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The font could be corrupted. Replace it with a different version of the same font, or another font.
The TNR font works fine in all other applications (Quark, Word) with small caps in a line with no spacing problems. If I change the TNR small caps PLUS the character or space following the small caps to another Times font, then the spacing appears to correct itself. Would that still be a corrupt font?
Does the font have REAL small caps or it is being faked?
If it's being faked, there's a million fonts out there and many of them
have real small caps. You should consider using one.
Real small caps from an OpenType font.
^Right.^ If there isn't some reason you're forced to use TNR, there are many good reasons to avoid it.