of that size."

Lelyveld said the correction was "a stunning thing in a certain way. When I saw it -- and I knew it was running -- I was still stunned by it. But after I went through it all, and the second thoughts about it, I felt proud of how we handled it.

"Nobody's shocked by the mistake. We regret the mistake very much, but we all make mistakes. And we all had a piece in that mistake. In a way, it was a mistake of nuance or overinterpretation, but nonetheless, we misled our readers and had a responsibility to get them back on track."