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I think the rules are clear: "Harm" reduction for long range attacks is done by reducing the actual damage done. For each square over 2 squares (in normal circumstances), reduce the damage by one.
It that right? I was expecting the rule to change the number of dice - one less attack die or one more defense die, etc, because dice rolls are important to the game. But the wording seems clear that it is damage points, not number of dice, that change.
You are correct. You reduce damage, not dice when your range goes past 2.