1

When an Investigator is Defeated the player chooses a new investigator at the end of the Mythos Phase.

If the Otherworldly Dreams Prelude is in play

After resolving setup, if Hypnos is the Ancient One, each Investigator loses 1 Health and 1 Sanity and gains 1 Focus. Then, each investigator may spend 1 Health and 1 Sanity to gain 1 Clue.

Is the new investigator affected by this?

What about Preludes that say "Before step", like Call of Cthulhu

Before step 9 of setup ("Resolve Starting Effects), each investigator moves to the nearest Sea space and loses 1 Sanity. If Cthulhu is the Ancient One, each investigator places 1 Eldritch token on the nearest Sea space that does not contain an Eldritch Token

If Cthulhu is not the Ancient One, set aside 1 Deep One Monster and spawn the Cthylla Epic Monster on space 3.

Then, each investigator may spend 1 Sanity to gain 1 Clue.

What about Epidemic, how much of that would be resolved?

After resolving setup, if Abhoth is the Ancient One, each Investigator spawns 1 Cultist Monster on a Wilderness space that does not contain a Cultist Monster.

If Abhoth is not the Ancient One, the Lead Investigator spawn the Child of Abhoth Epic Monster on the nearest Wilderness space.

Then, each Investigator gains 1 Illness Condition and 1 Clue.

2

I don't think the Prelude cards would apply. The Prelude cards specified timing is either Setup or After Setup and drawing a new investigator is during gameplay.

When playing with this expansion, players draw one random Prelude card before setting up the game. These cards alter game setup and make each game feel unique. The card’s effect is resolved immediately after drawing the card, unless it specifies different timing, such as “after resolving setup.”

The Setup and After Setup Prelude cards are one-time effects that alter the beginning of the game. During gameplay, when you would draw a new investigator, is after both of these timings.

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