Our small-cap portfolio employs strategies used by Chuck Royce, founder of Royce Funds and a pioneer in small-cap investing.

We based our screen on Royce's time-tested technique for identifying profitable and well-run small caps - those with market values of $250 million to $2.5 billion. We required at least 8% return on assets (net income divided by total assets) and positive free-cash flow (Royce did not comment on our screen).

We also looked for low P/E and price-to-book ratios relative to the Russell 2000 index. And we considered only small caps with share prices below $35, as they are less likely to be covered by Wall Street analysts or heavily owned by institutions, giving regular investors a leg up.

Our small-cap choices last year posted an enviable 28% gain.

Company (Ticker symbol)	Current price	52-wk high	52-wk low	Market Cap (mill)	P/E ratio	Return on assets	Free Cash Flow
CSG Systems International (CSGS)	$18.55	$19.59	$12.27	$651.43	19.3	9%	$82 million
K-Swiss (KSWS)	$9.35	$13.49	$6.44	$328.47	13.9	19%	$62 million
Navigant Consulting (NCI)	$14.46	$20.40	$10.59	$723.00	20.4	9%	$56 million
Park Electrochemical (PKE)	$24.88	$27.31	$13.41	$511.06	16.4	9%	$6 million
Penn Virginia Resource (PVR)	$19.06	$19.80	$9.10	$987.29	19.0	10%	$31 million
Plexus (PLXS)	$29.08	$28.72	$10.48	$1,150.35	13.4	10%	$71 million
Current price, 52-week high/low and market cap as of Dec 04 16:00 P/E based on earnings for the last 12 months. Earnings growth based on analyst projections for the next five years, according to Baseline.