For most of this century, children and adults alike have been touched by the sentimental story of Raggedy Ann, America's most famous rag doll, who is now about to hit the stage. It seems that Johnny Gruelle, the artist and illustrator who created her near the turn of the century, had a little girl who was dying, and he made up stories about her rag doll to entertain her as she lay in pain. It was that piece of information that seduced playwright William Gibson and became the germ of his new musical "Raggedy Ann, the Musical Adventure." Licensing agents for Raggedy Ann books and products have used the dying daughter story for well over half a century in their promotion material, and it has been printed as fact in numerous publications.

Unfortunately, it's not quite true.

Gruelle did have a daughter, Marcella, who died in 1916 of mysterious complications from a smallpox vaccination. But she was 14 then and long past being interested in fairy stories.

Johnny Gruelle had patented his doll -- who did not look much like Raggedy Ann and did not bear that name -- the year before, although his first book and dolls did not appear on the market until 1918. The first appearance of the creature we think of as Raggedy Ann had come earlier, in 1910, but only in the background of a drawing of another Gruelle character, Mr. Twee Deedle.

"History is one level of truth and art is another," said Gibson sagely, on hearing that the dying Marcella story was less than factual. Gruelle, who struggled to support his wife and daughter as well as his sister and brother, his parents and his in-laws, might agree. He got himself into trouble by creating another legend in a prefatory letter to the first book of "Raggedy Ann Stories." Marcella's doll, he wrote, "was the same Raggedy Ann with which my mother played as a child." Of course, the first Raggedy Ann had been made in connection with the first book, sewn probably by Gruelle's sister Prudence. It was not, as he wrote, found by Marcella in a barrel in her grandmother's attic.

But an entrepreneurial woman named Molly Goldman decided to take him at his word. If the doll was that old, she reasoned, it must be in the public domain, so she began manufacturing Raggedy Ann dolls herself in 1934 without Gruelle's permission. The ensuing lawsuit took four years to resolve. Gruelle won it, but died within weeks of the settlement. "It really broke his health as well as his finances," said Jonathan Green, a 27-year-old New Yorker who has made a career of collecting Raggedy dolls and knowing everything about them.

So the dear old doll, and her dear old brother Andy, have seen a lot in their 70-odd years. Her owners have changed from family companies to conglomerates, her clothes have been different shades of blue and green, with and without flowers, and her hair has gone from brown to orange to red. She was art deco'd in the '30s and miniskirted in the '60s, and her heart has gone from candy to cardboard to painted on. And now she is backstage in the dressing room being prepped for the '80s: for the musical, which opened here last night, and for at least one if not two television shows. We may even be talking series here. Three new lines of "updated" and more "relevant" books are in the works, to be marketed in supermarkets and department stores and toy stores, not to mention the "activity books," the video cassettes, the ceramic figurines, the Halloween costumes, the nightgowns, the toys.

And of course, the inevitable, the true canonization: the Raggedy Ann theme park, technically called the Old Indiana Fun Park, but built around a Raggedy motif, which recently opened in Indianapolis.

" . . . she has been nibbled by mice, who have made nests out of the soft cotton with which she has been stuffed . . . ," wrote Gruelle in that prefatory letter. "What adventures you have had, Raggedy! What joy and happiness you have brought into the world! And no matter what treatment you have received, how patient you have been!"

John B. Gruelle was the kind of guy "who'd give you the shirt off his back," said doll expert Green. Gruelle's son Worth, now 74, remembers him always struggling to support all those relatives. His first big break came in 1910, when he won a contest sponsored by the New York Tribune. As a result, he was published in the Sunday pages, a popular cartoon series called "Mr. Twee Deedle." He moved his family from Indiana to Connecticut, and earned a living drawing for newspapers, both the Sunday specials and more routine work illustrating sports and news stories. He also had a regular full-page cartoon called "Yap's Crossing" in a magazine called "Judge."

His first book was "Quacky Doodles and Danny Daddles," followed soon by "My Very Own Fairy Stories." Raggedy Ann and Andy came next, one after the other, and were an instant success. "This was right after World War I," said Green. "It was a confused period in history, going from a primarily rural agrarian society to the automobile, women smoking . . . The most popular song then was 'How You Gonna Keep 'em Down on the Farm After They've Seen Paree.' " Raggedy Ann, he said, "represented security during the change."

Green maintains that Gruelle was ahead of his time in creating an early, if primitive, merchandising bandwagon, arranging with the seamstresses of Norwalk, Conn., to produce Raggedy Ann dolls even before the book was published. Worth Gruelle says it was the publisher who demanded dolls, and Gruelle scurried around to come up with one, modeled on the standard homemade rag doll then familiar in most nurseries. The first dolls sold for $2.50; if you can find them now they can run as high as $750.

The first "adventures" were pretty simple. Raggedy Ann gets washed and put through the wringer, Raggedy Ann gets dropped off a kite, Raggedy Ann falls in a bucket of paint. In later books the plots become more complicated, with magic a strong element. Ann and Andy rescue children, find secret castles, get captured by pirates. They live in a playhouse made out of an old packing crate, and only come alive when their mistress, Marcella, is asleep.

The stories always had a moral, usually dealing with unselfishness or kindness, and Raggedy Ann was always loving and cheerful -- her heart, made of candy, was always sweet, and her painted-on smile shined forever.

"And you and everyone else can print the same magic words, I LOVE YOU, upon your hearts if you wish," Raggedy Ann said. "And when you do, then you too, will feel just as if a great rainbow of happiness was shining inside you and you will want to help others just as I do."

-- From Raggedy Ann in the Snow White Castle

The pictures were filled with little creatures like trolls, fairies and squirrels, and the characters had names like Snoopwiggy, Grinny Bear and Hokus the Magician. Some editions carry, on the back page, a copy of the Gruelle Ideal:

" . . . that books for children should contain nothing to cause fright, suggest fear, glorify mischief, excuse malice or condone cruelty. That is why they are called Books Good for Children."

One large difference between them and children's books today, however, is the amount of print. Evidently children then could handle more text than today's TV generations.

"Beloved Belindy," the dolls' black Mammy, appeared in 1927 and was a popular character until 1965, when modern sensibilities retired her. She is, said Green, a prized trophy in some folk art collections.

Gruelle himself wrote and illustrated 16 books. After his death in 1938, his brother Justin and son Worth took over for a while and produced about 29 more. the rights passed from the P.F. Volland Co. to the Johnny Gruelle Co. to Bobbs-Merrill, which was bought by ITT Corp. and then sold to the conglomerate MacMillan Inc. Other illustrators came along in the '40s and '50s, and the doll manufacturers, too, changed and altered things.

About the heart: Worth Gruelle remembers the first dolls having actual candy hearts, which were then licked or melted off and eventually replaced by the cardboard hearts sewn into the stuffing. Green says he's looked at hundreds of dolls, and has never seen any evidence of a licked-off heart, and maintains that the cardboard hearts were the originals. The idea of painted-on hearts came from the copyright flaunter, Molly Goldman, he said, and after that case was settled the legitimate manufacturer, Georgine Novelties, added the I LOVE YOU. In 1982, the Knickerbocker Toy Co. sold the rights to Has-bro, maker of G.I. Joe. At the time $4 million worth of Anns and Andys was being sold every year. Another company, Applause, makes the "fancy ones" with embroidered faces, and several lawyers are kept busy tracking down a host of illegitimate knock-offs.

Worth Gruelle went on to become a builder and real estate salesman in Florida, and his brother Richard opened a restaurant in North Carolina. Worth is now semiretired and divides his time between Florida and North Carolina, where he lives in a house filled with Raggedy Anns and Andys. His daughter Joni makes Raggedy Ann greeting cards; his son Kim runs the Johnny Gruelle Raggedy Ann store in Cashiers, N.C.

The family has not become rich off Raggedy Ann and her enterprises, they say. For one thing, the original contracts are still in effect, drawn before creative people had agents to boost their rates. Legal fees have consumed a considerable portion, and the conglomerates that own the rights make most of the money. But they have a large quantity of dolls.

The musical had its genesis 12 years ago as a television special that never happened. Composer Joe Raposo, best known for his music for "Sesame Street," then sold his idea for an animated show to ITT Corp., which made a movie called "Raggedy Ann and Andy" that included four songs.

"It was the most fun thing," said Raposo. "20th Century Fox was ecstatic. It was going to be the kids movie of the season. It opened on Sunday, May 7th, 1977, and on Wednesday a movie opened called 'Star Wars.' The rest is history. Somewhere in a vault in California are 750 prints of 'Raggedy Ann' . . . "

But, true to the circuitous paths of show business, all was not lost. A few years later Raposo joined the board of the Empire State Institute for the Performing Arts, a state-affiliated regional theater in Albany, N.Y. At the instigation of its producing director, Patricia Snyder, he wrote a musical called "Rag Dolly," which they produced.

"It simply didn't work," Raposo said.

Enter Bill Gibson, author of "The Miracle Worker," "Two for the Seesaw," and "Butterfingers Angel," his only other work for children as well as adults. Gibson was intrigued by the dying Marcella legend, and this kernel produced a plot that sounds as far from Gruelle's trolls and fairies as a pinafore from a miniskirt.

"This Marcella has a father who's a drunk," said Gibson, 71. "She lives with her father because her mother has run away with someone else. She is sick, and if she sleeps maybe she'll get better. While she sleeps the dolls come to life and conspire with her to outwit death."

A character called "General D." (for doom) is the figure of death, and "an intimation of the thermo-nuclear age in which we live," he said. And this Raggedy Ann is "much brighter" than the storybook character, "she's a zippy, street-kid kind of character." Through the dream sequences, in which the dolls come to life, Marcella confronts "the personal griefs in her life," with the doll's help.

Of course, Gibson said, all this is there for the adults to see if they want; it is not, as far as he's concerned, "really serious writing . . . It's really the Marx Brothers among the tombstones," he said. "The style is for children, the content is for me." There is scary stuff in the second act, which prompted a few complaints from parents -- not children -- in Albany, Gibson said.

"The intellectual cowardice of the American middle class is beyond belief," he added a little truculently. "They didn't want her father to be a drunk, or the parents to be divorced, even though these are things that kids have to deal with all the time." But the complaints never amounted to anything, he said: "Moral fervor lasts about as long as sexual passion."

Raposo, 48, said he was reinvigorated by Gibson's concept, although virtually all of his original songs had to be tossed out and he faced the daunting prospect of writing the show for the third time. "Bill's work is multilevel and it pushed me into places I didn't think were there, things about being a parent, being divorced, being sick . . . " (Raposo has two college age sons from his first marriage and a 10-year-old and a 6-year-old from his second. Gibson has two sons in their thirties "and no grandchildren yet.")

Both Raposo and Gibson found the original stories too bland, too simple for a modern musical. "They're not exactly 'Le Recherche du Temps Perdu,' " said Raposo.

But "Rag Dolly" might have ended its life in Albany if international affairs hadn't intervened. Through Snyder's efforts, it became the first ambassador in the cultural exchange thaw that began late last year between the United States and Soviet Union, playing to full houses at the Moscow Music Theater. (Giving rise to its current advertising campaign: "The musical that melted the Russian winter . . . ")

Kennedy Center director Roger Stevens had seen the show in Albany, and plans were made to transfer it from the Soviet Union to the big time. Only two cast members from Albany remain, and Pat Snyder is no longer the producer. Barring disaster here, the show is Broadway bound, capitalized at a comparatively reasonable $2.6 million.

The title was changed, at Stevens' instigation, from "Rag Dolly" to "Raggedy Ann," backed up by market research that showed the former name elicited mainly "huh?" from potential ticket buyers, while the name of the doll produced sentimental warmth and recognition.

Raposo does not deny that the prospect of producing another "Annie" (in which Kennedy Center productions also had a hand) is not far from everyone's mind. Toward that end, the producers are mindful of trying to appeal to both adults and children, and have carefully directed their ads to both. The show speaks to "how sophisticated children can be, how innocent adults can be," they say, and "everyone under 18" -- not "kids" -- can get in half-price during August.

bat10 But whether or not Raggedy Ann and Andy make it on Broadway, they are preparing to go up against the titans of children's merchandising very soon. Although the dolls themselves have always been steady sellers, they have been small potatoes in a world of Cabbage Patch, Voltron and Strawberry Shortcake products.

"We want to update the books to make them more relevant to today's market," said Jonathan Close, the licensing executive for International Management Group, which handles Raggedy rights for MacMillan. "We want to ensure the market is properly covered, and to ensure a consistency of approach, to ensure quality, and sustain their life in merchandising."

To that end all licensees, whether producing Christmas decorations, clothes or lunch boxes, will have to follow a "basic art work bible," that has refined Ann and Andy to a science. The art work bible includes measurements to scale, a color key, and "characteristic poses."

"Because the Raggedys -- especially Raggedy Ann -- represent love, friendship, trust and dependability, graphic elements that enhance this image are acceptable," reads one handout. "Such elements include hearts, rainbows, flowers, and lovable creatures. Colors can be bold but not garish."

The products will be largely "girl-oriented" Close said, because there is such a "strong cute element" inherent in the Raggedys.

One "continuity" campaign is planned. That means a series of books sold in supermarkets, "like those sets of china where you buy a plate every week," explained a publishing executive who requested anonymity. Random House will be producing a series of "picture books" by next spring, five different types, with initial printings of at least 50,000 each. Another series of "activity" books will be published by another, as yet unnamed, company. The network television special will be on early next year, promised Close, and a "prime children's time" series is being discussed.

"I think there is a revulsion for things plastic and temporal going on," said the publishing executive. "All these six-month licenses for things like My Little Pony that are gone in a few months. Parents want to return to something constant, that they knew, whose qualities are real."

A costly "facsimile" edition of the old books, which are no longer in print, may also be licensed, Close said. But those would be books for collectors.

"You wouldn't want to give them to a kid," said the publishing executive.