Appendix 2

Annual Investment Strategy

1. This proposed Annual Investment Strategy has been prepared in accordance with guidance issued under section 15(1)(a) of the Local Government 2003.

2. When investing its surplus funds, the County Council's policy is to continue to treat security and liquidity as paramount. Accordingly, only `specified investments' will be used in 2007/08. These categories of investment are defined in the Government's guidance as offering both high security and liquidity.

3. In particular, the Council's surplus funds will either be invested in:

· fixed-term deposits for periods of up to 364 days with local authorities, the Government's Debt Management Office, or banks and building societies rated at least A2 by Moody's (a Government-recognised credit rating agency) that are included on the Council's lending list.

· call deposits with the Bank of Scotland (rated AA2).

· call deposits in three managed AAA-rated money market funds included on the Council's lending list.

4. The `call deposits' may be recalled by the County Council at any time. The Council's cashflow position will be monitored on a daily basis and adjustments made as necessary to the funds placed on call.

5. The Council's lending list includes the major clearing banks, six UK building societies, two highly rated European banks, the Government's Debt Management Office, and all UK local authorities.

6. The lending list is reviewed monthly using Moody's ratings. Institutions will be removed immediately from the list if any doubt is cast on their credit worthiness, pending confirmation of the position by Moody's.

7. Limits are placed on levels of total deposits made with individual institutions.

8. An overall review of the lending list, including the money market funds, and the investment limits is undertaken annually.

9. Changes to the lending list and the limits on investments will be subject to the approval of the County Treasurer.

10. Other, or `non-specified', investments will not be used.

11. Treasury management staff operate within detailed parameters set out in an internal code of practice, which takes account of the Code of Practice on Treasury Management and other guidance issued by the Chartered Institute of Public Finance and Accountancy. They are fully trained before participating in investment work.