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The report looks at the spectrum of Navy missions and determines the major applicable performance or cost parameters. The competitiveness in each parameter is examined for three types of small engines -- the reciprocating (both Otto and Diesel cycles), the rotary-combustion and the gas turbine. A discussion on the impact of military programs - ATEGG, STEP, STAGG, SCAD, HARPOON, ETE, and RPV - on the small turbine engine evolutionary cycle is provided. It is found that evolution will proceed along each of two separate lines (1) maximum performance and (2) minimum specific cost. It is determined that the gas turbine engine suffers from size effects which render the 5 lb/sec air-flow engine inferior in every parameter to the 30 lb/sec engine. The effects of scaling on the performance of the major components - compressor, turbine, combustor, bearings, seals, and controls, is examined. Techniques for cost reduction are considered. Programs for upgrading component performance and lowering fabrication costs are proposed. (Author)