I would give them the assignment. If they are confused, read them the sample completed assignment in the teacher's manual one time only and then stand back and let them see what they do on their own. (Trust me, they won't copy the TE sample, but it will help them see the direction the author wants them to take.) The only adjustment I would make to the assignment for three kids would be to let them choose their own animals (dog/frog, hawk/chipmunk, shark/fish) so their stories have their own flair.
Definitely do not watch them over their shoulder, just be available if they have a question or to bounce ideas off of. Editing their punctuation as you go will really frustrate them. Even professional writers know they don't need to worry about punctuation and correct spelling until the final draft. Doing both at the same time is like building a house and painting it as you go. It's way more efficient to build the house first, then paint it. The end result is better, too.
After all of your girls are done with a writing assignment, make a habit of having them read it aloud. They will naturally write better if they know they have an audience at the end.
Finally, this may be hard for you because it seems to go against common sense, but don't go through and correct their spelling and grammar right away. It's disheartening to kids. Give it at least a week. If they are resistant, let them get their proofreading practice with a program like Fix It Grammar or Easy Grammar. Eventually, the self-editing and creative writing will come together. What I did was let my son choose one story every four or five lessons and then we'd go back and polish it up, revise, proofread, and then write a final draft complete with illustrations. For what it's worth, each level of W&R adds more revision and proofreading guidance. Book 5 has a lot so far.
PS I wouldn't call rewriting the fable with different characters "copying" any more than I would call making a drawing of a bluebird by using a few reference photos or a live reference "copying." It is how artists and writers develop their skills. By using the original fable as a reference, your kids will include the characters, conflict, dialogue, resolution, and other story elements naturally. The final result will also be an interesting, complete story that is totally their own creation. It's a huge confidence booster for young writers. My son's version of the "Mouse and the Ant" turned out really well and he read it to anyone who would listen.