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According to page 18 of the Lancer Core Book First Edition PDF, under "LL0" (emphasis mine):

LL0 characters start with the following:

  • A background, which provides bonuses on skill checks (p. 20).
  • Four +2 pilot triggers (p. 25).
  • One +2 mech skill or two +1 mech skills.
  • Three rank 1 talents (p. 90).
  • A license for all General Massive Systems (GMS) gear and weapons, and one mech FRAME - the GMS-SP1 Everest (p. 118).

However, you can also reallocate these talents upon level up, as described later on the same page under the "Reallocating Points" header (emphasis mine):

Every time your pilot’s LL increases, you also have the option to choose one:

  • Reallocate all points from one of your talents to any other talent.
  • Reallocate all points from one of your licenses to any other license.
  • Replace one core bonus with another core bonus for which your pilot qualifies.

If reallocating points from one license to another means your pilot no longer qualifies for a core bonus, you must replace that core bonus with one you now qualify for.

You also gain only 1 rank to an existing or new talent on level up. Per the "Leveling Up" header between those 2 sections (emphasis mine):

When characters complete a mission, whether they succeeded or failed, their LL increases by one and they add:

  • +2 to an existing trigger or a new trigger at +2.
  • +1 to a mech skill.
  • +1 talent rank to choose a new talent or improve an existing one.
  • +1 license rank to spend on mech talents and licenses.

Let's say my License Level 0 (LL0) character, Taro Oda, starts with 1 rank in each of the Crack Shot, Infiltrator, and Leader talents. He finishes a mission and levels up to LL1, and chooses to improve the Crack Shot talent to rank 2. However, he can also reallocate "all" 1 point from the Leader talent, for instance, removing his only rank in that talent and increasing the Crack Shot talent to rank 3. However, this would leave him with only 2 talents: Crack Shot (3 ranks), and Infiltrator (1 rank).

Obviously, there can be costs to hyper-specialization (you might be better at certain things and worse at others), but I'm primarily just wondering whether I'm missing anything.

Can you end up with less than 3 talents at LL1? Am I correctly interpreting the rules, or am I missing anything in the rules that prevents this from happening?

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This is allowed as nothing in the rules says you must always have three talents

All of the rules you have quoted are correct and there is no rules in the book that dictates that a character must always have 3 talents. In this scenario, you are combining a required stat change and an optional stat change during the same level-up; nothing says you cannot do this either.

Your character starts at LL0, with three rank 1 talents. Upon leveling up they gain +1 talent rank to spend how they want; in this case the character ends up with two rank 1 talents and one rank 2 talent. Then they are allowed to reallocate the points from one of their talents to any other; in this case the character ends up with one rank 1 talent, and one rank 3 talent.

Note that this could be done in either order and achieve the same result. You could go from three rank 1 talents, to one rank 1 talent and one rank 2 talent, and then to one rank 1 talent and one rank 3 talent just the same.

No part of the rules state that this is not allowed and the Level Chart on page 19 only shows that an LL1 character must have four total talent points, which is the case here.

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