EVERYWHERE A theatergoer looks these days, the line between the nonprofit theater and the commercial theater is getting blurrier. Soon, perhaps, there will be no line at all -- only a blur.

This summer, the nonprofit Folger Theatre Group, which made its reputation doing Shakespeare plays in a tiny Elizabethan-style auditorium, will be co-producing a musical, "Charlie and Algernon," on Broadway. Meanwhile, the nonprofit Arena Stage, doyen of Washington theatrical institutions, has been luring such Broadway producers as Mike Nichols and Jule Styne to its openings. One Arena production ("Teibele and Her Demon") has already opened and closed on Broadway this year; another ("Billy Bishop Goes to War") is on the way; and a third ("Plenty," which opens here Wednesday) is being ballyhooed as a contender.

Many theater companies created to fill particular needs in particular places are no longer willing to be called "alternative" or "regional" or any of the other adjectives that limit their ambitions. New plays draw attention, so nonprofit theaters all over the country are scouring their in-boxes for promising manuscripts, and offering authors the chance to see their plays produced in return for a share of any future profits elsewhere.

Such arrangements certainly seem more just than what befell Arena Stage 12 years ago, when nonprofit theaters stood naively at the dawn of a new age. Arena's Zelda Fichandler spent a year working with an unknown playwright named Howard Sackler on an unknown play called "The Great White Hope," and the theater lost $50,000 producing the play to national acclaim. Then producer Herman Levin took the whole package -- including director Edwin Sherin and a majority of the Arena cast -- to Broadway. Arena got nothing in return, and was bitter about it. Few theaters are likely to make that mistake again.

But as nonprofit institutions have become more protective of their interests, some have subtly redefined those interests in the process.

Neil Simon's latest play, "I Oughta Be In Pictures" (which opened Thursday night in New York), began life, uncharacteristically, at Los Angeles's Mark Taper Forum, a resident theater similar in scale and orientation to Arena Stage. Gordon Davidson, the Taper's artistic director, apparently had hoped to develop a long-term working relationship with Simon.

"There is imagination and adventure still to be unlocked in this writer," Davidson declared. What he seems to have unlocked instead is the old Pandora's box. "The Taper was built for sterner and more delicate tasks than trying out shows," wrote critic Dan Sullivan of the Los Angeles Times after "I Ought To Be In Pictures" opened.

"Forgive me if my play is to 'commercial,'" Simon replied in a letter to the Times, adding that he took "great exception" to being told "what theaters I should play or not play." But the bottom line in his letter was the news that he had turned down the Taper's offer to produce two more Simon plays-in-progress, agreeing that perhaps Sullivan was right and "the Mark Taper Forum should not house 'commercial' theater."

That was almost, but not quite, the last of this affair. A few weeks later, Emanuel Azenberg, Simon's Broadway producer, announced that "Pictures'" star, Tony Curtis, would be replaced by Ron Liebman. Liebman began rehearsing with the company during the daytime while Curtis continued to perform at night. And one night, Curtis and co-star Dinah Manoff abruptly disappeared during intermission. A company spokesman announced to a flabbergaster audience that Curtis and Manoff had come down with "Montezuma's revenge." Their understudies would handle the second act.

That incident demolished the Taper's pretense that "Pictures" was something other than pre-Broadway tryout. Whatever happened to Curtis and Manoff, it is hard to imagine its happening during a routine resident theater production.

Buffalo's Studio Arena Theatre encountered criticism from an even more vital source -- the New York State Council on the Arts, which doles out money to nonprofit theaters. Under outgoing executive producer Neal Du Brock, the Studio Arena became known as a place to see Broadway-bound productions. The musical "Platinum," starring Alexis Smith, played there before it came to the Kennedy Center (when Studio Arena sold its interst in the show for $25,000). Du Brock would let Broadway producers bring in shows if they would underwrite any production costs beyond the theater's usual figure and if they would give the theater a cut of future profits. But when he made such a deal with producer Richard Barr to do Edward Albee's "The Lady From Dubuque," the arts council stepped in and threatened to slash the theater's annual grant.

"We will not fund commercial projects," the arts council's Robert Marks explains. "It's up to us to define wht a 'commercial project' is," he says, but the major factors are "co-mingling of funds" and who retains "artistic control." Unfortunately for Studio Arena, producer Barr had told the council that he, not Du Brock, was making the decisions. "The Lady From Dubuque" was dropped from the Buffalo agenda.

"You can't prove [who has] artistic control," says Peter Zeisler, co-founder of Minnesota's Guthrie Theatre and now the director of the Theatre Communications Group, an association of 170 nonprofit professional theaters. The TCG has lobbied against formal rules in this area. To Zeisler, the only question here that should concern a government agency is whether public funds are enriching individuals rather than institutions. But while he doesn't think the larger questions can be codified, he agrees there are larger questions. theater, says Zeisler. "I don't believe in comingling."

"We watch this very closely," says Arthur Ballet, director of the National Endowment for the Arts' theater program. "You can't tell people not to make money," he says, but he will tell nonprofit theaters not to do business with commercial producers who want a "cheap out-of-town tryout." In such cases, the production is usually a "totally external package" that "practically screams out at you."

The Actors' Theatre of Louisville's annual Festival of New American Plays attracts scores of commercial producers, show business agents and movie company executives. But producing-director Jon Jory says, "We flat out won't do" Broadway tryouts. What the Actors' Theatre will do, and has done at every opportunity, is seek wider financial and artistic glory for the institution and for the writers, actors and directors who work there. "Writer visibility is no small problem in this country, with the publishing business having gone to hell," says Jory. "There are a lot of people who will pay writers to do things, and we mustn't be too hard on them," he says.

We mustn't be too hard, either, Jory feels, on a theater that feels lonely and ignored and tries to do something about it. "I don't care what anyone says: an American theater not sitting in a major urban center suffers from tremendous insularity," he says. "We just plain get lonely, folks."

Washington is not so lonely a place as Louisville, but Arena State is preparing to borrow a lesson or two from the Actors' Theatre. Next year Arena plans a month-long "carousel of new American plays" that could well attract its own colony of hovering producers and agents.

"Our policy is that anything we here, we have to have complete control," says David Chambers, who has been guiding Arena through founder Zelda Fichandler's two-year sabbatical.

Arena has had an ongoing financial interest recently in "Loose Ends," "Teibele and Her Demon" and "The 1940s Radio Hour," but "they really didn't make us much money," Chambers says. "Unless you do a 'Chorus Line' or something, the returns are minimal." But way of confirmation, a TCG survey recently established that the average member theater makes only $3,000 a year from ancillary rights to plays in which it holds an interest.

Even so, Ballet says the NEA has "flagged" this year's Arena productions of "Teibele" and "Billy Bishop" and plans to ask questions about the theater's relationship to the commercial producers involved in both shows. Just a routine inquiry, he says.

Joseph Papp's New York Shakespeare Festival has lived off the profits of "A Chorus Line" for nearly five years now. (Ballet saw "Chorus Line" when it was just a workshop production and says, "It was the farthest thing in the world from being commercial. Joe's motivation was certainly not one of making money.")

"A Chorus Line" was a spectacularly isolated case. Other theaters have spun off productions to Broadway and elsewhere with the more modest goal, ironically, of enhancing their attractiveness to government agencies like the NEA itself. The formula is: National attention leads to NEA funding, and NEA funding, while it accounts for only about five percent of non-box-office income in most cases helps establish the credibility a theater needs to solicit money from corporations and foundations.

So nonprofit theaters are tempted to think commercially in order to curry favor with the very same government agency that is monitoring them for signs of excessive commercialism.

Tom Fichandler, Arena's executive producer, objects to the whole fund-chasing game and, like other nonprofit-theater operators, wants steadier and heftier government funding (which, in fact, Arena hopes to secure when it is designated a historic site). National corporationis, he says, are constantly telling him they would rather give to the Kennedy Center because they get "more bang for their buck." With such intense competition, and with the absence, in Washington, of large local corporations (and their attendant foundations), a national reputation becomes a matter of survival.

That's the way Louis Scheeder, the Folger's producer, sees it too. His main mission, he says continues to be mounting first-class professional productions in the Folger's 214-seat home -- but that's a mission Scheeder thinks it will be easier to fulfill if the Folger branches out. Scheeder directed "Charlie and Algernon" and will stage it again when it returns to the Terrace Theatre in August on its way to Broadway, so he can't help being excited. But he has worries, too. One Shakespeare-oriented subscriber wrote him that the musical was "drivel." The Folger costume shop is badly overworked these days, with more productions going at once than ever before. Loyal people inside and outside his organization, Scheeder fears, may think they are being forgotten in the march to Broadway.

One of these days, the Internal Revenue Service will stick its nose into the question of where nonprofit theater ends and commercial theater begins. In a verbal and legal battle over control of the National Theatre, the Nederlander Group, the country's second-largest theater chain, has accused the Shubert Organization, the largest foundation to nurture productions for Shubert theaters. And in another irony, the National, which is suddenly worth fighting for only because of a hotel-and-office complex the Quandrangle and Marriott corporations plan to build around it, is under the control of a nonprofit corporation created five years ago to save the theater from abandonment and possible demolition.

One who questions this situation is Roger L. Stevens, chairman of the Kennedy Center, who was largely responsible for creating the nonprofit National Theatre corporation in the first place. The Kennedy Center itself, of course, has always been a confusion of capitalism and socialism, with worldwide profits from such shows as "Annie" and "Pippin" being funneled back to support money-losing offerings like "Death and the King's Horseman" and the American College Theatre Festival.

The unabashedly commercial theater has its financial problems, too, and Sen. Daniel P. Moynihan (D-N.Y.) has moved to address them with a proposed tax credit for theatrical investors. Clearly, this is an issue that winds on and on and will never end unless, someday, we simply abandon the pretense that there is a verifiable difference between profit and nonprofit groups. In the meantime, those on both sides of the blurry line will continue to watch their step.