This paper describes the folkloristic and literary theories centered on the traditional narrative that have a bearing on the Turko-Danish Fairytale Project. These theories were incorporated into the Fairytale Project because traditional prose tales (of which the fairy tale is one of the most prominent forms) are a genre that exists in both oral and written literature in most parts of the world, and any assumptions concerning the literary fairy tale should take into account its occurrence and evaluation within the oral tradition. The fairy tale was chosen for study in the project because, synchronically and diachronically appealing to its audience and readers, it is best suited for establishing the collective versus the individual nature of reader response. The working hypothesis of the project reveals three intersecting circles, or one circle with three intersecting facets, in reader response to literature at large: universal (cross cultural), individualistic, and communal (culture specific). It also reveals a triangle, the components of which are historically related (oral literature, written literature, and the audience/readers). The paper describes how the project's hypothesis (dealing with literature at large and the traditional prose tale) was formulated. It further reveals how the theoretical coverage in the field has been insufficient, and explains how the broadly based empirical study centers on readers' response to this genre in order to illuminate the individual, communal, and universal nature of literature. (HTH)