Chairman's Statement

EPIC’s fifth year has been a particularly successful one with the Capital Share NAV having increased by 14.28% against a benchmark return of 7.5%. The Capital Share price has also risen in line with the underlying asset value.

Income shareholders have received a total of £2,299,773 made up of four quarterly payments of 2.77265p. The portfolio continues to generate a level of income in excess of the Income Share dividend requirement and this growing income reserve offers the Manager greater flexibility to allocate assets without specific reference to yield, with any excess income over and above the Income Shareholders’entitlement benefiting Capital Shareholders at the end of the Company’s life.

In April 2006 the Company issued zero dividend preference shares which replaced borrowings at a similar cost but with less onerous covenants. The Zero was launched at a yield of 6.5% and this compares favourably with the yield requirement of about 8% demanded by investors in Zeros at the time of the flotation in 2001.

At the time of the placing the Board also recommended the contribution of the Company’s private equity investments on advice for a Limited Liability Partnership (“LLP”) interest. As the approach to private equity investment has developed over the past five years, our focus has shifted from small equity stakes in unquoted companies to complex structured transactions where EPIC has taken a significant equity position as well as providing some intermediate lending instruments including preference shares, loan stock and mezzanine. The ability of the Manager to structure and participate in larger and more complex situations has been facilitated by the growing team within EPIC Private Equity Limited. This team will be managing the investments within the LLP and under the incentive scheme outlined in the Shareholder Circular dated 4 April 2006. We are looking forward to the coming year with confidence asthe private equity portfolio matures.

The Fund has again benefited from an outstanding UK equity performance with a return of 29% which compares with the FTSE All Share return of 17.3%. In addition EPIC’s Specialist Fund portfolio contributed a very satisfactory return over the year. Taken together this has resulted in another year of significant out-performance of the Fund’s benchmark return of 7.5% and, once again, moves the long-term track record closer to the long term performance objective of Libor + 3% per annum.

Over the latter part of the year the Managers built up a significant cash position primarily through sales of UK equities and a small amount of excess capital raised through the placing of Zeros. Given the relatively high level of equity markets it is anticipated that much of this cash will be invested in private equity deals and further specialist fund opportunities.

Finally, the investment advisor (“EPIC Investment Partners”), has had a busy year addressing its largest shareholder’s objective to decrease its shareholding and this may lead to an opportunity for EPIC to realise its investment. In the current environment it is however unlikely that this will have an appreciable effect on the NAV.