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The Daemon Hunter book says that the Holocaust psychic power is "used in the Daemonhunter's Assault phase, at an effective initiative of 1." Does this mean that the power can be used if the the Inquisitor (or whoever) is
1) in close combat or out of close combat
2) the power may only be used when the Inquisitor is engaged in close combat
The rule just says "in the assault phase", not "in an assault".
There are no restrictions at all, you can do this every assault phase regardless if you are in close combat or not.