When a company listed on the London Stock Exchange makes a public issue of shares or rights, the issue may be underwritten. The underwriter, for a commission, agrees to purchase a proportion of any unsold shares at the offer price – the underwriter accepts the risk of a fall in the market during the offer period. The underwriter often lays off the risk by inviting large pension funds, and other similar large investors, to enter into sub-underwriting agreements; the fund receives a commission for so doing.The appellant pension funds (the British Telecom Pension Scheme, also known as ‚Äö√Ñ√≤Hermes’; the Post Office Staff Superannuation Scheme; and the Post Office Pension Scheme) sub-underwrote public issues made by various companies. In every case, the fund already had a significant investment in the company concerned. In cases where the pension fund was obliged to honour its sub-underwriting commitment, it usually retained the stock or rights so acquired.Section 592(3) ICTA 1988 exempts from tax the underwriting commission income received by an exempt approved scheme where that income is Schedule D Case VI income. Trading income (i.e. Schedule D Case I income) received by such a pension fund is not, however, exempt from tax. Section 686(2)(c) ICTA 1988 provides that income from investments, deposits or other property held for the purposes of certain classes of pension scheme is not subject to the additional rate of tax applicable to discretionary trusts.Held: The Special Commissioners were incorrect in holding that the sub-underwriting activities of the pension funds did not constitute trading. The only conclusion (on this question of fact and degree) which the Special Commissioners could have reached if properly directed in law was that the pension funds in respect of their sub-underwriting activity were trading. The sub-underwriting commission income was accordingly taxable under Schedule D Case I and was not exempt under s.592(3) ICTA 1988.Section 686(2)(c) ICTA 1988 exempts only the fruits of ownership of trust property held for the designated purposes; it does not exempt the fruits of activities carried on by trustees. Accordingly, pension fund trading income is not exempted from the additional rate of tax applicable to trusts.Michael Flesch KC and Felicity Cullen appeared for the pension fund trustees