UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

811-23247

(Investment Company Act File Number)

XAI Octagon Floating Rate & Alternative Income Term Trust

(Exact Name of Registrant as Specified in Charter)

321 North Clark Street, Suite 2430

Chicago, IL 60654

(Address of Principal Executive Offices)

Benjamin D. McCulloch, Esq.

XA Investments LLC

321 North Clark Street, Suite 2430

Chicago, IL 60654

(Name and Address of Agent for Service)

(312) 374-6930

(Registrant’s Telephone Number)

Date of Fiscal Year End: September 30

Date of Reporting Period: September 30, 2022

Item 1. Reports to Stockholders.

(a)

TABLE OF CONTENTS

Shareholder Letter	1
Questions & Answers	2
Trust Portfolio Information	9
Schedule of Investments	11
Statement of Assets and Liabilities	27
Statement of Operations	28
Statements of Changes In Net Assets Applicable to Common Shareholders	29
Statement of Cash Flows	30
Financial Highlights	31
Notes to Financial Statements	33
Report of Independent Registered Public Accounting Firm	46
Certain Changes Occurring During the Prior Fiscal Year	47
Fees and Expenses	48
Market and Net Asset Value Information	49
Investment Objective and Policies	50
Risks	62
Use of Leverage	84
Limited Term and Eligible Tender Offer	87
Dividend Reinvestment Plan	88
Net Asset Value	89
Management of the Trust	91
Additional Information	97
Approval of Advisory Agreements	100

XAI Octagon Floating Rate & Alternative Income Term Trust	Shareholder Letter
	September 30, 2022 (Unaudited)

Dear Shareholder:

We thank you for your investment in the XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”). This report covers the twelve months ended September 30, 2022 (the “Period”). During the Period, we observed the Russian invasion of Ukraine, continued elevated global inflation, the impact of additional COVID-19 variants, and partial re-openings of economies at all levels. The Consumer Price Index (year over year) started the Period at 5.4% and ended the period at 8.2%.¹ The U.S. Federal Reserve raised interest rates four times during the Period for a total increase of 2.25% basis points, with two additional rate hikes of 0.75% in both October and November 2022 for an additional 1.50%. These dynamics are important to consider as the Trust is primarily invested in floating-rate securities including loans, CLO debt and CLO equity.

Despite overall market volatility and the inflationary environment, the loan market performed relatively well compared to other asset classes. Loans started off 2022 on a strong note as demand for floating rate assets, in which the Trust invests, increased. As economic pressures mounted through the course of the Period, loan prices declined with a dampening growth outlook that weighed on investor sentiment.

The macroeconomic pressures affecting the loan market have similarly impacted the CLO market, which experienced macro-induced volatility and shifting technical dynamics. After a generally positive Q4 2021, CLO debt and CLO equity performance in 2022 has been mixed. Despite this, the pace of new CLO formation has been stable and secondary trading of CLOs has remained elevated. Notwithstanding some economic headwinds, we believe recent dislocations in the CLO market present attractive opportunities and the Trust continues to rely on a fundamental, bottom-up investment process.

For the Period, the S&P 500 Index, the Bloomberg Barclays U.S. High Yield 1% Issuer Capped Index and the Trust’s benchmark, the Morningstar LSTA US Leveraged Loan 100 Index, generated total returns of -16.76%, -14.11%, and -3.92%,² respectively.

The Trust’s net asset value (“NAV”) decreased during the Period by 21.98% from $8.19 per common share to $6.39 per common share as of September 30, 2022, largely reflecting mark-to-market valuation decreases for the Trust’s investments in CLO equity and price declines in the loan market.

During the Period, the Trust declared monthly distributions totaling an aggregated $0.876 per common share. The monthly distribution of $0.073 per common share declared on September 1, 2022 represented an annualized distribution rate of 14.75% based on the Trust’s closing market price of $5.94 per common share on September 30, 2022.

The closing market trading price per common share of $5.94 on September 30, 2022 represented a -7.04% discount to NAV of $6.39 per common share. During the Period, however, the Trust’s common shares traded on average at a 7.89% premium to NAV. From the Trust’s IPO on September 27, 2017 through September 30, 2022, the Trust’s common shares have traded on average at a 3.52% premium to NAV.

We continue to seek operational scale by increasing the Trust’s common assets. During the Period, the Trust issued an additional 6,980,788 common shares pursuant to an “at-the-market” offering program, resulting in $60,407,246 of net proceeds to the Trust and incremental expense efficiencies for shareholders. In addition to the at-the-market program, the Trust sold in a registered direct placement 1,450,000 common shares for gross proceeds of $10,005,000. Concurrent with the registered direct placement, the Trust sold 400,000 shares of its 6.00% Series 2029 Convertible Preferred Shares, liquidation preference $25.00 per share, with an aggregation liquidation preference of $10,000,000.

We appreciate your investment and look forward to serving your investment needs in the future. For the most up-to-date information on your investment, please visit the Trust’s website at www.xainvestments.com/XFLT.

Sincerely,

Kimberly Flynn

Managing Director

XA Investments LLC

1 U.S. Bureau of Labor Statistics, 12-month percentage change, Consumer Price Index, all items, not seasonally adjusted.

2 Source: Bloomberg

Annual Report | September 30, 2022 1

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

XA Investments LLC (“XAI”) serves as the investment adviser to the Trust. Octagon Credit Investors, LLC (“Octagon”) serves as the Trust’s investment sub-adviser and is responsible for the management of the Trust’s portfolio of investments.

Gretchen M. Lam, Senior Portfolio Manager at Octagon and a member of Octagon’s Investment Committee serves as lead portfolio manager of XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”). Ms. Lam is supported by a team of Octagon investment professionals in the day-to-day management of the Trust’s portfolio, including the following members of Octagon’s Investment Committee: Andrew D. Gordon (Octagon’s co-founder and Chief Executive Officer), Michael B. Nechamkin (Chief Investment Officer and Senior Portfolio Manager), Lauren B. Law (Portfolio Manager), and Sean M. Gleason (Portfolio Manager). In addition, Maegan Gallagher (Head of Trading and Capital Markets) is a member of the Octagon Investment Committee.

What is the Trust’s investment objective and how is it pursued?

The Trust’s investment objective is to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle. The Trust seeks to achieve its investment objective by investing in a dynamically managed portfolio of opportunities primarily within the private credit markets. Under normal market conditions, the Trust will invest at least 80% of its Managed Assets in floating-rate credit instruments and other structured credit investments. “Managed Assets” means the total assets of the Trust, including assets attributable to the Trust’s use of leverage, minus the sum of its accrued liabilities (other than liabilities incurred for the purpose of creating leverage).

The Trust’s investments may include (i) structured credit investments, including collateralized loan obligation (“CLO”) debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments.

Leveraged loans are debt obligations (also commonly referred to as “senior loans” or “floating-rate loans”) issued by a bank to a corporation that generally holds legal claim to the borrower’s assets above all other debt obligations. Leveraged loans and CLO debt securities have historically used the one-month LIBOR as an interest rate benchmark, which is currently being phased out. “LIBOR” stands for London Interbank Offered Rate and is the benchmark rate that most of the world’s leading banks charge each other for short-term loans. On July 29, 2021, the Alternative Reference Rates Committee, a group of private market participants formed by the Federal Reserve Board and New York Fed, formally recommended CME Group’s forward-looking Term Standard Overnight Financing Rate (“SOFR”) as the replacement rate for LIBOR. New instruments are now being issued with an alternative rate – typically SOFR - and all existing instruments tied to LIBOR are required to transition to a new reference rate by June 30, 2023. Replacement of LIBOR could adversely affect the market value or liquidity of CLO securities and/or loans, and pose tangential risk for markets and assets that do not rely directly on LIBOR. There is uncertainty with respect to replacement of LIBOR with proposed alternative reference rates, and it is possible that different markets might adopt different rates, resulting in multiple rates at the same time and a potential mismatch between CLO securities and underlying collateral, the effects of which are uncertain at this time, and could include increased volatility or illiquidity. In addition, operational and technology challenges during the transition from LIBOR as well as inconsistent communication from issuers could result in delayed investment analyses and reduced investment opportunities.

CLOs are a type of structured credit vehicle that typically invest in a diverse portfolio of broadly syndicated leveraged loans. CLOs finance this pool of loans with a capital structure that consists of debt and equity. CLO debt includes senior and mezzanine debt (collectively, “liabilities”) of a CLO structure with tranches rated from AAA down to BB or B. Interest earned from the underlying loan collateral pool of a CLO is used to pay the coupon interest on the CLO liabilities. CLO debt investors earn returns based on spreads above 3-month LIBOR. CLO equity represents a residual stake in the CLO structure and is the first loss position in the event of defaults and credit losses. CLO equity investors receive the excess spread between the CLO assets and liabilities and expenses. CLO equity is junior in priority of payment and is subject to certain payment restrictions generally set forth in an indenture governing the notes.

The Trust pursues its investment objective by investing primarily in below investment grade credit instruments that are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal. The Trust may invest without limitation in credit instruments that are illiquid.

The Trust uses leverage to seek to enhance total return and income. Although leverage may create an opportunity for increased return and income for shareholders, it also results in additional risks and can magnify the effect of any losses. There is no assurance that the leverage strategy will be successful. If income and gains on securities purchased with leverage proceeds are greater than the cost of the leverage, common shareholders’ return will be greater than if leverage had not been used. Conversely, if the income or gains from the securities purchased with the proceeds of leverage are less than the cost of leverage, common shareholders’ return will be less than if leverage had not been used.

2 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

Describe the current market conditions for the leveraged loan market and Octagon’s outlook.

Leveraged loans returned -2.53% for the 12 months ended September 30, 2022 (the “Period”), as measured by the Morningstar LSTA US Leveraged Loan Index, formerly the S&P/LSTA Leveraged Loan Index (the “LSTA LLI”),¹ reflecting increasing macroeconomic headwinds as the Period progressed. The fourth quarter of 2021 was punctuated by bouts of volatility, driven by mounting concerns surrounding U.S. Federal Reserve (the “Fed”) policy and the Covid-19 Omicron variant. Still, loans posted positive performance; inclusive of a 0.75% fourth quarter return, loans returned 5.20% for the full year 2021.¹

Loans started 2022 off on a strong note as demand for floating rate assets intensified amid a sell-off in global fixed income and equities in response to the Fed’s increasingly hawkish tone, geopolitical concerns, and emerging Omicron-related impacts to growth projections. Russia’s invasion of Ukraine on February 24 precipitated severe volatility across the global markets. Commodity prices surged, primary loan and CLO issuance stalled, and heavy selling from crossover accounts (that invest in both high yield bonds and loans) dragged on secondary loan prices. After enduring a sell-off in early March, the loan market rebounded following the Fed’s March 16 rate hike announcement. Prices continued to improve in early April, before escalating volatility towards month-end erased earlier market value gains. Following several months of relative outperformance versus fixed income and equities, loans underperformed in May as the impacts of high inflation, rising rates, supply chain disruptions, and a dampening growth outlook weighed on investor sentiment and loan prices. Issuer earnings results released in May and June revealed that corporate fundamentals generally continued to improve, albeit at more modest pace compared to prior quarters. Against an uncertain macroeconomic backdrop, the decelerating pace of earnings growth began to raise concerns among market participants about the ramifications of tightening monetary policy on below investment grade borrowers. Generally, companies that missed earnings projections saw the price of their loan facilities decrease significantly, driving increased performance dispersion among borrowers and between industries. Market volatility continued throughout the third quarter of 2022; after hitting a nearly two-year low of 91.75 on July 6, the average bid price for the LSTA LLI reached a quarterly high-water mark of 95.50 on August 12 as better- than-expected corporate earnings and economic data eased investor fears and propelled risk assets upwards.¹ The rally proved to be short-lived as fears of additional Fed rate hikes to combat sticky inflation and lower third quarter earnings spurred further volatility. By third quarter-end, the average loan price had retreated to 91.92 (as of September 30, 2022).¹ Year-to-date loan performance has remained relatively stable in the face of substantial macroeconomic developments and rising credit stress, reflecting loans’ floating rate coupon and senior secured position in the capital structure. Despite gyrating prices throughout 2022, loans have meaningfully outperformed the double-digit losses sustained by other major asset classes.² Year-to-date through September 30, 2022, loans have returned -3.25%, outpacing year-to-date returns for US high yield bonds, US investment grade bonds, 10-year US Treasury bonds, and the S&P 500 Index.²

Amid persistent economic headwinds and cautious business sentiment, the pace of new loan issuance has declined sharply as 2022 has progressed. As of September 30, 2022, year-to-date new loan issuance totaled approximately $189.6 billion, a 61% decrease from $488.4 billion in new issuance over the same period in 2021.³ In our view, several factors are constraining new loan supply, including the uncertain economic outlook, banks’ reluctance to underwrite debt in the wake of losses on recent transactions, higher interest expenses, and tighter indenture terms. Still, private equity firms have considerable dry powder to deploy and will likely seek opportunities to put money to work. While we have seen few “new” LBO loans (i.e., underwritten in the second half of 2022), more recently we have seen several small incremental/add-on issuances for higher quality credits successfully clear the market. Meanwhile, discretionary refinancing deals remain scarce, though it bears noting that most borrowers have no immediate need to refinance their loan facilities. Following a refinancing wave in 2021, 77% of the outstanding facilities in the LSTA LLI mature in 2026 or later.³

Despite increasing headwinds and material CLO debt spread widening over the course of 2022, as of September 30, year-to-date new CLO issuance of roughly $105 billion is down only 17% year-over-year.³ Heavy selling from retail loan fund outflows, however, has dragged on secondary loan prices for the past several months. Following 17 consecutive months of inflows, retail loan funds (loan mutual funds and ETFs) recorded -$4.4 billion of withdrawals in May 2022, and have since reported consecutive monthly outflows through September, thereby reducing year-to-date net retail inflows to $1.9 billion as of September 30, 2022.⁴ In early October, year-to-date retail loan fund flows turned negative for the first time in 2022.⁵

Two loan issuers defaulted in the second quarter of 2022, followed by six defaults in the third quarter (there were no defaults in the first quarter).⁶ In turn, the LSTA LLI’s trailing 12-month default increased to 0.90% as of September 30, 2022.⁶ Third quarter bankruptcies were largely the culmination of previous stresses such as Covid and opioid-related litigation, we do not consider the recent uptick in default activity to be indicative of secular headwinds impacting a subset of borrowers or sector. Nevertheless, forward-looking indicators imply rising credit stress. Monthly loan downgrades have outpaced upgrades since June.⁶ As of September 30, 2022, the share of LSTA LLI constituents trading below 80 increased to 5.8%, from 1.0% as of December 31, 2021.⁶ We anticipate a heightened default environment in 2023 relative to the previous 18 months, and expect default rates to approach the long-term index average of 2.6%.⁶

Annual Report | September 30, 2022 3

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

As mentioned above, over the past two quarters investors have been quick to punish companies that reported underwhelming earnings or experienced ratings downgrades, resulting in higher performance dispersion amongst loan borrowers. Heavy retail loan fund outflows since May have further driven dispersion, as larger, more liquid loan facilities have traded off dramatically compared to smaller, less frequently traded facilities. Furthermore, the gap in trading levels between CCC rated loans and B- rated loans has widened, as has the gap between B- assets and strong B or BB credits. B rated borrowers with operating concerns or at risk of downgrade have traded poorly; in many instances, unexpected bad news reports or weak earnings results have precipitated meaningful price declines. In the current environment, we believe identifying underperformers early is crucial, as is the proactive management of such exposures to mitigate downside risk. We expect continued turbulence through year-end and into 2023 as market participants contend with more restrictive financing rates, idiosyncratic credit issues, increasing loan defaults and downgrades, and prospects for slower growth. Despite the highly uncertain macroeconomic environment and heightened fundamental risks, we believe an unusually high level of variability exists in the current loan market. At current prices, we believe the loan market offers the potential for capital gain opportunities. With yields north of 10%, we believe loan investors are generally being appropriately compensated for the assumed risk, nevertheless we will maintain our focus on capital preservation as we position the Trust’s portfolio for heightened volatility.

Describe the current market conditions for the CLO market and Octagon’s outlook.

The CLO market has been similarly impacted by macro-induced volatility and shifting technical dynamics over the Period. Following a generally positive fourth quarter of 2021, CLO debt and equity performance has been mixed in 2022. CLO debt returns turned negative in late-February 2022⁷ amid escalating macro concerns and heightened market volatility, yet floating rate CLO debt tranches broadly outpaced other corporates and securitized products across ratings categories in the first quarter.⁸ CLO debt tranches and loans traded down significantly in the second quarter, driven by imbalanced technical dynamics, the ongoing rotation trade into cheaper asset classes, and increasing risk-off sentiment. Market conditions remained turbulent in the third quarter; whereas the senior-most CLO debt tranches (AAA and AA rated) posted modestly positive quarterly returns, third quarter losses ranged from -1.10% for A rated tranches to -2.57% for B rated tranches (as measured by the J.P. Morgan CLO Index).⁷ Still, CLOs are outpacing other corporate fixed income asset classes (including high yield bonds and investment grade bonds) on a year-to-date basis as of September 30, 2022.^3,7

The pace of new CLO formation has been stable in 2022 in the face of broad pressures (macroeconomic uncertainty, widespread volatility, risk-off sentiment) and challenges specific to the asset class (wider CLO liability spreads impacting new issue CLO arbitrage, narrowing AAA buyer base, idiosyncratic CLO market dynamics). As of September 30, 2022, year-to-date new issue CLO volume of $105.4 billion represents the second-highest level through nine months of a calendar year, surpassed only by the record $130 billion issued over the same period in 2021.³ In 2022, new CLO supply has been boosted by an influx of opportunistic “print and sprint” transactions, as managers sought to take advantage of loan market dislocations. Print-and sprints are non-warehoused CLOs that issue CLO debt tranches (the “print”) before the underlying loan portfolio is ramped; the CLO manager uses the proceeds from the note issuance to expeditiously ramp the portfolio (the “sprint”) by purchasing discounted loans in the secondary market. Print-and-sprint transactions gained traction towards the end of the second quarter and represented a significant amount of new CLO issuance in the third quarter. CLO AAA spreads neared S+220 bps (SOFR plus 2.20%) in July,³ though wider liability costs were offset by the opportunity to source deeply discounted loan collateral, thus creating an attractive arbitrage opportunity. The pick-up in print-and-sprints helped drive loan prices higher in July; the period of relative market stability that followed in August and early September briefly permitted top-tier CLO managers to price AAA liabilities inside of S+200 bps, only for primary CLO AAA spreads to widen to S+208 bps (on average) by third quarter-end³ amid a dampening economic outlook and an increasingly idle CLO AAA buyer base. Given market volatility and wider liability spreads, year-to-date CLO refinancings ($4.8 billion) and reset volumes ($19.2 billion) are down 95% and 81% year-over-year, respectively, as of September 30, 2022.³

Secondary CLO trading activity has remained elevated throughout 2022. Year-to-date US CLO BWIC volume has increased 167% year-over-year to approximately $47 billion as of mid-October, with all tranches save for single-B rated liabilities experiencing a surge in secondary supply.⁹ Investment grade debt tranches (rated AAA-A) comprise 70% of total year-to-date CLO BWIC volume,⁹ as many top top-of-the-stack investors have sought to raise liquidity or rotate into assets trading at comparatively steeper discounts. Of note, secondary CLO supply increased sharply during the final week of the Period as the CLO market contended with the repercussions of the rout in UK Gilts that resulted in forced selling of structured products in both the US and EU to raise cash. Higher secondary trading volumes, coupled with broader macro volatility, have directly impacted both primary and secondary CLO spread levels. Looking ahead, we anticipate lower new CLO supply through year-end given fewer AAA buyers, light new loan issuance, and the challenging new issue CLO arbitrage. Demand from Japanese banks (historically among the largest foreign investors in US CLOs) has recently been more limited due to high currency hedging costs and the depreciating yen, and US banks largely remain sidelined in an effort to reduce risk- weighted assets. While there exists the possibility that widening CLO AAA spreads may attract other/non-traditional AAA buyers, we expect the narrower AAA buyer base may focus deal issuance towards top-tier CLO managers.

CLO fundamentals generally remained on sound footing during the Period. Despite ongoing volatility, by and large, CLO managers have actively managed collateral pools and built par over the course of 2022. In turn, US CLOs generally maintained healthy overcollateralization cushions and low exposure to CCC rated assets during the Period, though credit risk in collateral portfolios (as measured by median weighted average rating factor or WARF) has modestly increased in recent months. While median exposure to assets rated CCC/Caa remains comfortably below the typical 7.5% concentration limit,¹⁰ issuer-specific underperformance could drive an increase in rating agency downgrade activity in the near-term. As largely anticipated, the median annualized equity distribution for reinvesting US CLOs has sequentially declined over each quarter of 2022, as rising rates diminished the benefit of floors on underlying loan collateral and as the basis between base rate tenors has increased. Since the beginning of the year, a higher proportion of underlying loan assets in collateral portfolios are paying 1-month LIBOR/SOFR, while most CLO liabilities are paying 3-month LIBOR. That said, at 13.3%, the median annualized third quarter 2022 equity distribution for reinvesting US CLOs is comparable to mid-2019 levels.¹¹

4 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

Despite various challenges, we believe the CLO market presents compelling investment opportunities. Recent dislocations have presented attractive opportunities to purchase CLO mezzanine debt and equity tranches in the secondary market at meaningful discounts and robust yields. Meanwhile, primary market deals offer comparatively higher levels of debt subordination and clean portfolios—features that we consider valuable in the current environment. We expect elevated macro risks to drive periods of volatility through year-end and into 2023 that may create buying opportunities for the Trust. We anticipate continued performance dispersion across CLO managers as investors display an acute focus on credit risk, and we will continue to rely upon our fundamental, bottom-up investment process to identify mispriced assets.

How did the Trust perform for the twelve months ended September 30, 2022?

For the twelve-month period ended September 30, 2022, the Trust’s total return on market price was –22.47% and total return based on net asset value (“NAV”) was -12.63%. NAV return includes the deduction of management fees, operating expenses, and all other Trust expenses. All Trust total returns cited whether based on NAV or market price assume the reinvestment of all distributions. As of September 30, 2022, the Trust’s market price of $5.94 represented a discount of -7.04% to its NAV of $6.39. The market value of the Trust’s shares fluctuates from time to time and may be higher or lower than the Trust’s NAV. Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted.

What were the distributions over the period?

From October 1, 2021 through September 1, 2022, the Trust paid a monthly distribution of $0.073 per share. The Trust’s declared distribution payable on September 1, 2022 was consistent with the previous twelve distributions and represents annualized distribution rate of 14.75% based on the Trust’s closing market price of $5.94 per common share on September 30, 2022. The Trust’s distribution rate is not constant, and the amount of distributions, when declared by the Trust’s Board of Trustees, is subject to change based on the performance of the Trust.

The Trust intends to pay substantially all of its net investment income, if any, to common shareholders through monthly distributions and to distribute any net realized long-term capital gains to common shareholders at least annually. The Trust’s net investment income and capital gain can vary significantly over time; however, the Trust seeks to maintain stable common share monthly distributions over time. There is no assurance the Trust will pay regular monthly distributions or that it will do so at a particular rate. Distributions may be paid by the Trust from any permitted source and, from time to time, all or a portion of a distribution may be a return of capital.

Please see Note 4 of the Notes to the Financial Statements for more information on distributions for the period.

What influenced the Trust’s performance for the 12 months ended September 30, 2022?

Persistent market volatility year-to-date resulted in lower valuations across the Trust’s portfolio, which negatively impacted performance for the 12- month period ended September 30, 2022. CLO equity represented the largest detractor to performance for the 12-month period, reflecting net market value losses as CLO equity valuations decreased during the Period amid volatility in underlying loan prices. The Trust’s CLO equity segment experienced a net loss of approximately -$0.29 per share for the Period, during which the Trust’s CLO equity positions collected quarterly distribution payments totaling $40,099,038 or $1.25 per share, which were offset by market value losses of -$49,215,902 or -$1.54 per share. It bears noting that CLO equity pricing can be very volatile. By portfolio segment, the Trust’s performing loan, CLO debt, and performing high yield bond posted net losses of approximately -$0.20 per share, -$0.12 per share, and $-0.07 per share, respectively, for the Period. The Trust’s opportunistic loan and opportunistic bond holdings generated di minimis net gains for the Period.

Relevant indices for the markets in which the Trust invests include the Trust’s benchmark, the Morningstar LSTA US Leveraged Loan 100 Index (formerly the S&P/LSTA Leveraged Loan 100 Index), which returned -3.92% for the Period, Bloomberg Barclays U.S. High Yield 1% Issuer Capped Index, which returned -14.14% for the Period, and the JP Morgan BB/B CLO Debt Index, which returned -8.17% for the Period. There is no representative benchmark index for CLO equity in the marketplace.

Discuss the Trust’s secondary market performance and issuance of additional common shares.

During the twelve months ended September 30, 2022, the Trust issued 6,980,788 common shares pursuant to an “at-the-market” (“ATM”) offering program resulting in $60,407,246 of net proceeds to the Trust. The ATM program is a form of continuous offering of the Trust’s common shares. The goal of the Trust’s ATM program is to enhance secondary market liquidity for shareholders by growing the size of the Trust over time and reducing operating expenses per share. In an ATM offering, newly issued shares are sold incrementally into the secondary trading market through a placement agent at prevailing market prices, but always at or above the Trust’s NAV. The placement agent sells the common shares in the open market and the Trust receives cash proceeds from the transaction to be invested pursuant to the Trust’s investment objectives.

Annual Report | September 30, 2022 5

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

The Trust issues common shares pursuant to the ATM program only if the shares are trading at a sufficient premium such that the issuance price, less the placement fee, exceeds the Trust’s NAV per share. For the Period, the Trust’s common shares traded at an average 7.89% premium to NAV and had average daily trading volumes of 204,103 common shares. ATM program daily issuance totals depend on the common shares’ average daily trading volumes and market price’s relative premium or discount to NAV.

In addition to the ATM program, the Trust sold to certain institutional investors 1,450,000 of common shares for gross proceeds to the Trust of $10,005,000.

Discuss the Trust’s use of leverage.

The Trust uses leverage as part of its investment strategy to finance the purchase of additional securities that may provide increased income and greater appreciation potential to common shareholders than could be achieved from a portfolio that is unlevered. With the current cost of borrowing, the amount of leverage used by the Trust is expected to be accretive to income generation. The Trust currently employs leverage through the combination of a bank borrowing facility and two preferred share series outstanding. The Trust’s bank borrowing facility was amended during the Period to allow the Trust to borrow up to $175,000,000. As of September 30, 2022, the amount of outstanding borrowings under the facility was $113,150,000, which represented approximately 28.96% of the Trust’s Managed Assets (including the proceeds from borrowing). As of September 30, 2022, the Trust also had preferred shares of the 6.50% Series 2026 Preferred Shares and 6.00% Series 2029 Convertible Preferred Shares outstanding with a total liquidation preference of $39,900,000 and $10,000,000, respectively. Total leverage was $163,050,000 as of September 30, 2022, representing 41.73% of the Trust’s Managed Assets.

During the Period, the Trust sold to certain institutional investors the 400,000 outstanding 6.00% Series 2029 Convertible Preferred Shares. Such purchasers also agreed to purchase up to 800,000 additional 6.00% Series 2029 Convertible Preferred Shares, representing an aggregate liquidation preference of $20,000,000, at one or more subsequent closings on or before June 30, 2023, as determined by the Trust in its discretion.

The Trust may use leverage through (i) the issuance of senior securities representing indebtedness, including through borrowing from financial institutions or issuance of debt securities, including notes or commercial paper, (ii) the issuance of preferred shares and/or (iii) reverse repurchase agreements, securities lending, short sales or derivatives, such as swaps, futures or forward contracts, that have the effect of leverage. The Trust may utilize leverage, to the maximum extent permitted under the Investment Company Act of 1940, as amended (the “1940 Act”). Because a portion of the Trust’s assets may consist of illiquid investments, to the extent that the Trust must dispose of portfolio holdings to meet such regulatory asset coverage ratio, the Trust may be required to dispose of more liquid holdings at times or on terms that the Trust would otherwise consider undesirable, which may pose particular risks during adverse or volatile market conditions. While leverage may increase the income of the Trust in yield terms, it also amplifies the effects of changing market prices in the portfolio and can cause the Trust’s NAV to change to a greater degree than the market as a whole. This change in NAV can create volatility in Trust pricing.

Index Definitions

The Trust does not seek to track any index. Index returns are stated for illustrative purposes only, do not reflect the deduction of fees and expenses, and do not represent the performance of the Trust.

Bloomberg Barclays U.S. High Yield 1% Issuer Capped Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond markets. Securities are classified as high yield if the middle rating of the Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. Issuers are capped at 1% of the index.

J.P. Morgan CLO Debt Index represents the post-crisis J.P. Morgan Collateralized Loan Obligation Index (“CLOIE”). The CLOIE is an index that tracks the market for U.S. dollar-denominated broadly syndicated, arbitrage CLOs. The CLOIE is divided by origination (pre-versus post-crisis) and is broken out further into six original rating classes (AAA, AA, A, BBB, BB, B). The sub-index referenced herein tracks BB-rated CLO debt.

The Morningstar LSTA US Leveraged Loan 100 Index “L100” (formerly the S&P/LSTA U.S. Leveraged Loan 100 Index) is designed to measure the performance of the 100 largest facilities in the US leveraged loan market. Index constituents are market-value weighted, subject to a single loan facility weight cap of 2%. LSTA/Refinitiv Mark-to-Market Pricing is used to price each loan in the index. LSTA/ Refinitiv Mark-to-Market Pricing is based on bid/ask quotes gathered from dealers and is not based upon derived pricing models. The index uses the average bid for its market value calculation. Loan facilities included in the L100 must have a one year (at inception) minimum term, an initial minimum spread of L/S+125 bps, and a minimum size of $50mm (initially funded). It is not possible to invest directly in this index.

Risks and Other Considerations

Investing involves risk, including the possible loss of principal and fluctuation in value.

The views expressed in these Questions & Answers reflect those of the portfolio managers only through the report period as stated on the cover. These views are expressed for informational purposes only and are subject to change at any time, based on market and other conditions, and may not come to pass. These views should not be construed as research, investment advice or a recommendation of any kind regarding the Trust or any issuer or security, do not constitute a solicitation to buy or sell any security, and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific investor.

6 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

The views expressed in this report may also include forward-looking statements that involve risk and uncertainty, and there is no guarantee that any predictions will come to pass. Actual results or events may differ materially from those projected, estimated, assumed, or anticipated in any such forward looking statements. Important factors that could result in such differences, in addition to the other factors noted with such forward-looking statements, include general economic conditions such as inflation, recession, and interest rates. Neither XAI nor Octagon has any obligation to update or otherwise revise any forward-looking statements, including any revision to reflect changes in any circumstances arising after the date hereof relating to any assumptions or otherwise.

There can be no assurance that the Trust will achieve its investment objective or that any investment strategies or techniques discussed herein will be effective. The value of the Trust will fluctuate with the value of the underlying securities. Historically, closed-end funds often trade at a discount to their net asset value.

Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted.

Risk Considerations

Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Trust’s investment objective will be achieved. Closed- end fund shares may frequently trade at a discount or premium to their net asset value. CLOs often involve risks that are different from or more acute than risks associated with other types of credit instruments, and may be difficult to value or be illiquid. The value of CLOs may decrease if ratings agencies revise their ratings criteria and, as a result, lower the rating of a CLO in which the Trust has invested. Senior loans may not be fully secured by collateral, generally do not trade on exchanges, and are typically issued by unrated or below-investment grade companies, and therefore are subject to greater liquidity and credit risk. Lower credit debt securities maybe more likely to fail to make timely interest or principal payments. Leverage increases return volatility and magnifies the Trust’s potential return and its risks; there is no guarantee a trust’s leverage strategy will be successful. The Trust’s shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation.

Please see “Risks” for more information regarding the Trust’s risks and considerations.

Visit the Trust’s website (www.xainvestments.com/XFLT) for additional information regarding the Trust. The Trust regularly updates performance and certain other data and publishes material information as necessary from time to time on its website. Investors and others are advised to check the website for updates and the release of other material information about the Trust. References herein to the Trust’s website are intended to allow investors public access to information regarding the Trust and do not, and are not intended to, incorporate the Trust’s website in this report.

This material is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be, and should not be construed as, legal or tax advice and/or legal opinion. Always consult a financial, tax, and/or legal professional regarding your specific situation.

¹ Source: Pitchbook LCD (www.lcdcomps.com). Represents metrics for the Morningstar LSTA US Leveraged Loan Index (“Morningstar LSTA LLI”) as of September 30, 2022, unless otherwise noted. In conjunction with LCD, the Leveraged Syndications & Trading Association (“LSTA”) developed the Morningstar LSTA LLI, a market-value weighted index designed to measure the performance of the US leveraged loan market, the index universe comprises syndicated, senior secured, US-dollar denominated leveraged loans covered by Morningstar PitchBook/LCD, a Morningstar Company. Loan facilities included in the LLI must have a one year (at inception) minimum term, an initial minimum spread of L/S+125 bps, and a minimum size of $50mm (initially funded). Refinitiv/LPC Mark-to-Market Pricing is used to price each loan in the index. Refinitiv/LPC Mark-to-Market Pricing is based on bid/ask quotes gathered from dealers and is not based upon derived pricing models. The index uses the average bid for its market value calculation. It is not possible to invest directly in this index. Performance of loan market sub-segments represent sub-indices of the Morningstar LSTA LLI. Past performance is not a predictor of future market performance.

Annual Report | September 30, 2022 7

XAI Octagon Floating Rate & Alternative Income Term Trust	Questions & Answers
	September 30, 2022 (Unaudited)

² Source: Pitchbook LCD, “September Wrap: Leveraged loans lose 2.27%; on track for worst return since 2008” (October 3, 2022).

³ Source: Pitchbook LCD, “LCD Quarterly Review - Third Quarter 2022” (October 3, 2022).

⁴ Source: J.P. Morgan North America Credit Research, “High Yield Bond and Leveraged Loan Market Monitor” (October 3, 2022).

⁵ Source: Pitchbook LCD, “Loan funds see $1.5B outflow, pushing YTD total into the red” (October 6, 2022).

⁶ Source: Pitchbook LCD, “Loan default rate climbs to 0.90% as distressed volume increases dramatically” (October 3, 2022).

⁷ Source: J.P. Morgan Markets DataQuery. Represents the post crisis J.P. Morgan Collateralized Loan Obligation Index (“CLOIE”). The CLOIE is a benchmark to track the market for US dollar denominated broadly syndicated, arbitrage CLOs. The CLOIE is divided by origination (pre-versus post-crisis) and is broken out further into six original rating classes (AAA, AA, A, BBB, BB, B). (September 30, 2022).

⁸ Source: Barclays Credit Research, “CLOs - Attractive after the Recent Rally in Corporates” (April 8, 2022).

⁹ Source: Citi Research, “Global CLO Market Q4’2022 Outlook” (October 16, 2022).

¹⁰ Source: Barclays Credit Research, “CLO & Leveraged Loan Monthly Update – September 2022” (September 9, 2022).

¹¹ Source: Barclays Credit Research, “3Q Equity Distributions – The Tides are Turning” (August 19, 2022).

8 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Trust Portfolio Information
	September 30, 2022 (Unaudited)

Growth of a $10,000 Investment (as of September 30, 2022)

The chart above represents historical performance of a hypothetical investment of $10,000 in the Trust since inception. Past performance does not guarantee future results. Performance reflects the partial waiver of the Trust’s advisory fees and/or reimbursement of expenses for certain periods since the inception date. Without these waivers and/or reimbursements, performance would have been lower. This chart does not reflect the deduction of taxes that a shareholder would pay on Trust distributions or the redemption of Trust shares. The chart assumes that distributions from the Trust are reinvested.

Summary Performance (as of September 30, 2022)

	1 Month	3 Months	6 Months	1 Year	3 Year	5 Year	Since the Trust’s Inception (September 27, 2017)^
XAI Octagon Floating Rate & Alternative Income Term Trust - NAV	-6.07%	-0.76%	-11.00%	-12.63%	3.22%	2.01%	2.00%
XAI Octagon Floating Rate & Alternative Income Term Trust – Market Price	-13.94%	-12.11%	-25.37%	-22.47%	-2.08%	-0.16%	0.08%
Morningstar LSTA US Leveraged Loan 100 Index	-2.85%	1.29%	-4.08%	-3.92%	1.39%	2.50%	2.51%

* The Morningstar LSTA US Leveraged Loan 100 Index (Loan Syndications and Trading Association) U.S. Leveraged Loan 100 Index was the first to track the investable senior loan market. This rules-based index consists of the 100 largest loan facilities in the benchmark S&P/LSTA Leveraged Loan Index (LLI).

^ Annualized Returns.

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than performance data quoted.

Annual Report | September 30, 2022 9

XAI Octagon Floating Rate & Alternative Income Term Trust	Trust Portfolio Information
	September 30, 2022 (Unaudited)

Top Ten Portfolio Holdings (as a % of Total Investments)*

Name	Type
Carlyle US CLO, Ltd.	CLO Equity	3.18%
Rockland Park CLO, Ltd.	CLO Equity	2.59%
Regatta XVIII Funding, Ltd.	CLO Equity	2.27%
Anchorage Capital CLO 13 LLC	CLO Equity	1.98%
Elmwood CLO VII, Ltd.	CLO Equity	1.92%
Anchorage Capital CLO 19, Ltd.	CLO Equity	1.87%
Elmwood CLO II, Ltd.	CLO Equity	1.77%
Webster Park CLO, Ltd.	CLO Equity	1.73%
Recette Clo, Ltd.	CLO Equity	1.72%
Madison Park Funding XXXVII, Ltd.	CLO Equity	1.72%
Total		20.75%

* Holdings may vary and are subject to change.

Asset Allocation (as a % of Total Investments)
Senior Secured First Lien Loans	45.50%
CLO Equity	36.32%
CLO Debt	12.73%
Secured Second Lien Loans	2.53%
High Yield	2.31%
Common Stock	0.06%
Cash & Equivalents	0.56%

Total may not add up to 100% due to rounding.

Holdings may vary and are subject to change.

10 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
COLLATERALIZED LOAN OBLIGATIONS DEBT(b)(c)- 21.85%* (12.72% of Total Investments)
Anchorage Capital CLO 13 LLC, CLO 2021-13A, ER(c)	9.21%	3M US L + 6.70%	04/15/2034	$	1,500,000	$	1,343,297
Anchorage Capital CLO 16, Ltd., CLO 2021-16A, ER(c)	10.09%	3M US L + 7.35%	01/19/2035		2,000,000		1,688,641
Anchorage Capital CLO 17, Ltd., CLO 2021-17A, E(c)	9.37%	3M US L + 6.86%	07/15/2034		1,250,000		1,084,998
Anchorage Capital CLO 19, Ltd., CLO 2021-19A, F(c)	9.76%	3M US L + 7.25%	10/15/2034		1,000,000		833,542
Anchorage Capital CLO 21, Ltd., CLO 2021-21A, E(c)	10.06%	3M US L + 7.35%	10/20/2034		500,000		407,747
Anchorage Capital CLO 4-R, Ltd., CLO 2018-4RA, E(c)	8.29%	3M US L + 5.50%	01/28/2031		2,000,000		1,644,320
Anchorage Capital CLO 9, Ltd., CLO 2021-9A, ER2(c)	9.33%	3M US L + 6.82%	07/15/2032		2,000,000		1,694,268
Apidos CLO XXVII, CLO 2017-27A, D(c)	9.14%	3M US L + 6.40%	07/17/2030		375,000		313,322
Apidos CLO XXXII, CLO 2020-32A, E(c)	9.46%	3M US L + 6.75%	01/20/2033		250,000		220,552
ARES LI CLO, Ltd., CLO 2021-51A, ER(c)	9.36%	3M US L + 6.85%	07/15/2034		250,000		218,897
ARES Loan Funding III, Ltd., CLO 2022-ALF3A, E(c)	9.65%	3M SOFR + 7.58%	07/25/2035		1,000,000		884,260
Ares LV CLO, Ltd., CLO 2021-55A, ER(c)	8.86%	3M US L + 6.35%	07/15/2034		1,525,000		1,319,925
Atrium IX, CLO 2017-9A, ER(c)	9.49%	3M US L + 6.45%	05/28/2030		900,000		772,379
Atrium XIV LLC, CLO 2018-14A, E(c)	8.39%	3M US L + 5.65%	08/23/2030		500,000		428,284
Battalion CLO, Ltd., CLO 2021-21A, E(c)	8.97%	3M US L + 6.46%	07/15/2034		1,000,000		798,142
Carlyle Global Market Strategies, CLO 2022-2A, D(c)	8.55%	3M SOFR + 7.40%	04/20/2035		300,000		256,690
Carlyle US CLO 2022-5, Ltd., CLO 2022-5A, E(c)	12.01%	3M SOFR + 8.46%	10/15/2035		2,000,000		1,941,460
CIFC Funding 2015-I, Ltd., CLO 2015-1A, ERR(c)	8.76%	3M US L + 6.00%	01/22/2031		500,000		411,736
CIFC Funding 2019-III, Ltd., CLO 2021-3A, DR(c)	9.54%	3M US L + 6.80%	10/16/2034		900,000		780,873
CIFC Funding 2019-VI, Ltd., CLO 2019-6A, E(c)	10.14%	3M US L + 7.40%	01/16/2033		500,000		463,026
CIFC Funding 2022-I, Ltd., CLO 2022-1A, E(c)	8.88%	3M SOFR + 6.40%	04/17/2035		2,000,000		1,709,955
CIFC Funding 2022-III, Ltd., CLO 2022-3A, E(c)	9.04%	3M SOFR + 7.27%	04/21/2035		850,000		731,255
Elmwood CLO 18, Ltd., CLO 2022-5A, E(c)	10.28%	3M SOFR + 7.76%	07/17/2033		600,000		557,426
Elmwood CLO II, Ltd., CLO 2021-2A, DR(c)	5.71%	3M US L + 3.00%	04/20/2034		1,250,000		1,128,693
Elmwood CLO VI, Ltd., CLO 2021-3A, ER(c)	9.21%	3M US L + 6.50%	10/20/2034		750,000		643,427
Elmwood CLO XI, Ltd., CLO 2021-4A, E(c)	8.71%	3M US L + 6.00%	10/20/2034		750,000		635,999
HPS Loan Management, Ltd., CLO 2017-11A, F(c)	10.71%	3M US L + 7.85%	05/06/2030		1,000,000		793,004
Madison Park Funding XLVIII, Ltd., CLO 2021-48A, E(c)	8.99%	3M US L + 6.25%	04/19/2033		500,000		440,832
Madison Park Funding XVII, Ltd., CLO 2015-17A, FR(c)	10.21%	3M US L + 7.48%	07/21/2030		1,000,000		765,139
Madison Park Funding XXXVII, Ltd., CLO 2021-37A, ER(c)	8.66%	3M US L + 6.15%	07/15/2033		750,000		651,854
Magnetite XXIV, Ltd., CLO 2022-24A, ER(c)	8.73%	3M SOFR + 6.40%	04/15/2035		500,000		432,422
Neuberger Berman Loan Advisers CLO 24, Ltd., CLO 2017-24A, E(c)	8.76%	3M US L + 6.02%	04/19/2030		1,000,000		845,528
OHA Credit Funding 11, Ltd., CLO 2022-11A, E(c)	9.26%	3M SOFR + 7.25%	07/19/2033		550,000		487,571
OHA Credit Funding 2, Ltd., CLO 2021-2A, ER(c)	9.09%	3M US L + 6.36%	04/21/2034		1,000,000		867,507
OHA Credit Funding 5, Ltd., CLO 2020-5A, E(c)	8.99%	3M US L + 6.25%	04/18/2033		1,000,000		897,309
OHA Credit Funding 7, Ltd., CLO 2022-7A, ER(c)	8.80%	3M SOFR + 6.25%	02/24/2037		900,000		763,550
OHA Credit Funding 9, Ltd., CLO 2021-9A, E(c)	8.99%	3M US L + 6.25%	07/19/2035		1,000,000		859,245
Rad CLO 10, Ltd., CLO 2021-10A, E(c)	8.63%	3M US L + 5.85%	04/23/2034		2,000,000		1,666,957
Rad CLO 11, Ltd., CLO 2021-11A, E(c)	8.76%	3M US L + 6.25%	04/15/2034		1,300,000		1,111,062
Rad CLO 12, Ltd., CLO 2021-12A, E(c)	9.13%	3M US L + 6.35%	10/30/2034		2,000,000		1,675,791
Regata XII Funding, Ltd., CLO 2021-1A, ER(c)	8.86%	3M US L + 6.35%	10/15/2032		500,000		451,843
Regatta VII Funding, Ltd., CLO 2021-1A, ER2(c)	9.93%	3M US L + 6.40%	06/20/2034		1,000,000		837,681
Regatta VIII Funding, Ltd., CLO 2017-1A, E(c)	8.84%	3M US L + 6.10%	10/17/2030		500,000		432,251
Regatta XIV Funding, Ltd., CLO 2018-3A, E(c)	8.73%	3M US L + 5.95%	10/25/2031		750,000		607,677
Regatta XIX Funding, Ltd., CLO 2022-1A, E(c)	7.96%	3M SOFR + 6.88%	04/20/2035		500,000		447,780
Regatta XVI Funding, Ltd., CLO 2019-2A, E(c)	9.51%	3M US L + 7.00%	01/15/2033		1,000,000		882,782
Regatta XXII Funding, Ltd., CLO 2022-2A, E(c)	9.10%	3M SOFR + 7.19%	07/20/2035		1,350,000		1,164,415

See Notes to Financial Statements.
Annual Report | September 30, 2022	11

XAI Octagon Floating Rate &
Alternative Income Term Trust Schedule of Investments

September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
COLLATERALIZED LOAN OBLIGATIONS DEBT(b) (continued)
Regatta XXIII Funding, Ltd., CLO 2021-4A, E(c)	9.41%	3M US L + 6.70%	01/20/2035	$	1,250,000	$	1,057,117
Regatta XXIV Funding, Ltd., CLO 2021-5A, E(c)	9.51%	3M US L + 6.80%	01/20/2035		250,000		226,024
RR 19, Ltd., CLO 2021-19A, D(c)	9.01%	3M US L + 6.50%	10/15/2035		500,000		439,658
Sound Point CLO II, Ltd., CLO 2013-1A, B2R(c)	8.27%	3M US L + 5.50%	01/26/2031		250,000		193,187
Sound Point CLO XVIII, Ltd., CLO 2017-4A, D(c)	8.21%	3M US L + 5.50%	01/21/2031		500,000		384,266
Symphony CLO XXI, Ltd., CLO 2019-21A ER, ER(c)	9.11%	3M US L + 6.60%	07/15/2032		1,000,000		834,315
Symphony CLO XXIV, Ltd., CLO 2021-24A, E(c)	9.78%	3M US L + 7.00%	01/23/2032		1,000,000		912,212
Symphony CLO XXV, Ltd., CLO 2021-25A, E(c)	9.24%	3M US L + 6.50%	04/19/2034		1,500,000		1,293,713
THL Credit Wind River 2019-1 CLO, Ltd., CLO 2021-1A,  ER(c)	9.31%	3M US L + 6.60%	07/20/2034		875,000		729,461
THL Credit Wind River CLO, Ltd., CLO 2017-4A, E(c)	8.78%	3M US L + 5.80%	11/20/2030		500,000		419,686
THL Credit Wind River CLO, Ltd.,CLO 2021-1A, EE(c)	9.80%	3M US L + 7.06%	04/18/2036		1,500,000		1,231,313
Voya CLO 2020-2, Ltd., CLO 2021-2A, ER(c)	9.14%	3M US L + 6.40%	07/19/2034		1,125,000		967,971
Wind River 2021-3 CLO, Ltd., CLO 2021-3A, E(c)	9.31%	3M US L + 6.60%	07/20/2033		1,000,000		871,546
Total Collateralized Loan Obligations Debt (Cost $56,873,832)				$	57,800,000	$	49,555,783

COLLATERALIZED LOAN OBLIGATIONS EQUITY^(d)- 62.34%* (36.30% of Total Investments)

ALM 2020, Ltd., CLO 2020-1A, SUB(c)	N/A	Estimated yield of 0.00%	10/15/2029	5,000,000	2,381,008
Anchorage Capital CLO 13 LLC, CLO 2019-13A, SUB(c)(e)	N/A	Estimated yield of 18.42%	04/15/2034	7,000,000	4,490,619
Anchorage Capital CLO 16, Ltd., CLO 2020-16A, SUB(c)(e)	N/A	Estimated yield of 19.21%	01/19/2035	2,500,000	1,541,752
Anchorage Capital CLO 18, Ltd., CLO 2021-18A, SUB(c)(e)	N/A	Estimated yield of 21.97%	04/15/2034	850,000	578,969
Anchorage Capital CLO 19, Ltd., CLO 2021-19A, SUB(c)(e)	N/A	Estimated yield of 19.14%	10/15/2034	7,000,000	4,235,497
Anchorage Capital CLO 1-R, Ltd., CLO 2018-1RA, SUB(c)(e)	N/A	Estimated yield of 4.64%	04/13/2031	4,150,000	2,074,585
Anchorage Capital CLO 20, Ltd., CLO 2021-20A, SUB(c)(e)	N/A	Estimated yield of 18.03%	01/20/2035	1,750,000	1,169,242
Anchorage Capital CLO 3-R, Ltd., CLO 2014-3RA, SUB(c)(e)	N/A	Estimated yield of 0.00%	01/28/2031	1,400,000	580,692
Anchorage Capital CLO 4-R, Ltd., CLO 2018-4RA, SUB(c)(e)	N/A	Estimated yield of 0.00%	01/28/2031	3,000,000	1,266,180
Anchorage Capital CLO 7, Ltd., CLO 2015-7A, SUBA(c)(e)	N/A	Estimated yield of 0.00%	01/28/2031	1,750,000	563,850
Anchorage Capital CLO 9, Ltd., CLO 2016-9A, SUB(c)(e)	N/A	Estimated yield of 21.94%	07/15/2032	2,500,000	970,000
Apidos CLO XXVII, CLO 2017-27A, SUB(c)	N/A	Estimated yield of 0.00%	07/17/2030	1,300,000	418,236
Apidos CLO XXVIII, CLO 2017-28A, SUB(c)	N/A	Estimated yield of 0.00%	01/20/2031	3,500,000	1,384,600
ARES LI CLO, Ltd., CLO 2019-51A, INC(c)	N/A	Estimated yield of 21.33%	07/15/2034	1,699,959	1,010,530
ARES LI CLO, Ltd., CLO 2019-51A, SUB(c)	N/A	Estimated yield of 21.06%	07/15/2034	2,646,041	1,572,923
Ares XLI Clo, Ltd., CLO 2016-41A, SUB(c)	N/A	Estimated yield of 20.28%	04/15/2034	2,343,500	1,040,591
ARES XLIV CLO, Ltd., CLO 2017-44A, SUB(c)	N/A	Estimated yield of 20.07%	04/15/2034	2,845,572	1,005,782
Battalion Clo XV, Ltd., CLO 2020-15A, SUB(c)	N/A	Estimated yield of 20.70%	01/17/2033	4,500,000	3,169,154
Battalion Clo XVI, Ltd., CLO 2019-16A, SUB(c)	N/A	Estimated yield of 23.24%	12/19/2032	3,500,000	2,110,500
Carbone Clo, Ltd., CLO 2017-1A, SUB(c)	N/A	Estimated yield of 0.00%	01/20/2031	7,850,000	3,515,230
Carlyle Global Market Strategies CLO, Ltd., CLO 2013-1A, SUB(c)(e)	N/A	Estimated yield of 0.00%	08/14/2030	3,500,000	902,405
CARLYLE US CLO 2021-5, Ltd., CLO 2021-5A, SUB(c)(e)	N/A	Estimated yield of 18.33%	07/20/2034	4,000,000	2,741,248
CARLYLE US CLO 2021-6, Ltd., CLO 2021-6A, SUB(c)(e)	N/A	Estimated yield of 22.67%	07/15/2034	1,000,000	585,750
Carlyle US CLO, Ltd., CLO 2020-4A, SUBA(c)(e)	N/A	Estimated yield of 23.30%	04/15/2035	8,740,000	7,207,781
Carlyle US CLO, Ltd., CLO 2018-2A, SUB(c)(e)	N/A	Estimated yield of 6.97%	10/15/2031	933,000	392,700
Catamaran CLO, Ltd., CLO 2015-1A, SUB(c)	N/A	Estimated yield of 0.00%	04/22/2027	750,000	758
CIFC Funding 2017-III, Ltd., CLO 2017-3A, SUB(c)	N/A	Estimated yield of 0.00%	07/20/2030	1,400,000	547,750
CIFC Funding 2017-V, Ltd., CLO 2017-5A, SUB(c)	N/A	Estimated yield of 0.00%	11/16/2030	4,500,000	1,812,195
CIFC Funding 2018-I, Ltd., CLO 2018-1A, SUB(c)	N/A	Estimated yield of 0.59%	04/18/2031	3,250,000	1,585,350
CIFC Funding 2018-III, Ltd., CLO 2018-3A, SUB(c)	N/A	Estimated yield of 6.52%	07/18/2031	3,000,000	1,276,500
CIFC Funding 2019-III, Ltd., CLO 2019-3A, SUB(c)	N/A	Estimated yield of 20.36%	10/16/2034	750,000	525,504

See Notes to Financial Statements.

12 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust Schedule of Investments

September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
COLLATERALIZED LOAN OBLIGATIONS EQUITY(d) (continued)
CIFC Funding 2019-V, Ltd., CLO 2019-5A, INC(c)	N/A	Estimated yield of 21.97%	01/15/2035	$	2,500,000	$	1,803,293
CIFC Funding 2020-II, Ltd., CLO 2020-2A, INC(c)	N/A	Estimated yield of 31.92%	10/20/2034		1,000,000		777,513
CIFC Funding 2020-III, Ltd., CLO 2020-3A, SUB(c)	N/A	Estimated yield of 22.09%	10/20/2034		150,000		116,894
CIFC Funding 2021-II, CLO 2021-2A, SUB(c)	N/A	Estimated yield of 18.95%	04/15/2034		4,000,000		2,921,680
CIFC Funding 2021-VII, Ltd., CLO 2021-7A, SUB(c)	N/A	Estimated yield of 21.64%	01/23/2035		1,000,000		794,909
Dryden 43 Senior Loan Fund, CLO 2016-43A, SUB(c)	N/A	Estimated yield of 18.21%	04/20/2034		5,000,000		2,713,490
Dryden 87 CLO, Ltd., CLO 2021-87A, SUB(c)	N/A	Estimated yield of 18.97%	05/20/2034		2,000,000		1,542,120
Dryden 95 CLO, Ltd., CLO 2021-95A, SUB(c)	N/A	Estimated yield of 19.05%	08/20/2034		3,500,000		2,489,291
Elmwood CLO I, Ltd., CLO 2019-1A, SUB(c)	N/A	Estimated yield of 14.06%	10/20/2033		6,000,000		3,572,909
Elmwood CLO II, Ltd., CLO 2019-2A, SUB(c)	N/A	Estimated yield of 16.29%	04/20/2034		5,500,000		4,020,445
Elmwood CLO III, Ltd., CLO 2019-3A, SUB(c)	N/A	Estimated yield of 16.13%	10/20/2034		5,250,000		3,370,999
Elmwood CLO VII, Ltd., CLO 2020-4A, SUB(c)	N/A	Estimated yield of 15.32%	01/17/2034		6,350,000		4,345,070
Elmwood CLO VIII, Ltd., CLO 2021-1A, SUB(c)	N/A	Estimated yield of 16.11%	01/20/2034		5,000,000		3,496,950
Invesco CLO, Ltd., CLO 2021-2A, SUB(c)(e)	N/A	Estimated yield of 0.00%	07/15/2034		500,000		129,325
Invesco CLO, Ltd., CLO 2021-2A, SUB(c)(e)(f)	N/A	Estimated yield of 18.06%	07/15/2034		5,000,000		3,116,625
Invesco CLO, Ltd., CLO 2021-1A, SUB(c)(e)	N/A	Estimated yield of 20.63%	04/15/2034		3,000,000		2,085,423
Madison Park Funding XVIII, Ltd., CLO 2015-18A, SUB(c)	N/A	Estimated yield of 0.00%	10/21/2030		4,000,000		1,493,480
Madison Park Funding XX, Ltd., CLO 2016-20A, SUB(c)	N/A	Estimated yield of 11.48%	07/27/2030		1,740,000		669,378
Madison Park Funding XXIX, Ltd., CLO 2018-29A, SUB(c)	N/A	Estimated yield of 12.44%	10/18/2047		3,750,000		1,805,625
Madison Park Funding XXVIII, Ltd., CLO 2018-28A, SUB(c)	N/A	Estimated yield of 10.55%	07/15/2030		5,000,000		2,638,500
Madison Park Funding XXXVII, Ltd., CLO 2019-37A, SUB(c)	N/A	Estimated yield of 25.92%	07/15/2049		5,500,000		3,895,650
Niagara Park Clo, Ltd., CLO 2019-1A, SUB(c)(e)	N/A	Estimated yield of 22.99%	07/17/2032		2,648,000		1,590,918
NYACK Park CLO, Ltd., CLO 2021-1A, SUB(c)(e)	N/A	Estimated yield of 20.95%	10/20/2034		1,000,000		785,794
Oak Hill Credit Partners X-R, Ltd., CLO 2014-10RA, SUB(c)	N/A	Estimated yield of 19.81%	04/20/2034		6,673,000		2,616,377
OHA Credit Partners XI, Ltd., CLO 2015-11A, SUB(c)	N/A	Estimated yield of 16.30%	01/20/2032		2,750,000		1,376,375
OHA Credit Partners XII, Ltd., CLO 2016-12A, SUB(c)	N/A	Estimated yield of 12.17%	07/23/2030		1,500,000		737,250
Point Au Roche Park CLO, Ltd., CLO 2021-1A, SUB(c)(e)	N/A	Estimated yield of 18.07%	07/20/2034		5,000,000		3,535,560
Recette Clo, Ltd., CLO 2015-1A, SUB(c)(f)	N/A	Estimated yield of 19.78%	04/20/2034		10,400,000		3,905,616
Recette Clo, Ltd., CLO 2015-1A, SUB(c)(e)	N/A	Estimated yield of 0.10%	04/20/2034		10,400,000		45,968
Regatta XVIII Funding, Ltd., CLO 2021-1A, SUB(c)	N/A	Estimated yield of 16.03%	01/15/2034		7,175,322		5,142,438
Regatta XXIV Funding, Ltd., CLO 2021-5A, SUB(c)	N/A	Estimated yield of 16.22%	01/20/2035		5,000,000		3,337,150
Rockland Park CLO, Ltd., CLO 2021-1A, M2(c)(e)	N/A	Estimated yield of 39.95%	04/20/2034		9,000,000		108,360
Rockland Park CLO, Ltd., CLO 2021-1A, M1(c)(e)	N/A	Estimated yield of 35.10%	04/20/2034		9,000,000		33,570
Rockland Park CLO, Ltd., CLO 2021-1A, SUB(c)(e)	N/A	Estimated yield of 17.41%	04/20/2034		9,000,000		5,875,263
Sixth Street CLO XVII, Ltd., CLO 2021-17A, SUB(c)(e)	N/A	Estimated yield of 17.02%	01/20/2034		1,100,000		788,033
Sound Point CLO III, Ltd., CLO 2017-3A, SUB(c)	N/A	Estimated yield of 0.00%	10/20/2030		1,500,000		407,070
Sound Point CLO VI-R, Ltd., CLO 2014-2RA, SUB(c)(e)	N/A	Estimated yield of 0.00%	10/20/2031		2,000,000		90,000
THL Credit Wind River CLO, Ltd., CLO 2018-3A, SUB(c)(e)	N/A	Estimated yield of 19.38%	01/20/2031		3,000,000		1,753,800
THL Credit Wind River CLO, Ltd., CLO 2018-2A, SUB(c)(e)	N/A	Estimated yield of 12.25%	07/15/2030		3,031,000		1,385,167
Thompson Park CLO, Ltd., CLO 2021-1A, SUB(c)(e)	N/A	Estimated yield of 20.20%	04/15/2034		4,000,000		3,226,060
Webster Park CLO, Ltd., CLO 2016-1A, SUB(c)(e)	N/A	Estimated yield of 8.13%	07/20/2030		9,000,400		3,933,175

See Notes to Financial Statements.

Annual Report | September 30, 2022 13

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

		Reference Rate	Maturity	Principal
	Coupon(a)	& Spread	Date	Amount		Value
COLLATERALIZED LOAN OBLIGATIONS EQUITY(d) (continued)
Wind River CLO, Ltd., CLO 2016-1A, SUB(c)(e)	N/A	Estimated yield of 0.00%	07/15/2028	$	4,000,000	$	266,160
Total Collateralized Loan Obligations Equity (Cost $178,156,176)				$	281,825,794	$	141,397,554

		Reference Rate	Maturity	Principal
	Coupon(a)	& Spread	Date	Amount		Value
CORPORATE BONDS - 3.96%* (2.31% of Total Investments)
Airlines - 0.04% (0.02% of Total Investments)
Allegiant Travel Co., Senior Secured(c)	7.25%	N/A	08/15/2027		99,000		93,470
Chemicals - 0.16% (0.09% of Total Investments)
Herens Holdco Sarl, Senior Secured(c)	4.75%	N/A	05/15/2028		444,000		360,658
Diversified Telecommunication Services - 0.97% (0.57% of Total Investments)
Altice Financing SA, Senior Secured(c)	5.75%	N/A	08/15/2029		1,197,000		913,411
Altice France SA, Senior Secured(c)	5.50%	N/A	10/15/2029		667,000		504,656
Consolidated Communications, Inc., Senior Secured(c)	5.00%	N/A	10/01/2028		1,125,000		785,369
Total Diversified Telecommunication Services					2,989,000		2,203,436
Electronic Equipment, Instruments & Components - 0.05% (0.03% of Total Investments)
Coherent Corp., Senior Unsecured(c)	5.00%	N/A	12/15/2029		146,000		119,574
Health Care Equipment & Supplies - 0.28% (0.16% of Total Investments)
Medline Borrower LP, Senior Unsecured(c)	5.25%	N/A	10/01/2029		62,000		46,810
Mozart Debt Merger Sub, Inc., Senior Secured First Lien(c)	3.88%	N/A	04/01/2029		727,000		581,963
Total Health Care Equipment & Supplies					789,000		628,773
Health Care Technology - 0.49% (0.29% of Total Investments)
AthenaHealth Group, Inc., Senior Unsecured(c)	6.50%	N/A	02/15/2030		1,411,000		1,113,797
Hotels, Restaurants & Leisure - 0.78% (0.45% of Total Investments)
CEC Entertainment LLC, Senior Secured(c)	6.75%	N/A	05/01/2026		470,000		425,761
Fertitta Entertainment LLC / Fertitta Entertainment Finance Co., Inc., Senior Unsecured(c)	6.75%	N/A	01/15/2030		328,000		249,280
Hilton Grand Vacations Borrower Escrow LLC / Hilton Grand Vacations Borrower Esc, Senior Unsecured(c)	5.00%	N/A	06/01/2029		529,000		426,771
Scientific Games Holdings LP/Scientific Games US FinCo, Inc., Senior Unsecured(c)	6.63%	N/A	03/01/2030		205,000		163,487
SeaWorld Parks & Entertainment, Inc., Senior Unsecured(c)	5.25%	N/A	08/15/2029		600,000		499,500
Total Hotels, Restaurants & Leisure					2,132,000		1,764,799
Industrial Conglomerates - 0.17% (0.10% of Total Investments)
MajorDrive Holdings IV LLC, Senior Unsecured(c)	6.38%	N/A	06/01/2029		545,000		382,794
IT Services - 0.08% (0.04% of Total Investments)
Avaya, Inc., Senior Secured(c)	6.13%	N/A	09/15/2028		345,000		171,235

See Notes to Financial Statements.
14	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
CORPORATE BONDS (continued)
Media - 0.04% (0.03% of Total Investments)
Audacy Capital Corp., Senior Secured(c)	6.75%	N/A	03/31/2029	$	390,000	$	96,525
Oil, Gas & Consumable Fuels ‐ 0.09% (0.06% of Total Investments)
EnLink Midstream LLC, Senior Unsecured(c)	6.50%	N/A	09/01/2030		219,000		212,739
Professional Services - 0.41% (0.24% of Total Investments)
Conduent Business Services LLC / Conduent State & Local Solutions, Inc., Senior Secured(c)	6.00%	N/A	11/01/2029		1,176,000		936,696
Software - 0.40% (0.23% of Total Investments)
Condor Merger Sub, Inc., Senior Unsecured(c)	7.38%	N/A	02/15/2030		1,102,000		902,362
Total Corporate Bonds (Cost $11,744,215)				$	11,787,000	$	8,986,858

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SECURED SECOND LIEN LOANS(b) - 4.34%* (2.53% of Total Investments)
Aerospace & Defense - 0.83% (0.48% of Total Investments)
Amentum Government Services Holdings LLC, TL	10.86%	3M SOFR + 7.50%	02/15/2030		2,016,807		1,835,294
New Constellis Borrower LLC, Series B	14.12%	3M US L + 11.00%	03/27/2025		107,755		52,868
Total Aerospace & Defense					2,124,562		1,888,162
Air Freight & Logistics - 0.25% (0.15% of Total Investments)
LaserShip, Inc., Initial	10.38%	3M US L + 7.50%	05/07/2029		745,852		566,848
Building Products - 0.26% (0.15% of Total Investments)
Diversitech Holdings, INC. TL	10.42%	3M US L + 6.75%	12/21/2029		468,750		433,594
Visual Comfort Group, Inc. (fka VC GB Holdings, Inc.)(aka Visual Comfort Generation Brands), Initial 2nd Lien Term Loan	9.63%	3M US L + 6.75%	07/23/2029		169,492		145,551
Total Building Products					638,242		579,145
Chemicals - 0.10% (0.06% of Total Investments)
CP Iris Holdco I, Inc., Initial	10.12%	1M US L + 7.00%	10/01/2029		258,621		232,759
Commercial Services & Supplies - 0.29% (0.17% of Total Investments)
AVSC Holding Corp., Initial	10.06%	3M US L + 7.25%	09/01/2025		805,556		649,817
Communications Equipment - 0.13% (0.08% of Total Investments)
Global Tel*Link Corp., 2nd Lien	12.73%	3M SOFR + 10.00%	11/29/2026		347,222		298,611
Construction & Engineering - 0.12% (0.07% of Total Investments)
DG Investment Intermediate Holdings 2, Inc., 2nd Lien	9.87%	1M US L + 6.75%	03/30/2029		292,804		271,333
Diversified Consumer Services - 0.57% (0.33% of Total Investments)
KUEHG Corp.	11.37%	1M US L + 8.25%	08/22/2025		800,000		775,200
Travelport Finance Luxembourg Sarl, 2021 Consented	8.67%	3M US L + 6.75%	05/29/2026		581,389		404,356
TruGreen LP, Initial	11.62%	1M US L + 8.50%	11/02/2028		125,392		110,345
Total Diversified Consumer Services					1,506,781		1,289,901

See Notes to Financial Statements.
Annual Report | September 30, 2022	15

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

		Reference Rate	Maturity	Principal
	Coupon(a)	& Spread	Date	Amount		Value
SECURED SECOND LIEN LOANS(b) (continued) Diversified Financial Services - 0.34% (0.20% of Total Investments)
Edelman Financial Center LLC, Initial	9.87%	1M US L + 6.75%	07/20/2026	$	626,984	$	551,746
Nexus Buyer LLC, TL	9.37%	1M US L + 6.25%	11/05/2029		245,536		231,214
Total Diversified Financial Services					872,520		782,960
Electronic Equipment, Instruments & Components - 0.03% (0.02% of Total Investments)
Infinite Bidco LLC, Initial	10.67%	3M US L + 7.00%	03/02/2029		69,869		65,619
Health Care Providers & Services - 0.06% (0.03% of Total Investments)
Verscend Holding Corp., Initial	10.12%	3M US L + 7.00%	04/02/2029		135,802		131,728
Insurance - 0.37% (0.21% of Total Investments)
Asurion LLC, New B-4	8.37%	1M US L + 5.25%	01/20/2029		1,104,603		839,498
Professional Services - 0.07% (0.04% of Total Investments)
National Intergovernmental Purchasing Alliance Co.	11.25%	3M US L + 7.50%	05/26/2026		169,482		166,093
Software - 0.77% (0.45% of Total Investments)
Ascend Learning 11/21 2nd Lien TL	8.87%	1M US L + 5.75%	12/10/2029		462,963		400,755
DCert Buyer, Inc., First Amendment Refinancing	9.90%	3M US L + 7.00%	02/19/2029		156,627		145,506
EagleView Technology Corp., Term Loan 2nd Lien	11.17%	3M US L + 7.50%	08/14/2026		198,167		186,277
MH Sub I LLC, 2021 Replacement	9.28%	1M SOFR + 6.25%	02/23/2029		1,000,000		934,170
Ultimate Software 11/21 2nd Lien TL	7.54%	3M US L + 5.25%	05/03/2027		75,676		71,135
Total Software					1,893,433		1,737,843
Textiles, Apparel & Luxury Goods - 0.15% (0.09% of Total Investments)
ABG Intermediate Holdings 2, LLC TL 2L	9.13%	1M SOFR + 6.00%	12/20/2029		372,760		349,462
Total Secured Second Lien Loans (Cost $11,215,249)				$	11,338,109	$	9,849,779
SENIOR SECURED FIRST LIEN LOANS(b) - 77.70%* (45.23% of Total Investments)
Aerospace & Defense - 2.57% (1.49% of Total Investments)
Amentum Government Services Holdings LLC TLD 1L	7.39%	3M SOFR + 4.00%	02/15/2029		1,873,398		1,784,412
Constellis Holdings LLC, Priority	10.62%	3M US L + 7.50%	03/27/2024		119,765		98,207
Maxar Technologies TLB 1L	7.38%	1M SOFR + 4.25%	06/14/2029		1,682,554		1,579,498
Peraton Corp., B	6.87%	1M US L + 3.75%	02/01/2028		1,104,042		1,044,424
Vertex Aerospace 11/21	6.87%	3M US L + 3.75%	12/06/2028		1,351,969		1,311,410
Total Aerospace & Defense					6,131,728		5,817,951
Air Freight & Logistics - 0.61% (0.36% of Total Investments)
Brown Group Hldg TLB2 1L	6.78%	1M SOFR + 3.75%	07/02/2029		286,763		277,322
LaserShip, Inc., Initial	7.38%	3M US L + 4.50%	05/07/2028		1,327,802		1,114,531
Total Air Freight & Logistics					1,614,565		1,391,853
Airlines - 0.77% (0.45% of Total Investments)
United AirLines, Inc., Class B	6.53%	3M US L + 3.75%	04/21/2028		1,827,109		1,740,5 77
Auto Components - 1.75% (1.02% of Total Investments)
Dealer Tire LLC, B-1	7.37%	1M US L + 4.25%	12/12/2025		1,101,959		1,070,277

See Notes to Financial Statements.
16	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Auto Components (continued)
First Brands Group, LLC, Refinanced	8.37%	6M SOFR + 5.00%	03/30/2027	$	571,471	$	548,041
Gopher Resource, Llc Tlb	6.37%	1M US L + 3.25%	03/06/2025		493,548		405,327
IXS Holdings, Inc., Initial	7.82	3M US L + 4.25%	03/05/2027		1,623,815		1,308,519
LS Group Opco Acquisition LLC, Initial	6.58%	3M US L + 3.25%	11/02/2027		322,351		307,578
LTR Intermediate Holdings, Inc., Initial	8.17%	3M US L + 4.50%	05/05/2028		368,231		334,475
Total Auto Components					4,481,375		3,974,217
Automobiles - 0.43% (0.25% of Total Investments)
Driven Holdings LLC, TLB	3.52%	3M US L + 3.00%	12/17/2028		98,175		94,248
RVR Dealership Holdings LLC, B	6.87%	1M SOFR + 3.75%	02/08/2028		1,007,368		885,224
Total Automobiles					1,105,543		979,472
Beverages - 0.12% (0.07% of Total Investments)
Triton Water Holdings, Inc., Initial	7.17%	3M US L + 3.50%	03/31/2028		295,419		264,442
Building Products - 1.77% (1.03% of Total Investments)
Cornerstone Building Brands, Inc., Tranche B	6.07%	1M US L + 3.25%	04/12/2028		383,448		313,948
Foundation Building Materials, Inc., Initial	6.06%	3M US L + 3.25%	01/31/2028		223,910		201,183
Kodiak BP LLC, Initial	6.92%	3M US L + 3.25%	03/12/2028		188,727		172,685
LHS Borrower	7.88%	1M SOFR + 4.75%	02/16/2029		913,461		739,903
Osmosis Buyer, Ltd., Initial B	6.35%	1M SOFR + 3.75%	07/31/2028		292,168		270,805
Park River Holdings, Inc., Initial	5.53%	3M US L + 3.25%	12/28/2027		95,108		80,327
Snap One 11/21 Cov-Lite TLB	8.67%	6M US L + 4.50%	12/08/2028		758,445		688,289
Visual Comfort Group, Inc. (fka VC GB Holdings, Inc.)(aka Visual Comfort Generation Brands), Initial 1st Lien Term Loan	6.38%	3M US L + 3.50%	07/21/2028		322,240		280,552
White Cap Buyer LLC, Initial Closing Date	6.78%	1M SOFR + 3.75%	10/19/2027		218,683		204,195
Wilsonart LLC, Tranche E	6.93%	3M US L + 3.25%	12/31/2026		1,161,209		1,057,432
Total Building Products					4,557,399		4,009,319
Capital Markets - 1.13% (0.66% of Total Investments)
Citadel Securities LP TLB 1L	6.15%	1M SOFR + 3.00%	02/02/2028		1,009,712		995,828
Hudson River Trading LLC, Term Loan	6.16%	3M SOFR + 3.00%	03/20/2028		1,729,983		1,560,445
Total Capital Markets					2,739,695		2,556,273
Chemicals - 2.59% (1.51% of Total Investments)
Ascend Performance Materials Operations LLC, 2021 Refinancing	8.42%	3M US L + 4.75%	08/27/2026		681,993		666,477
CP Iris Holdco I, Inc., Initial	6.62%	1M US L + 3.50%	10/02/2028		226,749		207,005
CPC Acquisition Corp., Initial	7.42%	3M US L + 3.75%	12/29/2027		132,351		102,682
Discovery Purchaser Corporation TL 1L(g)	N/A	SOFR + 4.38%	08/04/2029		657,246		599,737
Herens Holdco S.a r.l., Facility B	7.67%	3M US L + 4.00%	07/03/2028		603,027		535,186
Hexion Holdings Corp. TL 1L	7.41%	3M SOFR + 4.50%	03/15/2029		850,455		722,036
LSF11 A5 HoldCo, LLC TLB 1L	6.65%	1M SOFR + 3.50%	10/15/2028		549,591		509,746
Lummus Technology Holdings V LLC, 2021 Refinancing B	6.62%	1M US L + 3.50%	06/30/2027		49,356		44,605
Olympus Water US Holding Corporation	7.44%	3M US L + 3.75%	11/09/2028		346,772		315,563
Olympus Water US Holding Corporation TLB	8.15%	3M SOFR + 4.50%	11/09/2028		332,580		306,702

See Notes to Financial Statements.
Annual Report | September 30, 2022	17

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Chemicals (continued)
PMHC II, Inc. TL	6.98%	3M SOFR + 4.25%	04/21/2029	$	1,446,499	$	1,161,496
Polar US Borrower LLC, Initial	7.21%	3M US L + 4.75%	10/15/2025		860,805		694,386
Total Chemicals					6,737,424		5,865,621
Commercial Services & Supplies - 2.14% (1.24% of Total Investments)
Allied Universal Holdco LLC, Initial U.S. Dollar	6.78%	1M US L + 3.75%	05/12/2028		982,054		861,262
Ankura Consulting Group LLC, Closing Date	7.65%	1M SOFR + 4.50%	03/17/2028		177,019		160,202
BRIGHTVIEW LANDSCAPES, LLC TLB1L	6.28%	1M SOFR + 3.25%	04/20/2029		1,272,334		1,219,850
Garda World Security Corporation TLB 1L	7.05%	3M SOFR + 4.25%	02/01/2029		1,299,187		1,206,074
Viad Corp, Initial	8.12%	1M US L + 5.00%	07/30/2028		1,485,000		1,400,845
Total Commercial Services & Supplies					5,215,594		4,848,233
Communications Equipment - 1.10% (0.64% of Total Investments)
Casa Systems, Inc., Initial	7.12%	1M US L + 5.00%	12/20/2023		899,574		726,406
Global Tel*Link Corp., 2018	7.06%	3M SOFR + 4.25%	11/29/2025		447,793		399,991
Gogo Intermediate Holdings LLC, Initial	6.56%	3M US L + 3.75%	04/30/2028		1,316,705		1,274,900
MLN US HoldCo LLC, B	8.25%	3M US L + 4.50%	11/30/2025		136,980		83,610
Total Communications Equipment					2,801,052		2,484,907
Construction & Engineering - 0.87% (0.51% of Total Investments)
BROOKFIELD WEC HOLDINGS INC.TL 1L	6.87%	1M SOFR + 3.75%	08/01/2025		305,631		297,464
DG Investment Intermediate Hlgds, Inc. TL 1L	7.28%	1M SOFR + 4.25%	03/31/2028		309,432		295,508
DG Investment Intermediate Holdings 2, Inc., Initial	6.87%	1M US L + 3.75%	03/31/2028		85,499		79,514
TRC Companies 11/21 TL	6.87%	1M US L + 3.75%	12/08/2028		1,392,799		1,297,629
Total Construction & Engineering					2,093,361		1,970,115
Construction Materials - 0.35% (0.21% of Total Investments)
Schweitzer-Mauduit International, Inc., B	6.88%	1M US L + 3.75%	04/20/2028		491,922		456,257
Smyrna Ready Mix Concrete, LLC TLB 1L	7.38%	1M SOFR + 4.25%	04/02/2029		361,920		344,729
Total Construction Materials					853,842		800,986
Containers & Packaging - 3.59% (2.09% of Total Investments)
Clydesdale Acquisition Holdings, Inc.	7.31%	1M SOFR + 4.18%	04/13/2029		2,556,635		2,407,865
LABL, INC. TL 1L	8.12%	1M US L + 5.00%	10/29/2028		964,590		867,378
Pactiv Evergreen Group Holdings, Inc., Tranche B-3 U.S.	6.62%	3M US L + 3.50%	09/24/2028		81,062		77,516
Pelican Products, Inc. TL	8.16%	3M US L + 4.25%	12/29/2028		487,582		443,699
Pregis TopCo LLC, Initial	6.81%	3M US L + 4.00%	07/31/2026		1,121,021		1,064,969
Pretium PKG Holdings, Inc., Initial	6.50%	3M US L + 4.00%	10/02/2028		355,310		317,292
ProAmpac PG Borrower LLC, 2020-1	6.46%	3M US L + 3.75%	11/03/2025		77,719		72,512
RLG Holdings LLC, Closing Date Initial	7.12%	1M US L + 4.00%	07/07/2028		1,660,821		1,558,398
Sabert Corp., Initial	7.63%	1M US L + 4.50%	12/10/2026		1,400,495		1,337,473
Total Containers & Packaging					8,705,235		8,147,102
Distributors - 0.62% (0.36% of Total Investments)
American Tire Distributors, Inc., TLB	9.03%	3M US L + 6.25%	10/20/2028		497,700		461,796

See Notes to Financial Statements.
18	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Distributors (continued)
BCPE Empire Holdings, Inc.
Initial	7.12%	1M US L + 4.00%	06/11/2026	$	334,629	$	319,849
TL 1L	7.76%	1M SOFR + 4.63%	06/11/2026		101,564		96,739
Ingram Micro, Inc., Initial	7.17%	3M US L + 3.50%	06/30/2028		543,354		528,412
Total Distributors					1,477,247		1,406,796
Diversified Consumer Services - 3.37% (1.96% of Total Investments)
KUEHG Corp, B-3	6.87%	1M US L + 3.75%	02/21/2025		1,973,667		1,861,010
Learning Care Group No. 2, Inc., 2020 Incremental	11.41%	3M US L + 8.50%	03/13/2025		383,133		375,470
LifeMiles, Ltd., Initial	8.32%	3M US L + 5.25%	08/30/2026		77,925		74,759
Pug LLC, B-2	7.37%	1M US L + 4.25%	02/12/2027		1,515,564		1,326,118
Sabre GLBL Inc., TLB 1L
2022 Term B Loans	7.38%	1M SOFR + 4.25%	06/30/2028		64,105		58,549
2022 Term B-2 Loans	8.23%	1M SOFR + 5.10%	06/30/2028		311,213		287,483
Sabre GLBL, Inc.
2021 Other B-1	6.62%	1M US L + 3.50%	12/17/2027		180,282		160,977
2021 Other B-2	6.62%	1M US L + 3.50%	12/17/2027		287,379		256,607
SkyMiles IP, Ltd., Initial	6.46%	3M US L + 3.75%	10/20/2027		95,123		95,197
Spin Holdco, Inc., Initial	7.14%	3M US L + 4.00%	03/04/2028		1,424,625		1,246,248
St. George's University Scholastic Services LLC (St. George's University Scholastic Services LLC), Initial Term Loans	6.37%	1M US L + 3.25%	02/10/2029		72,836		68,853
Staples, Inc., 2019 Refinancing New B-1	7.78%	3M US L + 5.00%	04/16/2026		965,303		844,235
The Knot WorldWide Inc. Tl 1L	7.63%	1M SOFR + 4.50%	12/19/2025		849,975		822,351
TruGreen LP, Second Refinancing	7.12%	1M US L + 4.00%	11/02/2027		180,533		170,152
Total Diversified Consumer Services					8,381,663		7,648,009
Diversified Financial Services - 2.22% (1.29% of Total Investments)
Edelman Financial Center LLC, Initial (2021)	6.62%	1M US L + 3.50%	04/07/2028		425,146		389,187
Galaxy US Opco Inc. TL	7.78%	1M SOFR + 4.75%	04/29/2029		770,480		722,325
HighTower Holding LLC, Initial	6.73%	3M US L + 4.00%	04/21/2028		558,902		516,637
Mercury Borrower, Inc., TL	7.19%	3M US L + 3.50%	08/02/2028		255,399		231,774
Nexus Buyer LLC, B	6.87%	1M US L + 3.75%	11/09/2026		346,963		332,436
Paysafe Holdings US Corp., Facility B1	5.87%	1M US L + 2.75%	06/28/2028		145,802		127,212
VeriFone Systems, Inc., Initial	7.00%	3M US L + 4.00%	08/20/2025		2,962,967		2,638,907
VFH Parent LLC TLB 1L	6.12%	1M SOFR + 3.00%	01/13/2029		75,641		72,308
Total Diversified Financial Services					5,541,300		5,030,786
Diversified Telecommunication Services - 4.64% (2.70% of Total Investments)
Altice Financing S.A. TL1L	5.26%	3M US L + 2.75%	01/31/2026		497,389		464,437
Altice France S.A., USD TLB-13 Incremental	6.91%	3M US L + 4.00%	08/14/2026		2,268,506		2,052,997
Altice France SA	6.20%	3M US L + 3.69%	01/31/2026		496,735		449,546
Consolidated Communications, Inc., B-1	6.63%	1M US L + 3.50%	10/02/2027		700,484		603,292
DIRECTV Financing LLC, Closing Date	8.12%	1M US L + 5.00%	08/02/2027		2,013,838		1,871,117
Intelsat Jackson Holdings S.A.	4.25%	6M SOFR + 4.25%	02/01/2029		897,565		840,345
LCPR Loan Financing LLC, 2021 Additional	6.57%	1M US L + 3.75%	10/16/2028		583,258		562,844
Sorenson Communications LLC, 2021	9.17%	3M US L + 5.50%	03/17/2026		185,879		177,167
Syniverse Holdings, Inc.TL 1L	10.55%	3M SOFR + 7.00%	05/13/2027		430,552		368,122

See Notes to Financial Statements.
Annual Report | September 30, 2022	19

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Diversified Telecommunication Services (continued)
Windstream Services II LLC, Initial	9.37%	1M US L + 6.25%	09/21/2027	$	1,437,472	$	1,293,725
Xplornet Communications, Inc. TL 1L	7.12%	1M US L + 4.00%	10/02/2028		140,275		123,056
Zacapa S.a.r.l. TL 1L	7.80%	3M SOFR + 4.25%	03/22/2029		310,867		294,677
Ziggo Financing Partnership	5.32%	1M US L + 2.50%	04/30/2028		1,500,000		1,429,500
Total Diversified Telecommunication Services					11,462,820		10,530,825
Electric Utilities - 0.16% (0.09% of Total Investments)
Generation Bridge Acquisition LLC
B	8.67%	3M US L + 5.00%	12/01/2028		361,045		355,026
C	8.67%	3M US L + 5.00%	12/01/2028		7,560		7,434
Total Electric Utilities					368,605		362,460
Electrical Equipment - 0.36% (0.21% of Total Investments)
Energy Acquisition LP
Initial	7.37%	1M US L + 4.25%	06/26/2025		713,103		656,055
Tranche B(h)	7.50%	N/A	06/26/2025		184,681		168,983
Total Electrical Equipment					897,784		825,038
Electronic Equipment, Instruments & Components - 1.14% (0.66% of Total Investments)
Infinite Bidco LLC, Initial	6.92%	3M US L + 3.25%	03/02/2028		1,243,891		1,175,477
Mavenir Systems, Inc., Initial	7.71%	3M US L + 4.75%	08/18/2028		487,539		416,846
Natel Engineering Company, Inc., Initial	10.41%	6M US L + 6.25%	04/30/2026		506,885		466,334
Triton Solar US Acquisition Co., Initial	10.16%	3M US L + 6.00%	10/29/2024		248,456		238,517
Xperi Holding Corp., Initial B	6.62%	1M US L + 3.50%	06/08/2028		289,531		279,218
Total Electronic Equipment, Instruments & Components					2,776,302		2,576,392
Energy Equipment & Services - 0.40% (0.23% of Total Investments)
Lealand Finance Company B.V.
Make-Whole	6.12%	1M US L + 3.00%	06/30/2024		8,469		5,081
Take-Back	4.12%	3M US L + 1.00%	06/30/2025		47,572		23,727
Par Petroleum LLC, Closing Date	9.18%	3M US L + 6.75%	01/12/2026		307,675		302,035
WaterBridge Midstream Operating LLC, Initial	9.13%	3M US L + 5.75%	06/22/2026		589,470		567,855
Total Energy Equipment & Services					953,186		898,698
Food & Staples Retailing - 0.36% (0.21% of Total Investments)
Rent-A-Center, Inc.	6.06%	3M US L + 3.25%	02/17/2028		894,621		809,632
Food Products - 0.67% (0.39% of Total Investments)
Chill Merger Sub, Inc.	7.17%	3M US L + 3.50%	03/20/2024		1,250,000		1,099,063
Pacific Bells LLC, Initial Term	8.31%	3M SOFR + 4.50%	11/10/2028		365,155		339,594
Whole Earth Brands, Inc., Term Loan	8.20%	3M SOFR + 4.50%	02/05/2028		99,601		92,629
Total Food Products					1,714,756		1,531,286
Health Care Equipment & Supplies - 1.43% (0.83% of Total Investments)
Bausch & Lomb Inc TL 1L	6.10%	1M SOFR + 3.25%	05/10/2027		440,628		409,096
Curium BidCo S.a r.l., Term Loan	8.00%	3M US L + 4.25%	12/02/2027		421,188		398,023
Elanco Animal Health Inc.(g)	N/A	L + 4.31%	08/01/2027		645,161		612,503

See Notes to Financial Statements.
20	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Health Care Equipment & Supplies (continued)
Medplast Holdings, Inc., Initial Term Loan (Late June/Early July)	6.87%	1M US L + 3.75%	07/02/2025	$	982,097	$	910,286
Mozart Debt Merger Sub, Inc. TLB 1L	6.37%	1M US L + 3.25%	10/23/2028		1,000,000		917,810
Total Health Care Equipment & Supplies					3,489,074		3,247,718
Health Care Providers & Services - 5.17% (3.01% of Total Investments)
Accelerated Health Systems, LLC TLB 1L	7.95%	3M SOFR + 4.25%	02/15/2029		307,383		274,340
AEA International Holdings S.a.r.l., Initial	7.44%	3M US L + 3.75%	09/07/2028		215,605		209,676
Cambrex Corp., Tranche B-2 Dollar	6.63%	1M SOFR + 3.50%	12/04/2026		248,526		237,576
Corgi Bidco, INC. TL 1L(g)	N/A	SOFR + 5.00%	09/20/2029		1,251,650		1,167,689
Curia Global, Inc., 2021	6.56%	3M US L + 3.75%	08/30/2026		152,493		141,564
Envision Healthcare Corp.
New Money First Out Term Loan	10.53%	3M SOFR + 7.88%	03/31/2027		114,899		110,016
Second Out Term Loan	6.83%	3M SOFR + 4.25%	03/31/2027		816,414		355,140
Eyecare Partners LLC
Amendment No. 1	7.42%	3M US L + 3.75%	11/15/2028		1,277,065		1,190,863
Initial	7.42%	3M US L + 3.75%	02/18/2027		572,660		518,257
Global Medical Response, Inc.
2018 New	7.37%	1M US L + 4.25%	03/14/2025		647,153		558,862
2020 Refinancing	6.81%	1M US L + 4.25%	10/02/2025		1,123,082		970,904
Heartland Dental LLC, 2021 Incremental	7.08%	1M US L + 4.00%	04/30/2025		799,631		738,859
Heartland Dental, LLC, Initial	6.62%	1M US L + 3.50%	04/30/2025		489,778		449,984
Hunter Holdco 3, Ltd., Initial Dollar	7.92%	3M US L + 4.25%	08/19/2028		474,011		446,755
Midwest Veterinary Partners LLC, Initial	7.25%	3M US L + 4.00%	04/27/2028		1,529,167		1,435,506
Parexel International Corp.	6.37%	3M US L + 3.25%	11/15/2028		484,848		461,818
Pathway Vet Alliance LLC, 2021 Replacement	7.42%	3M US L + 3.75%	03/31/2027		298,807		261,829
Radiology Partners, Inc., B	7.32%	1M US L + 4.25%	07/09/2025		705,573		589,154
Sharp MidCo, LLC TL 1L	7.67%	3M US L + 4.00%	12/31/2028		349,150		328,201
Southern Veterinary Partners LLC, Initial	7.12%	1M US L + 4.00%	10/05/2027		90,557		85,463
Summit Behavioral 11/21	7.73%	3M US L + 4.75%	11/24/2028		728,122		691,715
WCG Purchaser Corp., Initial	7.12%	3M US L + 4.00%	01/08/2027		538,284		505,088
Total Health Care Providers & Services					13,214,858		11,729,259
Health Care Technology - 3.16% (1.84% of Total Investments)
Athenahealth Group Inc. TLB 1L	6.58%	1M SOFR + 3.50%	02/15/2029		3,273,227		2,867,310
Gainwell Acquisition Corp., B	7.67%	3M US L + 4.00%	10/01/2027		1,988,587		1,890,649
MJH Healthcare Holdings, LLC L1	6.63%	1M SOFR + 3.50%	01/28/2029		230,428		216,315
TTF Holdings LLC, Initial	7.12%	1M US L + 4.00%	03/31/2028		717,439		695,916
Waystar Technologies, Inc., Initial	7.12%	1M US L + 4.00%	10/22/2026		808,631		773,253
Zelis Cost Management Buyer, Inc., B-1	6.06%	1M US L + 3.50%	09/30/2026		759,742		730,537
Total Health Care Technology					7,778,054		7,173,980
Hotels, Restaurants & Leisure - 3.52% (2.05% of Total Investments)
19th Holdings Golf	5.70%	1M SOFR + 3.00%	02/07/2029		942,497		871,810
Aimbridge Hsp Incre CL TLB	7.74%	1M US L + 4.75%	02/02/2026		247,477		220,254
Alterra Mountain Co., Series B-2	6.62%	1M US L + 3.50%	08/17/2028		526,636		509,521
Arcis 11/21 Cov-Lite TLB	7.37%	1M US L + 4.25%	11/24/2028		308,059		298,817
Carnival Corp., Initial Advance	5.88%	3M US L + 3.00%	06/30/2025		1,000,000		905,000

See Notes to Financial Statements.
Annual Report | September 30, 2022	21

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Hotels, Restaurants & Leisure (continued)
Cinemark USA, Inc., Additional	4.79%	1M US L + 1.75%	03/31/2025	$	494,711	$	464,969
Fertitta Entertainment, LLC TLB 1L	7.03%	1M SOFR + 4.00%	01/27/2029		1,585,170		1,467,931
Flutter Financing B.V. TLB 1L(g)	N/A	SOFR + 3.25%	09/16/2028		453,947		442,526
Herschend Entertainment Company LLC, Initial (2021)	6.88%	1M US L + 3.75%	08/27/2028		132,067		128,518
Hilton Grand Vacations Borrower LLC, Initial Term Loans	6.12%	1M US L + 3.00%	08/02/2028		994,975		961,086
United PF Holdings LLC
Incremental Term Loan	12.17%	3M US L + 8.50%	12/30/2026		352,800		336,924
Initial	7.67%	3M US L + 4.00%	12/30/2026		506,933		444,201
Whatabrands LLC, B	6.37%	1M US L + 3.25%	07/21/2028		997,487		920,930
Total Hotels, Restaurants & Leisure					8,542,759		7,972,487
Household Durables - 1.70% (0.99% of Total Investments)
At Home Group, Inc., Initial	6.28%	3M US L + 4.00%	07/24/2028		420,729		322,093
Conair Holdings LLC, Initial	7.42%	3M US L + 3.75%	05/17/2028		763,775		639,662
Hunter Douglas Inc. TLB 1L	6.34%	3M SOFR + 3.50%	02/26/2029		2,252,086		1,843,332
Mattress Firm, Inc., 2021	8.43%	6M US L + 4.25%	09/25/2028		616,575		538,886
Weber-Stephen Products LLC, Initial B	6.37%	1M US L + 3.25%	10/30/2027		495,393		400,183
Weber-Stephen Products LLC TLB 1L	7.38%	1M SOFR + 4.25%	10/30/2027		136,696		109,357
Total Household Durables					4,685,254		3,853,513
Household Products - 1.19% (0.69% of Total Investments)
Olaplex, Inc. TL 1L	6.39%	3M SOFR + 3.75%	02/23/2029		1,353,443		1,302,689
Sunshine Luxembourg VII Sarl, Facility B3	7.42%	3M US L + 3.75%	10/01/2026		1,496,212		1,388,575
Total Household Products					2,849,655		2,691,264
Industrial Conglomerates - 1.25% (0.73% of Total Investments)
Circor International, Inc. TLB	8.58%	3M US L + 5.00%	12/20/2028		301,945		281,564
Madison IAQ LLC, Initial	6.82%	3M US L + 3.25%	06/21/2028		498,573		459,664
Majordrive Holdings IV LLC, Initial	7.13%	3M US L + 4.00%	06/01/2028		252,838		232,610
MajorDrive Holdings IV LLC	8.60%	3M SOFR + 5.50%	06/01/2029		296,725		286,340
Redwood Star Merger Sub, Inc.	7.63%	1M SOFR + 4.50%	04/05/2029		1,358,312		1,253,043
Star US Bidco LLC, Initial	7.37%	1M US L + 4.25%	03/17/2027		343,922		324,577
Total Industrial Conglomerates					3,052,315		2,837,798
Insurance - 2.23% (1.30% of Total Investments)
Acrisure LLC
11/21 Incremental	7.37%	1M US L + 4.25%	02/15/2027		294,196		275,808
2020	6.62%	1M US L + 3.50%	02/15/2027		803,449		732,810
2021-1 Additional	6.87%	1M US L + 3.75%	02/15/2027		683,100		624,183
AssuredPartners, Inc.	6.62%	1M US L + 3.50%	02/13/2027		291,366		275,341
Asurion LLC, New B-9	6.37%	1M US L + 3.25%	07/31/2027		1,311,512		1,103,638
Asurion LLC TLB 1L	7.13%	1M SOFR + 4.00%	08/19/2028		482,826		410,199
Baldwin Risk Partners LLC	6.26%	1M US L + 3.50%	10/14/2027		420,147		400,190
OneDigital Borrower, LLC TL 1L	6.98%	3M SOFR + 4.25%	11/16/2027		1,323,053		1,230,440
Total Insurance					5,609,649		5,052,609

See Notes to Financial Statements.
22	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Internet and Catalog Retail - 0.38% (0.22% of Total Investments)
Shutterfly LLC, 2021 Refinancing B	8.67%	3M US L + 5.00%	09/25/2026	$	671,941	$	417,201
Titan Acquisition Co New Zealand Limited TL 1L	6.25%	3M US L + 4.00%	10/18/2028		465,013		438,661
Total Internet and Catalog Retail					1,136,954		855,862
IT Services - 2.40% (1.40% of Total Investments)
Avaya Holdings Corp.	12.85%	1M SOFR + 10.00%	12/15/2027		260,870		162,717
Avaya, Inc., Tranche B-2	6.82%	1M US L + 4.00%	12/15/2027		850,084		449,482
Constant Contact, Inc.	6.42%	3M US L + 4.00%	02/10/2028		1,669,196		1,473,065
Endurance International Group Holdings, Inc., Initial	6.18%	1M US L + 3.50%	02/10/2028		843,494		708,535
Escape Velocity Holdings, Inc. TL	7.13%	3M US L + 4.25%	10/08/2028		282,080		263,392
Intrado Corp., Initial B	7.12%	1M US L + 4.00%	10/10/2024		208,535		178,076
ION Trading Finance, Ltd., Initial Dollar (2021)	8.42%	3M US L + 4.75%	04/01/2028		1,010,196		935,441
Virtusa Corp.	6.87%	1M US L + 3.75%	02/11/2028		1,182,683		1,105,312
Virtusa Corporation TL 1L	6.88%	1M SOFR + 3.75%	02/15/2029		189,155		176,624
Total IT Services					6,496,293		5,452,644
Machinery - 0.66% (0.39% of Total Investments)
ELEMENT MTRL TECH GP HLDG TL(g)	N/A	SOFR + 4.25%	06/22/2029		699,387		634,223
Pro Mach Group, Inc., Closing Date Initial	7.12%	1M US L + 4.00%	08/31/2028		914,829		870,560
Total Machinery					1,614,216		1,504,783
Media - 1.88% (1.10% of Total Investments)
Castle US Holding Corp., Initial Dollar	6.87%	1M US L + 3.75%	01/29/2027		1,051,404		841,124
Cimpress plc, Tranche B-1	6.62%	3M US L + 3.50%	05/17/2028		164,019		150,077
Creative Artists Agency LLC
Closing Date	6.87%	1M US L + 3.75%	11/27/2026		667,342		656,498
Incremental B-1	7.37%	1M US L + 4.25%	11/27/2026		367,021		361,057
Cumulus Media New Holdings, Inc., Initial	6.87%	3M US L + 3.75%	03/31/2026		699,859		662,416
Recorded Books, Inc., 2021 Replacement	7.08%	1M SOFR + 4.00%	08/29/2025		938,541		900,999
United Talent Agency LLC, B	7.19%	3M SOFR + 4.00%	07/07/2028		742,835		698,265
Total Media					4,631,021		4,270,436
Oil, Gas & Consumable Fuels - 0.72% (0.42% of Total Investments)
Brazos Delaware II LLC, Initial	7.01%	1M US L + 4.00%	05/21/2025		670,279		644,808
M6 ETX HOLDINGS II MIDCO LLC TLB 1L(g)	N/A	SOFR + 4.50%	08/10/2029		284,310		278,624
Oryx Midstream Services Permian Basin, LLC TLB 1L	6.21%	3M US L + 3.25%	10/05/2028		688,845		667,104
Permian Production Partners, LLC, Initial	9.12%	1M US L + 8.00%	11/20/2025		41,721		41,617
Total Oil, Gas & Consumable Fuels					1,685,155		1,632,153
Personal Products - 0.40% (0.23% of Total Investments)
KDC/ONE Development Corp., Inc., Initial (2020)	6.87%	1M US L + 3.75%	12/22/2025		972,292		915,578
Pharmaceuticals - 1.05% (0.61% of Total Investments)
Alvogen Pharma US, Inc.	11.20%	3M SOFR + 7.50%	06/30/2025		1,597,086		1,381,480
Amneal Pharmaceuticals, LLC, Initial Term Loan	6.90%	1M US L + 3.50%	05/04/2025		972,817		805,814

See Notes to Financial Statements.
Annual Report | September 30, 2022	23

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Pharmaceuticals (continued)
Endo Luxembourg Finance Company I S.a r.l., 2021	12.25%	1M US L + 5.00%	03/27/2028	$	229,232	$	193,013
Total Pharmaceuticals					2,799,135		2,380,307
Professional Services - 1.41% (0.82% of Total Investments)
AQ Carver Buyer, Inc., Initial	8.67%	3M US L + 5.00%	09/23/2025		455,023		439,097
Conduent Business Services, LLC TLB 1L	7.37%	3M US L + 4.25%	10/16/2028		308,757		295,249
Corporation Service Company TLB 1L(g)	N/A	L + 3.25%	08/31/2029		351,483		342,257
Equiniti Group PLC, TLB	8.17%	3M US L + 4.50%	12/11/2028		334,155		323,712
UST Global, Inc.	6.83%	1M US L + 3.75%	11/20/2028		567,774		551,450
Vaco Holdings, LLC TL 1L	8.70%	3M SOFR + 5.00%	01/21/2029		1,291,460		1,249,488
Total Professional Services					3,308,652		3,201,253
Real Estate Management & Development - 0.78% (0.45% of Total Investments)
Forest City Enterprises LP, Replacement	6.62%	1M US L + 3.50%	12/08/2025		1,818,045		1,769,558
Road & Rail - 0.12% (0.07% of Total Investments)
Savage Enterprises LLC, Initial	6.34%	1M US L + 3.25%	09/15/2028		293,079		283,774
Software - 9.78% (5.69% of Total Investments)
Apex Group Treasury LLC TL 1L(g)	N/A	SOFR + 5.00%	07/27/2028		76,023		73,933
Apex Group Treasury, Ltd., USD	6.56%	3M US L + 3.75%	07/27/2028		1,029,590		978,111
Ascend Learning 11/21 TLB	6.62%	1M US L + 3.50%	12/11/2028		1,137,078		1,047,249
Astra Acquisition Corp. TL 1L	8.37%	1M US L + 5.25%	10/25/2028		653,456		552,170
Cardinal Parent, Inc., Initial	8.17%	3M US L + 4.50%	11/12/2027		238,419		225,504
CDK GLOBAL, INC. TLB 1L	6.61%	3M SOFR + 4.50%	07/06/2029		258,696		248,731
CommerceHub, Inc., Initial	7.12%	1M US L + 4.00%	12/29/2027		819,136		731,079
Conservice Midco LLC, Initial	7.37%	1M US L + 4.25%	05/13/2027		1,105,540		1,059,472
Cornerstone OnDemand, Inc., Initial	6.87%	1M US L + 3.75%	10/16/2028		637,105		531,983
CT Technologies Intermediate Holdings, Inc., 2021	7.37%	1M US L + 4.25%	12/16/2025		260,592		238,768
DCert Buyer, Inc., Initial	6.90%	3M SOFR + 4.00%	10/16/2026		1,086,239		1,033,741
EagleView Technology Corp., Term Loan	7.17%	3M US L + 3.50%	08/14/2025		792,010		729,639
Fiserv Investment Solutions, Inc., Initial	6.96%	3M US L + 4.00%	02/18/2027		437,503		418,909
Greeneden U.S. Holdings I LLC, Initial Dollar (2020)	7.12%	1M US L + 4.00%	12/01/2027		1,426,523		1,354,683
Idera, Inc., B-1	6.32%	1M US L + 3.75%	03/02/2028		195,950		180,926
IGT Holding IV AB, Term Loan	7.07%	3M US L + 3.40%	03/31/2028		103,934		98,737
Imperva, Inc., Term Loan	6.92%	3M US L + 4.00%	01/12/2026		403,309		337,167
Magenta Buyer LLC, Initial	7.87%	1M US L + 4.75%	07/27/2028		2,159,043		1,943,139
MCAFEE CORP. TLB 1L	6.36%	1M SOFR + 3.75%	03/01/2029		3,677,375		3,344,425
MH Sub I LLC, 2020 June New	6.87%	1M US L + 3.75%	09/13/2024		1,165,412		1,107,724
Planview Parent, Inc., Closing Date	7.67%	3M US L + 4.00%	12/17/2027		953,515		901,072
Playtika Holding Corp., B-1	5.87%	1M US L + 2.75%	03/13/2028		1,492,424		1,426,623
Project Alpha Intermediate Holding, Inc., 2021
Refinancing	7.12%	1M US L + 4.00%	04/26/2024		1,569,779		1,508,463
Skillsoft Finance II, Inc., Initial	7.96%	1M SOFR + 5.25%	07/14/2028		358,217		303,768
SS&C Technologies, Inc.
Term B-6 Loan	5.38%	1M SOFR + 2.25%	03/22/2029		277,465		269,371
Term B-7 Loan	5.38%	1M SOFR + 2.25%	03/22/2029		391,789		380,361
Ultimate Software 11/21 TL	5.54%	3M US L + 3.25%	05/04/2026		245,443		232,967

See Notes to Financial Statements.
24	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

	Coupon(a)	Reference Rate & Spread	Maturity Date	Principal Amount		Value
SENIOR SECURED FIRST LIEN LOANS(b) (continued)
Software (continued)
Upland Software, Inc., Initial	6.87%	1M US L + 3.75%	08/06/2026	$	972,500	$	926,306
Total Software					23,924,065		22,185,021
Specialty Retail - 1.87% (1.09% of Total Investments)
Bass Pro/Great American 11/21 TLB	6.87%	1M US L + 3.75%	03/06/2028		999,834		921,347
Fender Musical Instruments Corporation	6.75%	1M SOFR + 4.00%	12/01/2028		202,218		171,380
Franchise Group, Inc., Initial	7.56%	1M US L + 4.75%	03/10/2026		1,116,957		1,040,635
Harbor Freight Tools USA, Inc.	5.87%	1M US L + 2.75%	10/19/2027		997,462		900,209
Jo-Ann Stores LLC, Additional B-1	7.52%	3M US L + 4.75%	07/07/2028		1,115,522		721,955
Rising Tide Holdings, Inc., Initial	7.87%	3M US L + 4.75%	06/01/2028		250,477		213,406
Torrid LLC, Closing Date	8.86%	3M US L + 5.50%	06/14/2028		303,337		269,970
Total Specialty Retail					4,985,807		4,238,902
Textiles, Apparel & Luxury Goods - 2.51% (1.46% of Total Investments)
ABG Intermediate Holdings 2 LLC
2021 Refinancing Term Loans	6.37%	1M US L + 3.25%	09/27/2024		1,000,000		974,750
Tranche TLB-1 Term Loans	6.63%	1M SOFR + 3.50%	12/21/2028		1,213,605		1,158,483
BK LC Lux SPV S.a r.l., Facility B	5.10%	3M US L + 3.25%	04/28/2028		886,413		829,532
Champ Acquisition Corp., Initial	9.17%	3M US L + 5.50%	12/19/2025		469,693		454,917
Crocs, Inc.TLB 1L	7.20%	3M SOFR + 3.50%	02/20/2029		1,485,296		1,394,322
Elevate Textiles, Inc., Initial	7.28%	3M US L + 5.00%	05/01/2024		1,133,262		872,612
Total Textiles, Apparel & Luxury Goods					6,188,269		5,684,616
Transportation Infrastructure - 0.12% (0.07% of Total Investments)
Grab Holdings, Inc., Initial	7.62%	1M US L + 4.50%	01/29/2026		299,932		280,250
Wireless Telecommunication Services - 0.24% (0.14% of Total Investments)
LSF9 ATLANTIS HOLDINGS, LLC	10.80%	3M SOFR + 7.25%	03/31/2029		567,029		537,260
Total Senior Secured First Lien Loans (Cost $190,310,781)				$	193,569,187	$	176,222,015

	Shares		Value
COMMON STOCK - 0.11%* (0.06% of Total Investments)
Aerospace & Defense - 0.00%(i) (0.00% of Total Investments)
New Constellis Borrower LLC(j)		6,795	$	10,193
Food & Staples Retailing - 0.10% (0.06% of Total Investments)
CEC Brands, LLC(j)		10,454		216,048
Oil, Gas & Consumable Fuels - 0.01% (0.00% of Total Investments)
Permian Production Partners(j)		18,995		12,347
Total Common Stock (Cost $94,507)		36,244	$	238,588
	Shares		Value
MONEY MARKET MUTUAL FUNDS - 1.46%* (0.85% of Total Investments)
Invesco Short Term Investments Trust Treasury Portfolio,
Institutional Class
(2.860% 7-Day Yield)		3,309,153	$	3,309,153
Total Money Market Mutual Funds (Cost $3,309,153)		3,309,153	$	3,309,153

See Notes to Financial Statements.
Annual Report | September 30, 2022	25

XAI Octagon Floating Rate &
Alternative Income Term Trust	Schedule of Investments
	September 30, 2022

RIGHTS - 0.00%* (0.00% of Total Investments)
	Shares		Value
Carestream Health, Inc.(j)(e)		–	$	–
Total Rights (Cost $9,250)		–	$	–
Total Investments - 171.76% (Cost $451,713,163)			$	389,559,730
Liabilities in Excess of Other Assets - (0.55)%				(1,248,609	)
Preferred Shares (Net of $1,227,305 Deferred Financing Costs) - (21.46)%				(48,672,695	)
Leverage Facility (Net of $312,406 Deferred Leverage Costs) - (49.75)%				(112,837,594	)
Net Assets Applicable to Common Shareholders - 100.00%			$	226,800,832

* Amounts above are shown as a percentage of net assets applicable to common shareholders as of September 30, 2022.

(a) The rate shown is the coupon as of the end of the reporting period.

(b) Variable rate investment. Interest rates reset periodically. Interest rate shown reflects the rate in effect at September 30, 2022. For securities based on a published reference rate and spread, the reference rate and spread are indicated in the description above. Leveraged loans and CLO debt securities typically have reference Rate Floors (“Rate Floors”) embedded in their loan agreements and organizational documents. Leveraged loans generally have Rate Floors of 0% or more, while CLO debt securities often set Rate Floors at 0%. Rate Floors serve to establish a minimum base rate to be paid by the borrower before the fixed spread. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. Total market value of Rule 144A securities amounts to $190,953,337, which represents approximately 88.19% of the Trust's net assets as of September 30, 2022. Such securities may normally be sold to qualified institutional buyers in transactions exempt from registration.

(d) CLO subordinated notes, income notes, Y notes and M notes are considered CLO equity positions. CLO equity positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses. The effective yield is estimated based upon the amount and timing of these recurring distributions in addition to the estimated amount of terminal principal payment. Effective yields for the CLO equity positions are updated generally once per quarter or on a transaction such as an add-on purchase, refinancing or reset. The estimated yield and investment cost may ultimately not be realized. Estimated yields shown are as of September 30, 2022.

(e) As a result of the use of significant unobservable inputs to determine fair value, this investment has been classified as a Level 3 asset.

(f) Fair value includes the Trust's interest in fee rebates on CLO subordinated notes.

(g) When-issued or delivery-delayed security. All or a portion of this position has not settled as of September 30, 2022. The interest rate shown represents the stated spread over the applicable reference rate floor; the Trust will not accrue interest until the settlement date, at which point the reference rate floor will be established. The total cost of securities purchased on a when-issued or delivery-delayed basis was $4,151,492 as of September 30, 2022.

(h) Fixed rate.

(i) Less than 0.005%.

(j) Non-income producing security.

All securities held as of September 30, 2022 are pledged as collateral for the Trust’s credit facility. See Note 6 of the Notes to Financial Statements. 1M US L - 1 Month LIBOR (London Interbank Offered Rate)

3M SOFR - 3 Month SOFR (Secured Overnight Financing Rate)

1M SOFR - 1 Month SOFR (Secured Overnight Financing Rate)

6M SOFR - 6 Month SOFR (Secured Overnight Financing Rate)

3M US L - 3 Month LIBOR (London Interbank Offered Rate

6M US L - 6 Month LIBOR (London Interbank Offered Rate)

s.a.r.l - Societe Anonyme a Responsabilite Limitee (French: Limited Liability Company)

See Notes to Financial Statements.
26	www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Statement of Assets and Liabilities
	September 30, 2022

ASSETS:
Investments, at value (Cost $451,713,163)	$	389,559,730
Cash		1,128,074
Receivable for investment securities sold		11,425,458
Interest receivable		2,217,630
Prepaid offering costs, net (Note 5)		548,539
Other assets		101,666
Total Assets		404,981,097
LIABILITIES:
Leverage facility (Net of $312,406 deferred financing costs) (Note 6)		112,837,594
Preferred shares (Net of $1,227,305 deferred financing costs) (Note 6)		48,672,695
Payable for investment securities purchased		11,995,339
Distributions payable to common shareholders		2,589,202
Accrued investment advisory fees payable (Note 3)		621,099
Interest payable on preferred shares		541,120
Interest due on leverage facility (Note 6)		375,681
Accrued professional fees payable		206,231
Accrued fund accounting and administration fees payable		164,325
Accrued investor support services fees payable (Note 3)		65,515
Accrued printing fees payable		17,099
Accrued custodian fees payable		14,007
Accrued transfer agent fees payable		6,610
Accrued chief compliance officer fees payable (Note 3)		5,809
Other payables and accrued expenses		67,939
Total Liabilities		178,180,265
Net Assets Applicable to Common Shareholders	$	226,800,832
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Paid-in capital	$	289,197,106
Total distributable earnings (accumulated losses)		(62,396,274	)
Net Assets Applicable to Common Shareholders	$	226,800,832
Common shares of beneficial interest outstanding, at $0.01 par value, and unlimited common shares authorized		35,468,532
Net Asset Value Applicable to Common Shareholders	$	6.39

See Notes to Financial Statements.
Annual Report | September 30, 2022	27

XAI Octagon Floating Rate & Alternative Income Term Trust	Statement of Operations
	For the Year Ended September 30, 2022

INVESTMENT INCOME:
Interest	$	41,202,356
Dividends		38,647
Total Investment Income		41,241,003
EXPENSES:
Investment advisory fees (Note 3)		6,778,017
Interest expense and amortization of deferred leverage costs		2,834,546
Distributions to preferred shares		2,828,074
Investor support services fees (Note 3)		797,413
Fund accounting and administration fees		408,010
Amortization of financing costs (Note 6)		324,295
Professional fees		307,566
Trustees fees and expenses		210,750
Excise tax (Note 9)		108,644
Custodian fees		68,749
Transfer agent fees		64,810
Printing expenses		54,691
Chief financial officer fees (Note 3)		42,001
Chief compliance officer fees (Note 3)		33,579
Other expenses		313,362
Total Expenses		15,174,507
Net Investment Income		26,066,496
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on:
Investment securities		(1,647,420	)
Change in unrealized appreciation/(depreciation) on:
Investment securities		(61,102,520	)
Net Realized and Unrealized Loss on Investments		(62,749,940	)
Net Decrease in Net Assets Applicable to Common Shareholders from Operations	$	(36,683,444	)

See Notes to Financial Statements.
28	www.xainvestments.com

XAI Octagon Floating Rate &	Statements of Changes in Net Assets
Alternative Income Term Trust	Applicable to Common Shareholders

	For the Year Ended			For the Year Ended
	September 30, 2022			September 30, 2021
OPERATIONS:
Net investment income	$	26,066,496		$	14,055,467
Net realized loss		(1,647,420	)		(464,169	)
Change in unrealized appreciation/(depreciation)		(61,102,520	)		21,889,863
Net Increase/(Decrease) in Net Assets Applicable to Common Shareholders from Operations		(36,683,444	)		35,481,161
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income		(26,582,506	)		(6,239,707	)
From tax return of capital		(1,437,750	)		(9,769,169	)
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS		(28,020,256	)		(16,008,876	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of common shares (net of offering costs of $326,927 and $641,795)		70,085,319			112,958,121
Net asset value of common shares issued to shareholders from reinvestment of dividends		2,855,549			1,144,153
Net Increase in Net Assets Applicable to Common Shareholders from Capital Share Transactions		72,940,868			114,102,274
Net Increase in Net Assets Applicable to Common Shareholders		8,237,168			133,574,559
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year	$	218,563,664		$	84,989,105
End of year	$	226,800,832		$	218,563,664

See Notes to Financial Statements.
Annual Report | September 30, 2022	29

XAI Octagon Floating Rate &
Alternative Income Term Trust	Statement of Cash Flows

For the Year Ended September 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets applicable to common shareholders from operations	$	(36,683,444	)
Adjustments to reconcile net decrease in net assets applicable to common shareholders from operations to net cash used in operating activities:
Purchases of investment securities		(219,123,255	)
Proceeds from sale of investment securities		115,792,927
Discounts accreted/premiums amortized		(1,447,251	)
Reductions to CLO equity cost basis		14,685,070
Net realized loss on investment securities		1,647,420
Net change in unrealized (appreciation)/depreciation on investment securities		61,102,520
Net purchase of short-term investment securities		22,066,986
(Increase)/Decrease in assets:
Receivable for investment securities sold		(9,065,952	)
Interest receivable		(969,200	)
Prepaid offering costs		(278,621	)
Deposits held with broker		(101,666	)
Prepaid expenses and other assets		18,687
Increase/(Decrease) in liabilities:
Payable for investment securities purchased		(21,858,233	)
Distributions payable on preferred shares		(358,214	)
Interest due on leverage facility		258,433
Interest payable - margin account		541,120
Accrued investment advisory fees payable		99,229
Accrued fund accounting and administration fees payable		48,225
Accrued professional fees payable		(372,134	)
Accrued investor support services fees payable		8,122
Accrued printing fees payable		17,099
Accrued custodian fees payable		4,358
Accrued chief compliance officer fees payable		425
Accrued transfer agent fees payable		2,218
Other payables and accrued expenses		29,551
Net Cash Used in Operating Activities		(73,935,580	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from leverage facility		33,500,000
Payments on leverage facility		(18,500,000	)
Proceeds from offering of preferred shares		9,544,057
Proceeds from shares sold - common shares		70,625,026
Distributions paid - common shareholders		(24,494,852	)
Offering costs paid		(326,927	)
Net Cash Provided by Financing Activities		70,347,304
Net Decrease in Cash		(3,588,276	)
Cash, beginning balance		4,716,350
Cash, ending balance	$	1,128,074
Supplemental disclosure of cash flow information:
Cash paid for interest on leverage facility	$	5,404,187
Non-cash activity:
Reinvestment of distributions	$	2,855,549

See Notes to Financial Statements.
30	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Financial Highlights

For a Share of Outstanding Common Stock Throughout the Periods Presented

	For the Year Ended September 30, 2022			For the Year Ended September 30, 2021			For the Year Ended September 30, 2020			For the Year Ended September 30, 2019			For the Year Ended September 30, 2018
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value - beginning of year	$	8.19		$	6.56		$	8.22		$	9.50		$	9.78
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income/(loss)(a)		0.82			0.76			0.72			0.89			0.64
Net realized and unrealized gain/(loss) on investments		(1.91	)		1.41			(1.58	)		(1.32	)		(0.16	)
Total Income/(Loss) from Investment Operations		(1.09	)		2.17			(0.86	)		(0.43	)		0.48
DISTRIBUTIONS TO COMMON SHAREHOLDERS:(b)
From net investment income		(0.84	)		(0.34	)		(0.57	)		(0.77	)		(0.45	)
From tax return of capital		(0.04	)		(0.54	)		(0.23	)		(0.08	)		(0.31	)
Total Distributions to Common Shareholders		(0.88	)		(0.88	)		(0.80	)		(0.85	)		(0.76	)
CAPITAL SHARE TRANSACTIONS:
Impact of Capital Share Transactions(a)		0.17			0.34			0.00	(c)		0.00	(c)		–
Total Capital Share Transactions		0.17			0.34			0.00	(c)		0.00	(c)		–
Net asset value per common share - end of year	$	6.39		$	8.19		$	6.56		$	8.22		$	9.50
Market price per common share - end of year	$	5.94		$	8.58		$	5.99		$	8.95		$	9.80
Total Investment Return per Common Share - Net Asset Value(d)		(12.63	%)		39.14	%		(9.54	%)		(4.55	%)		5.22	%
Total Investment Return per Common Share - Market Price(d)		(22.47	%)		59.63	%		(24.14	%)		0.75	%		4.89	%
RATIOS AND SUPPLEMENTAL DATA:
Net assets attributable to common shares, end of period (000s)	$	226,801		$	218,564		$	84,989		$	78,707		$	79,322
Ratio of expenses excluding waivers to average net assets		6.29	%		5.28	%		5.71	%		6.16	%		5.60	%
Ratio of expenses including waivers to average net assets(e)		N/A			N/A			N/A			5.22	%		4.87	%
Ratio of expenses excluding interest expense and distributions to preferred shares to average net assets		3.94	%(f)(i)		3.94	%(f)(g)		4.51	%(f)		3.27	%(f)		3.35	%(f)
Ratio of net investment income including waivers to average net assets(e)		10.81	%		9.82	%		10.93	%		10.03	%		6.57	%
Portfolio turnover rate		29	%		34	%		60	%		94	%		119	%

See Notes to Financial Statements.
Annual Report | September 30, 2022	31

XAI Octagon Floating Rate &
Alternative Income Term Trust	Financial Highlights

For a Share of Outstanding Common Stock Throughout the Periods Presented

	For the Year Ended September 30, 2022		For the Year Ended September 30, 2021		For the Year Ended September 30, 2020		For the Year Ended September 30, 2019		For the Year Ended September 30, 2018
2026 PREFERRED SHARES:
Liquidation value, end of period, including dividends payable on preferred shares (000s)	$	39,000	$	40,258		N/A		N/A		N/A
Total shares outstanding (000s)		1,596		1,596		N/A		N/A		N/A
Asset coverage, end of period per $1,000 of preferred shares(h)	$	139	$	162		N/A		N/A		N/A
Liquidation preference per share	$	25	$	25		N/A		N/A		N/A
2029 CONVERTIBLE PREFERRED SHARES:
Liquidation value, end of period, including dividends payable on preferred shares (000s)	$	10,000		N/A		N/A		N/A		N/A
Total shares outstanding (000s)		400		N/A		N/A		N/A		N/A
Asset coverage, end of period per $1,000 of preferred shares(h)	$	139		N/A		N/A		N/A		N/A
Liquidation preference per share	$	25		N/A		N/A		N/A		N/A
LEVERAGE FACILITY:
Aggregate principal amount, end of period of
leverage facility payable (000s)	$	113,150	$	98,150	$	35,650	$	38,965	$	38,865
Asset coverage, end of period per $1,000 of leverage facility(j)	$	3,445	$	3,227	$	3,384	$	3,020	$	3,041

(a) Calculated using average common shares outstanding.

(b) The per share amounts of distributions related to net investment income and tax return of capital are based on amounts determined under U.S. federal income tax regulations which differs from the per share amounts from investment operations which are based on amounts determined under U.S. GAAP.

(c) Less than $0.005 or greater than $(0.005) per share.

(d) Total investment return is calculated assuming a purchase of a common share at the opening on the first day and a sale at closing on the last day of each period reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any, and are not annualized.

(e) The Adviser’s expense limitation agreement to waive and/or reimburse expenses of the Trust expired on September 27, 2019 and was not renewed.

(f) Includes amortization of deferred leverage costs incurred obtaining leverage facility.

(g) The Trust issued Series 2026 Term Preferred Shares on March 29, 2021 and September 8, 2021.

(h) The asset coverage ratio for a class of senior securities representing stock is calculated as the Trust's total assets, less all liabilities and indebtedness not represented by the Trust's senior securities, divided by secured senior securities representing indebtedness plus the aggregate of the involuntary liquidation preference of secured senior securities which are stock. With respect to the Preferred Shares, the asset coverage per unit figure is expressed in terms of dollar amounts per share of outstanding Preferred Shares (based on a liquidation preference of $25).

(i) The Trust issued Series 2029 Convertible Preferred Shares on June 30, 2022.

(j) Calculated by subtracting the Trust's total liabilities (excluding the liquidation value of the Preferred Shares, including dividends payable on the Preferred Shares, and the principal amount of the Leverage Facility) from the Trust's total assets and dividing by the principal amount of the Leverage Facility and then multiplying by $1,000.

See Notes to Financial Statements.
32	www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

1. ORGANIZATION

XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust commenced operations on September 27, 2017.

The Trust seeks to achieve its investment objective by investing in a dynamically managed portfolio of opportunities primarily within the private credit markets. Under normal market conditions, the Trust will invest at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments. “Managed Assets” means the total assets of the Trust, including assets attributable to the Trust’s use of leverage, minus the sum of its accrued liabilities (other than liabilities incurred for the purpose of creating leverage).

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Use of Estimates: The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts and disclosures, including contingent assets and liabilities, in the financial statements during the period reported. Management believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the Trust ultimately realizes upon sale of the securities. The Trust is considered an investment company under

U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. The financial statements have been prepared as of the close of the New York Stock Exchange (“NYSE”) on September 30, 2022.

Expense Recognition: Expenses are recorded on the accrual basis of accounting.

Calculation of Net Asset Value: The calculation of net asset value ("NAV") per common share of the Trust is determined daily, on each day that the NYSE is open for trading, as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). The Trust’s net asset value per common share is calculated by dividing the value of the Trust’s total assets, less its liabilities, by the number of shares outstanding.

Cash: The Trust considers its investment in an FDIC insured interest bearing account to be cash. Cash is valued at cost plus any accrued interest. The Trust maintains cash balances, which at times may exceed federally insured limits. The Trust maintains these balances with a high quality financial institution.

Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting purposes.

Interest income from investments is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Amortization of premium or accretion of discount is recognized using the effective interest method. Collateralized loan obligation (“CLO”) equity investments recognize investment income on the accrual basis utilizing an effective interest methodology based upon an effective yield to maturity utilizing projected cash flows. ASC Topic 325-40, Beneficial Interests in Securitized Financial Assets, requires investment income from CLO equity investments and fee rebates to be recognized under the effective interest method, with any difference between the cash distribution and the amount calculated pursuant to the effective interest method being recorded as an adjustment to the cost basis of the investment. There were no fee rebates for CLO equity investments held by the Trust as of September 30, 2022.

Effective yields for the Trust’s CLO equity positions are monitored and evaluated on a quarterly basis. The Trust also updates a CLO equity investment’s effective yield in each instance where there is a respective add-on purchase, refinancing or reset involving the CLO equity investment held. The effective yield will be set to 0.00% if: (1) the aggregate projected amount of future recurring distributions is less than the amortized investment cost, and/or (2) there is significant uncertainty with respect to the timing of future residual distributions from equity positions that are in the process of being redeemed or that have missed or are not currently making distributions. The future distributions for CLO equity positions with a 0.00% effective yield will be recognized solely as return of cost basis until the aggregate projected amount of future recurring distributions exceeds the amortized investment cost.

Preferred Shares: Distributions to holders of the Trust’s Series 2026 Term Preferred Shares and Series 2029 Convertible Preferred Shares (collectively, "Preferred Shares") are accrued on a daily basis as described in Note 6 and are treated as an expense as required by U.S. GAAP. For tax purposes, the payments made to the holders of the Trust's Preferred Shares are treated as dividends or distributions. The character of distributions to the holders of the Trust’s Preferred Shares made during the year may differ from their ultimate characterization for federal income tax purposes.

Annual Report | September 30, 2022 33

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

Fair Value Measurements: The Trust records investments at fair value. The Trust values debt securities at the last available bid price for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality, and type. The Trust values exchange-traded options and other exchange-traded derivative contracts at the midpoint of the best bid and asked prices at the close on those exchanges on which they are traded.

The Trust values equity securities at the last reported sale price on the principal exchange or in the principal off-exchange market in which such securities are traded, as of the close of regular trading on the NYSE on the day the securities are being valued or, if there are no sales, at the mean between the last available bid and asked prices on that day. Securities traded primarily on the Nasdaq Stock Market (“Nasdaq”) are normally valued by the Trust at the Nasdaq Official Closing Price (“NOCP”) provided by Nasdaq each business day. The NOCP is the most recently reported price as of 4:00 p.m., Eastern Time, unless that price is outside the range of the “inside” bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, Nasdaq will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes.

Generally, trading in many foreign securities will be substantially completed each day at various times prior to the close of the NYSE. The values of these securities used in determining the net asset value generally will be computed as of such times. Occasionally, events affecting the value of foreign securities may occur between such times and the close of the NYSE which will not be reflected in the computation of net asset value unless it is determined that such events would materially affect the net asset value, in which case adjustments would be made and reflected in such computation pursuant to the fair valuation procedures described herein. Such adjustments may be based upon factors such as developments in non-U.S. markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent non-U.S. securities.

Short-term securities with remaining maturities of less than 60 days may be valued at amortized cost, to the extent that amortized cost is determined to approximate fair value.

The Trust values derivatives transactions in accordance with valuation guidelines adopted by the Board of Trustees of the Trust (the “Board of Trustees”). Accrued payments to the Trust under such transactions will be assets of the Trust and accrued payments by the Trust will be liabilities of the Trust.

The Trust may utilize bid quotations provided by independent pricing services or, if independent pricing services are unavailable, dealers to value certain of its securities and other instruments at their market value. The Trust may use independent pricing services to value certain securities held by the Trust at their market value. The Trust periodically verifies valuations provided by independent pricing services.

If independent pricing services or dealer quotations are not available for a given security, such security will be valued in accordance with valuation guidelines adopted by the Board of Trustees that the Board of Trustees believes are designed to accurately reflect the fair value of securities valued in accordance with such guidelines.

The Board of Trustees has designated XA Investments LLC (“XAI” or the “Adviser”), as the “valuation designee” for the Trust pursuant to Rule 2a-5 under the Investment Company Act. The valuation designee is responsible for making fair value determinations pursuant to Valuation Policies and Procedures adopted by XAI and the Trust (the “Valuation Policy”). A committee of voting members comprised of senior personnel of XAI considers various pricing issues and establishes fair valuations of portfolio securities and other instruments held by the Trust in accordance with the Valuation Policy (the “Pricing Committee”). XAI as valuation designee is subject to monitoring and oversight by the Board of Trustees. As a general principle, the fair value of a portfolio instrument is the amount that an owner might reasonably expect to receive upon the instrument’s current sale. A range of factors and analysis may be considered when determining fair value, including relevant market data, interest rates, credit considerations and/or issuer specific news. The Pricing Committee may consult with and receive input from third parties, such as the Sub-Adviser, and will utilize a variety of market data including yields or prices of investments of comparable quality, type of issue, coupon, maturity, rating, indications of value from security dealers, evaluations of anticipated cash flows or collateral, spread over U.S. Treasury obligations, and other information and analysis. In addition, the Pricing Committee may consider valuations provided by valuation firms retained to assist in the valuation of certain of the Trust’s investments. Fair valuation involves subjective judgments. While the Trust’s use of fair valuation is intended to result in calculation of net asset value that fairly reflects values of the Trust’s portfolio securities as of the time of pricing, the Trust cannot guarantee that any fair valuation will, in fact, approximate the amount the Trust would actually realize upon the sale of the securities in question. It is possible that the fair value determined for a portfolio instrument may be materially different from the value that could be realized upon the sale of that instrument.

The Trust generally uses non-binding indicative bid prices provided by an independent pricing service or broker as the primary basis for determining the value of CLO debt and CLO equity (subordinated securities), which may be adjusted for pending distributions, as applicable, as of the valuation date. These bid prices are non-binding, and may not be determinative of an actual transaction price. In valuing the Trust’s investments in CLO debt and CLO equity (subordinated securities), in addition to non-binding indicative bid prices provided by an independent pricing service or broker, the Pricing Committee also may consider a variety of relevant factors, as set forth in the Valuation Policy, including recent trading prices for specific investments, recent purchases and sales known to the Trust in similar securities, other information known to the Trust relating to the securities, and discounted cash flows based on output from a third-party financial model, using projected future cash flows.

34 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

Information that becomes known after the Trust’s NAV has been calculated on a particular day will not be used to retroactively adjust the price of a security or the Trust’s previously determined NAV.

The Trust discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

Various inputs are used in determining the value of the Trust’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments.

These inputs are categorized in the following hierarchy under applicable financial accounting standards:

Level 1— Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Trust has the ability to access at the measurement date;

Level 2— Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

Level 3— Significant unobservable prices or inputs (including the Trust’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

The following is a summary of the inputs used to value the Trust’s investments as of September 30, 2022:

Investments in Securities at Value*	Level 1 - Quoted Prices		Level 2 - Significant Observable Inputs		Level 3 - Significant Unobservable Inputs		Total
Corporate Bonds	$	–	$	8,986,858	$	–	$	8,986,858
Secured Second Lien Loans		–		9,849,779		–		9,849,779
Senior Secured First Lien Loans		–		176,222,015		–		176,222,015
Collateralized Loan Obligations Debt		–		49,555,783		–		49,555,783
Collateralized Loan Obligations Equity		–		83,347,083		58,050,471		141,397,554
Common Stock		–		238,588		–		238,588
Money Market Mutual Funds		3,309,153		–		–		3,309,153
Total	$	3,309,153	$	328,200,106	$	58,050,471	$	389,559,730

* For detailed descriptions, see the accompanying Schedule of Investments.

Annual Report | September 30, 2022 35

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

The changes of the fair value of investments for which the Trust has used Level 3 inputs to determine the fair value are as follows:

	CLO Debt			CLO Equity			Total
Balance as of September 30, 2021 $		36,553,701		$	152,387,191		$	188,940,892
Accrued Discount/Premium Including Return of Capital (1)		43,323			(13,703,231	)		(13,659,908	)
Realized Gain/(Loss)		43,645			(748,518	)		(704,873	)
Change in Unrealized Appreciation/(Depreciation)		(7,450,023	)		(34,760,737	)		(42,210,760	)
Purchases		23,715,135			38,226,266			61,941,401
Sales Proceeds		(3,350,000	)		(3,420	)		(3,353,420	)
Transfer into Level 3		–			–			–
Transfer out of Level 3		(49,555,781	)		(83,347,080	)		(132,902,861	)
Balance as of September 30, 2022	$	–		$	58,050,471		$	58,050,471
Net change in unrealized appreciation/(depreciation)
included in the Statements of Operations attributable
to Level 3 investments held at September 30, 2022	$	–		$	(14,247,670	)	$	(14,247,670	)

(1) Reduction to cost value on CLO equity investments represents the difference between distributions received, or entitled to be received, and income earned for the year ended September 30, 2022.

Transfers from Level 3 to Level 2 occurred due to additional market and pricing information available during the year.

The following table summarizes the quantitative inputs and assumptions used for investments categorized in Level 3 of the fair value hierarchy as of the end of the reporting period. In addition to the techniques and inputs noted in the table below, according to the Trust’s valuation policy, the Trust may use other valuation techniques and methodologies when determining the Trust’s fair value measurements as provided for in the valuation policy and approved by the Board of Trustees. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the fair value measurements as of the end of the reporting period.

Quantitative Information about Level 3 Value Measurements

Assets	Value as of September 30, 2022		Valuation Methodologies	Unobservable Input	Range/Weighted Average(2)
CLO Equity	$	58,050,471	Market Approach	NBIB(1)		0.37-82.47/44.40
Total Level 3 Assets	$	58,050,471

(1) The Trust generally uses non-binding indicative bid (“NBIB”) prices provided by an independent pricing service or broker on or near the valuation date as the primary basis for the fair value determination for CLO debt and CLO equity (subordinated securities), which may be adjusted for pending equity distributions as of the valuation date. These bid prices are non-binding, and may not be determinative of an actual transaction price. In valuing the Trust’s investments in CLO debt and CLO equity (subordinated securities), in addition to NBIB prices provided by an independent pricing service or broker, the Pricing Committee also may consider a variety of relevant factors as set forth in the Valuation Policy, including input from relevant third-parties, recent trading prices for specific investments, recent purchases and sales known to the Trust in similar securities, other information known to the Trust relating to the securities, and discounted cash flows based on output from a third-party financial model, using projected future cash flows.

(2) Weighted averages are calculated based on the value of investments on September 30, 2022.

Significant increases or decreases in any of the unobservable inputs in isolation may result in a significantly lower or higher fair value measurement.

Indemnification: The Trust indemnifies its officers and Trustees for certain liabilities that may arise from the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on industry experience, the Trust expects the risk of loss due to these warranties and indemnities to be remote.

36 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements

September 30, 2022

3. INVESTMENT ADVISORY AND OTHER AGREEMENTS

XAI serves as the investment adviser to the Trust and is responsible for overseeing the Trust’s overall investment strategy and its implementation. Octagon Credit Investors, LLC (“Octagon” or the “Sub-Adviser”) serves as the investment sub-adviser of the Trust and is responsible for investing the Trust’s assets. The Trust pays an advisory fee to the Adviser. The Adviser pays to the Sub-Adviser a sub-advisory fee out of the advisory fee received by the Adviser.

Pursuant to an investment advisory agreement between the Trust and the Adviser, the Trust pays the Adviser a fee, payable monthly in arrears, in an annual amount equal to 1.70% of the Trust’s average daily Managed Assets. “Managed Assets” means the total assets of the Trust, including assets attributable to the Trust’s use of leverage and preferred shares, minus the sum of its accrued liabilities (other than liabilities incurred for the purpose of creating leverage). For the year ended September 30, 2022, the Trust incurred $6,778,017 in advisory fees.

Pursuant to an investment sub-advisory agreement among the Trust, the Adviser and the Sub-Adviser, the sub-advisory fee, payable monthly in arrears to the Sub-Adviser, is calculated as a specified percentage of the advisory fee payable by the Trust to the Adviser (before giving effect to any fees waived or expenses reimbursed by the Adviser). The specified percentage is equal to the blended percentage computed by applying the following percentages to the aggregate average daily Managed Assets of all registered investment companies in the XAI fund complex for which the Sub-Adviser (or an affiliate of the Sub-Adviser) serves as investment sub-adviser, including the Trust (“Eligible Funds”):

Aggregate Eligible Funds Average Daily Managed Assets	Percentage of Advisory Fee
First $500 million		60 %
Over $500 million		50 %

As of September 30, 2022, the Trust was the only Eligible Fund, and the sub-advisory fee equals 60% of the advisory fee payable to the Adviser. The Sub-Adviser’s fees are paid by the Adviser. Pursuant to the investment sub-advisory agreement, from time to time the Trust may reimburse the Sub-Adviser for certain costs and expenses incurred by the Sub-Adviser in connection with the management of the Trust’s assets. For the year ended September 30, 2022, the Trust incurred $195,765 in reimbursements made to the Sub-Adviser. These costs are included in Other Expenses in the Statement of Operations.

The Trust does not pay a performance or incentive fee to the Adviser or the Sub-Adviser.

The Trust pays all costs and expenses of its operations in addition to the advisory fee and investor support services and secondary market support services fee paid to the Adviser. For the period from September 27, 2017 to September 27, 2019, the Adviser and the Trust entered into a fee waiver agreement. The fee waiver agreement expired on September 27, 2019. Under the fee waiver agreement, the Adviser had contractually agreed to waive a portion of the advisory fee and/or reimburse the Trust for certain operating expenses so that the annual expenses of the Trust did not exceed 0.30% of the Trust’s Managed Assets (exclusive of investment advisory fees, investor support and secondary market services fees, taxes, expenses incurred directly or indirectly by the Trust as a result of an investment in a permitted investment (including, without limitation, acquired fund fees and expenses), expenses associated with the acquisition or disposition of portfolio investments (including, without limitation, brokerage commissions and other trading or transaction expenses), leverage expenses (including, without limitation, costs associated with the issuance or incurrence of leverage, commitment fees, interest expense or dividends on preferred shares), expenses incurred in connection with issuances and sales of shares of the Trust (including, without limitation, fees, commissions and offering costs), dividends on short sales, if any, securities lending costs, if any, expenses of holding and soliciting proxies for meetings of shareholders of the Trust (except to the extent relating to routine items such as the election of Trustees), expenses of a reorganization, restructuring, reconciling or merger of the Trust or the acquisition of all or substantially all of the assets of another fund, or any extraordinary expenses not incurred in the ordinary course of the Trust’s business (including, without limitation, expenses related to litigation, derivative actions, demands related to litigation, regulatory or other government investigations and proceeding)). The Adviser may recoup waived or reimbursed amounts for three years following the date of such waiver or reimbursement, provided total expenses, including such recoupment, do not exceed the lesser of the annual expense limit at the time such expenses were waived or reimbursed or the annual expense limit at the time of recoupment. As of September 30, 2022, all remaining expenses that were available for recoupment by the Adviser had expired.

The Trust has also retained the Adviser to provide investor support services and secondary market support services in connection with the ongoing operation of the Trust. Such services include providing ongoing contact with respect to the Trust with financial intermediaries, communicating with the NYSE specialist for the shares and with the closed-end fund analyst community regarding the Trust on a regular basis, and hosting and maintaining a website for the Trust. The Trust pays the Adviser an investor support services and secondary market support services fee, payable monthly in arrears, in an annual amount equal to 0.20% of the Trust’s average daily Managed Assets. For the year ended September 30, 2022, the Trust incurred $797,413 in investor support services. A Trustee who is an "interested person", as defined in the 1940 Act, of the Trust and certain officers of the Trust are affiliated with the Adviser and receive no compensation from the Trust for serving as officers and/or Trustee.

Annual Report | September 30, 2022 37

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements

September 30, 2022

SS&C ALPS Fund Services, Inc. (“ALPS”) serves as the Trust’s administrator and accounting agent and receives customary fees from the Trust for such services. Administrative and accounting fees paid by the Trust for the year ended September 30, 2022 are disclosed in the Statement of Operations.

An employee of ALPS serves as the Trust’s chief compliance officer. ALPS provides services that assist the Trust’s chief compliance officer in monitoring and testing the policies and procedures of the Trust in conjunction with requirements under Rule 38a-1 under the 1940 Act and receives an annual base fee. ALPS is reimbursed for certain out-of-pocket expenses by the Trust. Compliance service fees paid by the Trust for the year ended September 30, 2022 are disclosed in the Statement of Operations.

An employee of PINE Advisors LLC (“PINE”) serves as the Trust’s principal financial officer. PINE receives an annual base fee for the services provided to the Trust. PINE is reimbursed for certain out-of-pocket expenses by the Trust. Service fees paid by the Trust for the year ended September 30, 2022 are disclosed in the Statement of Operations.

DST Systems Inc., an affiliate of ALPS, serves as transfer, dividend paying and shareholder servicing agent for the Trust. U.S. Bank N.A. serves as the Trust’s custodian. Transfer agent fees paid by the Trust for the year ended September 30, 2022 are disclosed in the Statement of Operations.

4. DISTRIBUTIONS

The Trust intends to pay substantially all of its net investment income, if any, to holders of common shares (“Common Shareholders”) through periodic distributions. The Trust intends to distribute any net long-term capital gains to Common Shareholders at least annually. The Trust intends to declare distributions monthly. To permit the Trust to maintain more stable monthly distributions, the Trust may distribute more or less than the amount of the net income earned in a particular period. There is no assurance the Trust will continue to pay regular monthly distributions or that it will do so at a particular rate. Distributions may be paid by the Trust from any permitted source and, from time to time, all or a portion of a distribution may be a return of capital. Shareholders should not assume that the source of the distribution from the Trust is net income or profit.

The Series 2026 Term Preferred Shares and Series 2029 Convertible Preferred Shares pay a quarterly dividend at a fixed annual rate of 6.50% and 6.00%, respectively, of the Liquidation Preference, or $1.625 and $1.50, respectively, per share per year, which is referred to as the “Fixed Dividend Rate.” The Fixed Dividend Rate is subject to adjustment under certain circumstances.

For the year ended September 30, 2022, the Trust paid the following distributions or dividends totaling $0.876 per common share, $1.625 per Series 2026 Term Preferred Share, and $0.12917 per Series 2029 Convertible Preferred Share or $28,020,256, $2,593,500, and $51,668, respectively, in the aggregate:

Common Share and Preferred Share Dividends and Distributions:

Payment Date	Record Date	Distribution per Common Share		Dividend per Series 2026 Term Preferred Share			Dividend per Series 2029 Convertible Preferred Share
October 1, 2021	September 15, 2021	$	0.073		–		N/A
November 1, 2021	October 15, 2021	$	0.073	$	0.40625		N/A
December 1, 2021	November 16, 2021	$	0.073		–		N/A
December 31, 2021	December 15, 2021	$	0.073		–		N/A
January 31, 2022	January 18, 2022		–	$	0.40625		N/A
February 1, 2022	January 18, 2022	$	0.073		–		N/A
March 1, 2022	February 15, 2022	$	0.073		–		N/A
April 1, 2022	March 15, 2022	$	0.073		–		N/A
May 2, 2022	April 18, 2022		–	$	0.40625		N/A
May 2, 2022	April 18, 2022	$	0.073		–		N/A
June 1, 2022	May 16, 2022	$	0.073		–		N/A
July 1, 2022	June 15, 2022	$	0.073		–		–
August 1, 2022	July 15, 2022		–	$	0.40625	$	0.12917
August 1, 2022	July 15, 2022	$	0.073		–		–
September 1, 2022	August 16, 2022	$	0.073		–		–

38 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

The Trust expects that distributions paid on the common shares will consist primarily of (i) investment company taxable income, which includes ordinary income (such as interest, dividends, and certain income from hedging or derivatives transactions) and the excess, if any, of net short-term capital gain over net long-term capital loss, and (ii) net capital gain (which is the excess of net long-term capital gain over net short-term capital loss). All or a portion of a distribution may be a return of capital, which is determined on a tax basis.

The Trust’s net investment income and capital gain can vary significantly over time, however, the Trust seeks to maintain more stable monthly common share distributions over time. To permit the Trust to maintain more stable monthly common share distributions, the Trust may initially distribute less than the entire amount of the net investment income earned in a particular period. The undistributed net investment income may be available to supplement future common share distributions. Undistributed net investment income is included in the common shares’ NAV, and, correspondingly, distributions from net investment income will reduce the common shares’ NAV.

The Trust’s investments in CLOs may be subject to complex tax rules and the calculation of taxable income attributed to an investment in CLO equity (subordinated securities) can be dramatically different from the calculation of income for financial reporting purposes under U.S. GAAP, and, as a result, there may be significant differences between the Trust’s U.S. GAAP income and its taxable income. The Trust’s final taxable income for the current fiscal year will not be known until the Trust’s tax returns are filed.

All or a portion of a distribution may be a return of capital, which is in effect a partial return of the amount a shareholder invested in the Trust, up to the amount of the shareholder’s tax basis in their shares, which would reduce such tax basis. Although a return of capital may not be taxable, it will generally increase the shareholder’s potential gain, or reduce the shareholder’s potential loss, on any subsequent sale or other disposition of shares. Shareholders who periodically receive the payment of a distribution consisting of a return of capital may be under the impression that they are receiving net income or profits when they are not. Shareholders should not assume that the source of a distribution from the Trust is net income or profit.

Pursuant to the requirements of the 1940 Act, in the event the Trust makes distributions from sources other than income, such as return of capital, a notice will be provided in connection with each monthly distribution with respect to the estimated source of the distribution made. Such notices will describe the portion, if any, of the monthly dividend which, in the Trust’s good faith judgment, constitutes long-term capital gain, short-term capital gain, investment company taxable income or a return of capital. The characterization of distributions paid to shareholders reflect estimates made by the Trust. Such estimates are subject to be characterized differently for federal income tax purposes at year-end. The actual character of such dividend distributions for U.S. federal income tax purposes will only be determined finally by the Trust at the close of its fiscal year, based on the Trust’s full year performance and its actual net investment company taxable income and net capital gains for the year, which may result in a recharacterization of amounts distributed during such fiscal year from the characterization in the monthly estimates.

The Trust may, but is not required to, seek to obtain exemptive relief to permit the Trust to make periodic distributions of long-term capital gains with respect to its common shares as frequently as monthly. Such relief, if obtained, would permit the Trust to implement a “managed distribution policy” pursuant to which the Trust would distribute a fixed percentage of the net asset value (or market price if then applicable) of the common shares at a particular point in time or a fixed monthly amount, any of which may be adjusted from time to time. It is anticipated that under such a distribution policy, the minimum annual distribution rate with respect to the common shares would be independent of the Trust’s performance during any particular period but would be expected to correlate with the Trust’s performance over time.

The Trust reserves the right to change its distribution policy and the basis for establishing the rate of distributions at any time and may do so without prior notice to Common Shareholders. Future distributions will be made if and when declared by the Trust’s Board of Trustees, based on a consideration of number of factors, including the Trust’s continued compliance with terms and financial covenants of its senior securities, the Trust’s net investment income, financial performance and available cash. There can be no assurance that the amount or timing of distributions in the future will be equal or similar to that of past distributions or that the Board of Trustees will not decide to suspend or discontinue the payment of distributions in the future.

Common share distributions shall be paid on their payment date unless the payment of such distribution is deferred by the Board of Trustees upon a determination that such deferral is required in order to comply with applicable law or the applicable terms or financial covenants of the Trust’s senior securities or to ensure that the Trust remains solvent and able to pay its debts as they become due and continue as a going concern.

Cumulative cash dividends or distributions on each Series 2026 Term Preferred Share and Series 2029 Convertible Preferred Share are payable quarterly, when, as and if declared, or under authority granted, by the Board of Trustees out of funds legally available for such payment and in preference to dividends and distributions on Common Shares. If the Trust is unable to distribute the full dividend amount due in a dividend period on the Trust’s Preferred Shares, the dividends will be distributed on a pro rata basis among the preferred shareholders. The Trust pays dividends on the Preferred Shares every January 31, April 30, July 31 and October 31.

Annual Report | September 30, 2022 39

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

5. CAPITAL TRANSACTIONS

Pursuant to the Trust’s Agreement and Declaration of Trust, the Trust is authorized to issue an unlimited number of shares of beneficial interest, par value $0.01 per share.

The table below provides information of the Trust’s outstanding common shares of beneficial interest par value of $0.01 per share (“Common Shares”), the Trust’s Series 2026 Term Preferred Shares, par value of $0.01 per share and the Trust’s Series 2029 Convertible Preferred Shares, par value of $0.01 per share.

	For the Year Ended		For the Year Ended
	September 30, 2022		September 30, 2021
Common Shares outstanding - beginning of year		26,674,283		12,956,451
Common Shares issued in connection with the at-the-market offering		6,980,788		6,743,035
Common Shares issued in connection with the at-the-market offering		1,450,000		–
Common Shares issued from underwriters' firm commitment underwriting, including over-allotment options exercised		–		6,834,302
Common Shares issued as reinvestment dividends		363,461		140,495
Common Shares outstanding - end of year		35,468,532		26,674,283

	Series 2026 Term Preferred Shares				Series 2029 Convertible Preferred Shares
	For the Year ended September 30, 2022		For the Year Ended September 30, 2021		For the Year Ended September 30, 2022
Preferred Shares outstanding – beginning of year		1,596,000		–		–
Preferred Shares issued from underwriters’ firm commitment underwriting, including over-allotment options		–		1,196,000		–
Preferred Shares issued in connection with a privately negotiated direct purchase agreement		–		400,000		400,000
Preferred Shares outstanding – end of year		1,596,000		1,596,000		400,000

The Board of Trustees is authorized to classify and reclassify any unissued shares into other classes or series of shares and authorize the issuance of shares without obtaining stockholder approval.

On December 4, 2020, the Trust entered into a Second Amended and Restated Distribution Agreement (the “Original Agreement”) with Foreside Fund Services, LLC (the "Distributor"), pursuant to which the Trust could offer and sell up to 5,250,000 Common Shares, from time to time, through the Distributor, in transactions that are deemed to be at-the-market as defined in Rule 415 under the Securities Act of 1933.

On December 18, 2020, the Trust filed with the SEC a new shelf registration statement on Form N-2 allowing for delayed or continuous offering of up to $100,000,000 aggregate initial offering price of Common Shares, preferred shares, subscription rights for Common Shares and subscription rights for preferred shares. The shelf registration statement was declared effective on February 2, 2021.

On February 5, 2021, the Trust entered into a Distribution Agreement (the “Prior Agreement”) with the Distributor, pursuant to which the Trust may offer and sell up to 8,000,000 Common Shares, from time to time, through the Distributor, in transactions that are deemed to be “at-the-market” as defined in Rule 415 under the Securities Act of 1933. The Prior Agreement superseded the Original Agreement.

On December 1, 2021, the Trust and the Distributor amended and restated the Prior Agreement, pursuant to which the Trust may offer and sell up to 11,367,051 Common Shares, from time to time, through the Distributor, in transactions that are deemed to be “at-the-market” as defined in Rule 415 under the Securities Act of 1933.

40 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

On February 10, 2022, the Trust entered into a new Distribution Agreement (the “New Agreement”) with the Distributor, pursuant to which the Trust may offer and sell up to 18,300,000 Common Shares, from time to time, through the Distributor, in transactions that are deemed to be “at-the-market” as defined in Rule 415 under the Securities Act of 1933. The New Agreement superseded the Prior Agreement and any amendments thereto. The minimum price on any day at which Common Shares may be sold will not be less than the then current net asset value per Common Share plus any commissions to be paid to the Distributor. The Trust’s at-the-market program, under the agreements, resulted in shares issued and proceeds generated as follows:

	For the Year ended September 30, 2022		For the Year Ended September 30, 2021
Common Shares Issued		6,980,788		6,743,035
Net Proceeds	$	60,407,246	$	57,705,408

On February 25, 2021, the Trust entered into an underwriting agreement among the Trust, the Adviser, the Sub-Adviser and the underwriters listed therein to sell 2,900,250 Common Shares (exclusive of 435,038 Common Shares that the underwriters had the right to purchase pursuant to a 30-day option to cover overallotments, if any) at a price to the public of $8.62 per share. On March 29, 2021, the Trust issued and sold to the underwriters 2,900,250 Common Shares at a total public offering price (before deduction of the sales load and offering expenses) of $25,000,155.

On March 1, 2021, the underwriters partially exercised the overallotment option to purchase 369,052 Common Shares at a total public offering price (before deduction of the sales load and offering expenses) of $3,181,228.

On March 23, 2021, the Trust entered into an underwriting agreement among the Trust, the Adviser, the Sub-Adviser and the underwriters listed therein to sell 1,040,000 Series 2026 Term Preferred Shares (exclusive of 156,000 Series 2026 Term Preferred Shares that the underwriters had the right to purchase pursuant to a 30-day option to cover overallotments, if any) at a price to the public of $25.00 per share. On March 29, 2021, the Trust issued and sold to the underwriters 1,040,000 Series 2026 Term Preferred Shares at a total public offering price (before deduction of the sales load and offering expenses) of $26,000,000. On April 3, 2021, the underwriters partially exercised the overallotment option to purchase 156,000 Series 2026 Term Preferred Shares totaling $3,900,000 (before deduction of the sales load and offering expenses).

On July 21, 2021, the Trust entered into an underwriting agreement among the Trust, the Adviser, the Sub-Adviser and the underwriters listed therein to sell 3,100,000 Common Shares (exclusive of 465,000 Common Shares that the underwriters had the right to purchase pursuant to a 30-day option to cover overallotments, if any) at a price to the public of $8.50 per share. On July 23, 2021, the Trust issued and sold to the underwriters 3,565,000 Common Shares (including the overallotment of 465,000 Common Shares, which was exercised on July 21, 2021) at a total public offering price (before deduction of the sales load and offering expenses) of $30,302,500.

On September 8, 2021, the Trust entered into a direct purchase agreement between the Trust and the purchasers listed therein to sell in a privately negotiated transaction 400,000 Series 2026 Term Preferred Shares at a price $25.00 per share (plus accrued dividends equal to $0.17604 per share). On September 9, 2021, the Trust issued and sold to the purchasers 400,000 Series 2026 Term Preferred Shares for total gross proceeds (before deduction of offering expenses) of $10,000,000 (plus accrued dividends).

On June 28, 2022, the Trust entered into a direct purchase agreement between the Trust and the purchasers listed therein to sell in a privately negotiated transaction up to 1,200,000 Series 2029 Convertible Preferred Shares at a price $23.25 per share. On June 30, 2022, the Trust issued and sold to the purchasers 400,000 Series 2029 Convertible Preferred Shares for total gross proceeds (before deduction of offering expenses) of $9,300,000. The Trust retains the discretion to issue and sell an additional 800,000 shares at a price of $23.25 per share to the purchasers at one or more subsequent closings on or before June 30, 2023.

On June 28, 2022, the Trust entered into a registered direct placement agreement between the Trust and the purchasers listed therein to sell in a privately negotiated transaction 1,450,000 Common Shares at a price of $6.90 per share. On June 30, 2022, the Trust issued and sold to the purchasers 1,450,000 Common Shares for total gross proceeds (before the deduction of offering expenses) of $10,005,000.

The Trust paid $558,231 in offering costs during the period relating to the at-the-market program, the direct purchase agreement and the direct placement agreement offering costs are charged to paid-in capital upon the issuance of shares. For the year ended September 30, 2022, the Trust deducted $610,664 of offering costs from paid-in capital. The Statement of Assets and Liabilities as of September 30, 2022 reflect $548,539 of deferred offering costs outstanding.

Annual Report | September 30, 2022 41

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

6. LEVERAGE

The Trust uses leverage to seek to enhance total return and income. The Trust may use leverage through (i) the issuance of senior securities representing indebtedness, including through borrowing from financial institutions or issuance of debt securities, including notes or commercial paper (collectively, “Indebtedness”), (ii) the issuance of preferred shares and/or (iii) reverse repurchase agreements, securities lending, short sales or derivatives, such as swaps, futures or forward contracts, that have the effect of leverage (“portfolio leverage”). The Trust currently intends to use leverage through Indebtedness and may use Indebtedness to the maximum extent permitted under the 1940 Act. Under the 1940 Act, the Trust may utilize Indebtedness up to 33 1/3% of its Managed Assets (specifically, the Trust may not incur Indebtedness if, immediately after incurring such Indebtedness, the Trust would have asset coverage (as defined in the 1940 Act) of less than 300% and the preferred asset coverage shall not be less than 200%).

Credit Facility

The Trust entered into a Credit Agreement dated October 6, 2017 as amended from time to time (the “Credit Agreement”) with Société Générale (the “Lender”) that establishes a revolving credit facility (the “Facility”). Currently, the Trust may borrow up to $175,000,000. The Facility’s maturity date is March 21, 2024, subject to certain reciprocal termination rights. The Trust pays interest on amounts borrowed based on daily compounded secured overnight financing rate (“SOFR”) plus 1.45%. Interest charged to the Trust during the year is presented on the Statement of Operations under Interest expense and amortization of deferred leverage costs. The Trust’s borrowings are secured by eligible securities held in its portfolio of investments. The Credit Agreement includes usual and customary covenants. Among other things, these covenants place limitations or restrictions on the Trust’s ability to (i) incur other indebtedness, (ii) change certain investment policies, or (iii) pledge or create liens upon the assets of the Trust. In addition, the Trust is required to deliver financial information to the Lender, maintain an asset coverage ratios with respect to its Indebtedness and Preferred Shares as required by the 1940 Act, meet certain other coverage tests and financial covenants and maintain its registration as a closed-end management investment company. If the Trust fails to meet such coverage tests and financial covenants, its ability to declare and pay distributions on common and preferred shares may be restricted. No violations of the credit agreement occurred during the year ended September 30, 2022.

For the year ended September 30, 2022, the average amount borrowed under the Credit Agreement and the average interest rate for the amount borrowed was $115,717,123 and 2.01%, respectively. As of September 30, 2022, the amount of such outstanding borrowings was $113,150,000. The interest rate applicable to the borrowings on September 30, 2022 was 4.44%. All securities held as of September 30, 2022 are pledged as collateral for the leverage facility. The maximum amount borrowed during the period ended was $124,150,000.

Series 2026 Term Preferred Shares

On March 29, 2021, the Trust issued 1,040,000 shares of Series 2026 Term Preferred Shares with a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). On April 3, 2021, the underwriters partially exercised an overallotment option to purchase 156,000 Series 2026 Term Preferred Shares. On September 9, 2021, the Trust issued an additional 400,000 shares of the Series 2026 Term Preferred Shares. The Series 2026 Term Preferred Shares are listed under the trading symbol XFLTPRA on the NYSE. The Series 2026 Term Preferred Shares are entitled to a dividend at a rate of 6.50% per year, paid quarterly, based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series 2026 Term Preferred Shares are generally not redeemable at the Trust’s option prior to the close of business on March 31, 2023, and are subject to mandatory redemption by the Trust in certain circumstances. On or after September 30, 2026, the Trust may redeem in whole, or from time to time in part, outstanding Series 2026 Term Preferred Shares at a redemption price per share equal to the per share liquidation preference of $25.00 per share, plus accumulated and unpaid dividends, if any, through the date of redemption. Issuance costs related to the Series 2026 Term Preferred Shares of $1,285,375 are deferred and amortized over the period the Series 2026 Term Preferred Shares are outstanding.

Series 2029 Convertible Preferred Shares

On June 30, 2022, the Trust issued 400,000 shares of Series 2029 Convertible Preferred Shares with a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series 2029 Convertible Preferred Shares are entitled to a dividend at a rate of 6.00% per year, paid quarterly, based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Trust retains the discretion to issue and sell an additional 800,000 shares at a price of $23.25 per share to the purchasers at one or more subsequent closings on or before June 30, 2023. The Series 2029 Convertible Preferred Shares are generally not redeemable at the Trust’s option prior to the close of business on June 30, 2024, and are subject to mandatory redemption by the Trust in certain circumstances. On or after June 30, 2029, the Trust may redeem in whole, or from time to time in part, outstanding Series 2029 Convertible Preferred Shares at a redemption price per share equal to the per share liquidation preference of $25.00 per share, plus accumulated and unpaid dividends, if any, through the date of redemption. Issuance costs related to the Series 2029 Convertible Preferred Shares of $648,375 are deferred and amortized over the period the Series 2029 Convertible Preferred Shares are outstanding.

42 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

Shareholders of the Series 2029 Convertible Preferred Shares may opt to convert the shares any time on or after the date six months after the share issuance into Common Shares of the Trust equal to the liquidation preference of the Series 2029 Convertible Preferred Share plus an amount equal to all accumulated but unpaid dividends and distributions on the share, divided by the Conversion Price. The “Conversion Price” is the greater of (i) the market price per Common Share of the Trust, represented by the five-day volume-weighted average price (“VWAP”) per Common Share ending on the trading day immediately preceding the date of conversion exercise, or (ii) the Trust's most recently NAV per Common Share immediately prior to the date of exercise. If the Trust fails to fulfill its obligations to deliver Common Shares upon conversion, the quarterly dividend rate payable on the unfulfilled Series 2029 Convertible Preferred Shares will increase to a fixed annual rate of 8.00% of the liquidation preference until the date the Trust fulfills its conversion obligation.

7. PORTFOLIO INFORMATION

Purchase and Sales of Securities: For the year ended September 30, 2022, the cost of purchases and proceeds from sales of securities, excluding short-term obligations were as follows:

Cost of Investments Purchased	$	219,123,255
Proceeds from Investments Sold	$	115,792,927

8. UNFUNDED COMMITMENTS

The Trust may enter into certain credit agreements, all or a portion of which may be unfunded. The Trust is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked-to-market daily. Net unrealized appreciation/depreciation on unfunded commitments is reflected in other assets and payable for investment securities purchased in the Statement of Assets and Liabilities and unrealized appreciation (depreciation) on investments in the Statement of Operations. At September 30, 2022, the Trust had unfunded commitments with the following securities:

Athenahealth Group, Inc.	$	556,175
Element Materials Technology Group US Holdings Inc		322,794
CP Iris Holdco I, Inc.		45,578
	$	924,547

At the time the Trust entered into each unfunded commitment, the Trust reasonably believed it would have sufficient cash and cash equivalents to meet its obligations with respect to such unfunded commitment.

9. TAXES

Classification of Distributions: Because U.S. federal income tax regulations differ from U.S. GAAP, net investment income and net realized gains may differ for financial statement and tax purposes. The “tax return of capital” referenced in the Trust’s Statement of Changes in Net Assets and Financial Highlights is based on the characterization under tax regulations. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. For the Trust, these differences are due to temporary book/tax differences arising primarily from the income recognition deferral for distributions received from certain CLO equity positions that qualify as passive foreign investment companies. Also, due to the timing of dividend distributions, the fiscal year in which the amounts are distributed for tax purposes may differ from the fiscal year in which the income or realized gain was recorded by the Trust.

Paid-in capital			Distributable Earnings
$	(120,694	)	$	120,694

The tax character of distributions paid by the Trust during the year ended September 30, 2022, was as follows:

2022
Distributions Paid From:
Ordinary income – Common Shareholders	$	25,912,651
Ordinary income – Preferred Shareholders		2,645,168
Return of capital		1,437,750
Total	$	29,995,569

Annual Report | September 30, 2022 43

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

The tax character of distributions paid by the Trust during the year ended September 30, 2021, was as follows:

2021
Distributions Paid From:
Ordinary income	$	5,696,731
Return of capital		9,769,169
Total	$	15,465,900

At September 30, 2022, the components of distributable earnings on a tax basis for the Trust were as follows:    

Undistributed ordinary income	$	–
Accumulated capital losses		(11,697,905	)
Unrealized depreciation		(47,568,047	)
Dividends payable		(3,130,322	)
Total	$	(62,396,274	)

Tax Basis of Investments: Net unrealized appreciation/(depreciation) of investments based on federal tax cost as of September 30, 2022, was as follows:

Cost of investments for income tax purposes	$	437,127,777
Gross appreciation (excess of value over tax cost)	$	16,583,446
Gross depreciation (excess of tax cost over value)		(64,151,493	)
Net unrealized depreciation	$	(47,568,047	)

The difference between book basis and tax basis distributable earnings and unrealized appreciation/(depreciation) is primarily attributable to passive foreign investment company ("PFIC") adjustments applicable to certain CLO equity positions, deferral of losses on wash sales, and investments in partnerships.

Under current law, capital losses maintain their character as short-term or long-term and are carried forward to the next tax year without expiration. As of the current fiscal year end, the following amounts are available as carry forwards to the next tax year:

Short Term	$	4,320,171
Long Term		7,377,734

Federal Income Tax Status: For federal income tax purposes, the Trust currently qualifies, and intends to continue to qualify, as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its investment company taxable net income and realized gain, not offset by capital loss carryforwards, if any, to its shareholders. No provision for federal income taxes has been made.

As of and during the year ended September 30, 2022, the Trust did not have a liability for any unrecognized tax benefits. The Trust files U.S. federal, state, and local tax returns as required. The Trust’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return.

As a registered investment company, the Trust is subject to a 4% excise tax that is imposed if the Trust does not distribute by the end of any calendar year at least the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii) 98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year. In certain circumstances, the Trust may elect to retain income or capital gain to the extent that the Board of Trustees, in consultation with Trust management, determines it to be in the interest of shareholders to do so. Alternatively, the Trust may have to dispose of portfolio securities to make a distribution at a time when independent investment judgment might not dictate such disposition.

44 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Notes to Financial Statements
	September 30, 2022

Depending on the level of taxable income earned in a tax year, the Trust may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Trust determines that its estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, the Trust accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned.

10. PREFERRED STOCK AND SENIOR SECURITIES

The following table sets forth information about the Trust’s outstanding senior securities as of the end of each fiscal year since its inception.

Fiscal Period Ended	Title of Security	Total Principal Amount Outstanding		Aggregate Liquidation Preference		Liquidation Preference Per Share		Asset Coverage
September 30, 2022	Borrowings	$	113,150,000	$	–	$	–	$	3,004	(1)
–	Series 2026 Term Preferred Shares	$	39,900,000	$	39,900,000	$	25.00	$	139	(2)
–	Series 2029 Convertible Preferred Shares	$	10,000,000	$	10,000,000	$	25.00	$	139	(2)
September 30, 2021	Borrowings	$	98,150,000	$	–	$	–	$	3,227
–	Series 2026 Term Preferred Shares	$	39,900,000	$	39,900,000	$	25.00	$	162
September 30, 2020	Borrowings	$	35,650,000	$	–	$	–	$	3,384
September 30, 2019	Borrowings	$	38,965,000	$	–	$	–	$	3,020
September 30, 2018	Borrowings	$	38,865,000	$	–	$	–	$	3,041

(1) The asset coverage ratio for the Credit Facility is calculated by subtracting the Trust’s total liabilities and indebtedness not represented by senior securities from the Trust’s total assets, dividing the result by the aggregate amount of the Trust’s senior securities representing indebtedness then outstanding, and then multiplying by $1,000.

(2) The asset coverage ratio for a class of senior securities representing stock is calculated as the Trust’s total assets, less all liabilities and indebtedness not represented by the Trust’s senior securities, divided by secured senior securities representing indebtedness plus the aggregate of the involuntary liquidation preference of secured senior securities which are stock. With respect to the Preferred Shares, the asset coverage per unit figure is expressed in terms of dollar amounts per share of outstanding Preferred Shares (based on a liquidation preference of $25).

11. SUBSEQUENT EVENTS

On September 1, 2022, the Trust declared a distribution of $0.073 per Common Share, which was paid on October 3, 2022 to Common Shareholders of record on September 16, 2022.

On October 3, 2022, the Trust declared a distribution of $0.073 per Common Share, which was paid on November 1, 2022 to Common Shareholders of record on October 17, 2022. The Trust declared a quarterly dividend of $0.40625 per Series 2026 Term Preferred Share and $0.375 per Series 2029 Convertible Preferred Share, which were paid on October 31, 2022 to preferred shareholders of record on October 17, 2022.

On November 1, 2022, the Trust declared a distribution of $0.073 per Common Share, payable on December 1, 2022 to Common Shareholders of record on November 15, 2022.

Annual Report | September 30, 2022 45

XAI Octagon Floating Rate &	Report of Independent Registered
Alternative Income Term Trust	Public Accounting Firm

To the Shareholders and Board of Trustees of

XAI Octagon Floating Rate & Alternative Income Term Trust

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of XAI Octagon Floating Rate & Alternative Income Term Trust (the “Fund”) as of September 30, 2022, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets applicable to common shareholders for each of the two years in the period then ended, the related notes, and the financial highlights for each of the two years in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2022, the results of its operations and its cash flows for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

The Fund’s financial highlights for the periods ended September 30, 2020 and prior, were audited by other auditors whose report dated November 7, 2020, expressed an unqualified opinion on those financial highlights.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022, by correspondence with the custodian and agent banks; when replies were not received from agent banks, we performed other alternative procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Fund’s auditor since 2021.

 

COHEN & COMPANY, LTD.

Cleveland, Ohio
November 23, 2022

46 www.xainvestments.com

XAI Octagon Floating Rate &	Certain Changes Occurring
Alternative Income Term Trust	During the Prior Fiscal Year
	September 30, 2022 (Unaudited)

The following information is a summary of certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you purchased shares of the Trust.

CHANGE IN NON-FUNDAMENTAL INVESTMENT POLICIES

On February 22, 2022, the Board of Trustees eliminated the Trust's non-fundamental investment policy that the Trust would not utilize leverage, either through indebtedness, Preferred Shares or portfolio leverage, in an aggregate amount in excess of 40% of the Trust's Managed Assets (including the proceeds of leverage). Following this change in investment policy, the Trust is permitted to utilize leverage to the maximum extend permitted by the 1940 Act.

Annual Report | September 30, 2022 47

XAI Octagon Floating Rate &
Alternative Income Term Trust	Fees and Expenses
	September 30, 2022 (Unaudited)

The following table contains information about the costs and expenses that Common Shareholders will bear directly or indirectly. The table is based on the capital structure of the Trust as of September 30, 2022. The purpose of the table and the example below is to help Common Shareholders understand the fees and expenses that they would bear directly or indirectly.

Common Shareholder Transaction Expenses
Sales load paid by Common Shareholders (as a percentage of offering price)	–(1)
Offering expenses borne by the Trust (as a percentage of offering price)	–(1)
Dividend reinvestment plan fees(2)	None

	As a Percentage of Net Assets Attributable to Common  Shares
Annual Expenses
Management fees(3)		2.81%
Leverage expense
Interest payment on borrowed Funds(4)		1.37%
Preferred Share dividends(5)		1.11%
Other expenses
Investor Support and Secondary Market Support Services Fee(6)		0.33%
Other(7)(8)		0.67%
Total annual expenses		6.29%

(1) If Common Shares are sold to or through underwriters, a prospectus or prospectus supplement will set forth any applicable sales load and the estimated offering expenses borne by the Trust.

(2) Common Shareholders will incur brokerage charges if they direct DST Systems, as the dividend reinvestment plan agent for the Common Shareholders, to sell their Common Shares held in a dividend reinvestment account.

(3) The Trust pays the Adviser an annual management fee, payable monthly in arrears, in an amount equal to 1.70% of the Trust’s average daily Managed Assets. Common Shareholders bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of leverage, which means that Common Shareholders effectively bear the entire management fee. The contractual management fee rate of 1.70% of the Trust’s Managed Assets represents an effective management fee rate of 2.81% of net assets attributable to Common Shares, assuming financial leverage of 41.84% of the Trust’s Managed Assets (the Trust’s outstanding financial leverage as of September 30, 2022). The Adviser pays to the Sub-Adviser a sub-advisory fee out of the management fee received by the Adviser.

(4) Based on Indebtedness under the Credit Agreement at September 30, 2022 in an amount equal to $113,150,000, at an annual interest rate of 3.21% as of September 30, 2022. The costs associated with such Indebtedness are borne entirely by Common Shareholders.

(5) Based on 1,596,000 shares of 2026 Preferred Shares outstanding and 400,000 shares of 2029 Convertible Preferred Shares outstanding at September 30, 2022 with an aggregate liquidation preference of $39.9 million and $10 million, respectively, and an annual dividend rate equal to 6.50% and 6.00%, respectively, of such liquidation preference. The costs associated with the 2026 Preferred Shares and 2029 Convertible Preferred Shares are borne entirely by Common Shareholders.

(6) The Trust has retained the Adviser to provide investor support services and secondary market support services in connection with the ongoing operation of the Trust. The Trust pays the Adviser a service fee, payable monthly in arrears, in an annual amount equal to 0.20% of the Trust’s average daily Managed Assets.

(7) Expenses attributable to the Trust’s investments, if any, in other investment companies, including closed-end funds and exchange-traded funds, are currently estimated not to exceed 0.01% of net assets attributable to Common Shares.

(8) The “Other expenses” shown in the table and related footnotes include operating expenses of the Trust and are based upon estimated amounts for the Trust’s current fiscal year.

Example

The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares, assuming (1) total annual expenses of 6.29% of net assets attributable to Common Shares and (2) a 5% annual return. The example assumes that the estimated Total Annual Expenses set forth in the Annual Expenses table are accurate and that all dividends and distributions are reinvested at net asset value per Common Share. Actual expenses may be greater or less than those assumed. Moreover, the Trust’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.

1 Year		3 Years		5 Years		10 Years
	$62		$185		$305		$590

The Example should not be considered a representation of future expenses or returns. Actual expenses may be higher or lower than those assumed. Moreover, the Trust’s actual rate of return may be higher or lower than the hypothetical 5% return shown in the example.

48 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Market and Net Asset Value Information
	September 30, 2022 (Unaudited)

The Trust’s currently outstanding Common Shares are listed on the NYSE. The Trust’s Common Shares commenced trading on the NYSE on September 27, 2017.

The Common Shares have traded both at a premium and at a discount to the Trust’s net asset value per share. Although the Common Shares recently have traded at a premium to net asset value, there can be no assurance that this will continue after the offering nor that the Common Shares will not trade at a discount in the future. Shares of closed-end investment companies frequently trade at a discount to net asset value. The Trust’s net asset value will be reduced immediately following an offering of the Common Shares due to the costs of such offering, which will be borne entirely by the Trust. The sale of Common Shares by the Trust (or the perception that such sales may occur) may have an adverse effect on prices of Common Shares in the secondary market. An increase in the number of Common Shares available may result in downward pressure on the market price for Common Shares.

The following table sets forth, for each of the periods indicated, the high and low closing market prices for the Common Shares on the NYSE, the net asset value per Common Share and the premium or discount to net asset value per Common Share at which the Common Shares were trading.

	Market Price				Corresponding Net Asset Value Per Common Share				Corresponding Premium/(Discount) as a Percentage of Net Asset Value
Fiscal Quarter Ended	High		Low		High		Low		High			Low
September 30, 2022	$	7.40	$	5.94	$	6.86	$	6.39		7.87	%		-7.04	%
June 30, 2022	$	8.57	$	6.75	$	7.92	$	6.82		8.21	%		-1.03	%
March 31, 2022	$	9.57	$	8.38	$	8.17	$	7.62		17.14	%		9.97	%
December 31, 2021	$	9.45	$	8.50	$	8.37	$	8.16		12.90	%		4.17	%
September 30, 2021	$	9.77	$	8.51	$	8.06	$	8.14		21.22	%		4.55	%
June 30, 2021	$	9.55	$	8.48	$	8.08	$	7.92		18.19	%		7.07	%
March 31, 2021	$	9.34	$	7.44	$	7.88	$	7.34		18.53	%		1.36	%
December 31, 2020	$	8.00	$	6.04	$	7.31	$	6.55		9.44	%		-7.79	%
September 30, 2020	$	6.55	$	5.85	$	5.89	$	5.87		11.21	%		-0.34	%
June 30, 2020	$	5.73	$	4.27	$	5.62	$	4.83		1.96	%		-11.59	%
March 31, 2020	$	8.35	$	4.08	$	8.03	$	4.51		3.99	%		-9.53	%
December 31, 2019	$	9.01	$	7.99	$	8.15	$	7.74		10.55	%		3.23	%

As of September 30, 2022, the last reported sale price, net asset value per Common Share and percentage discount to net asset value per Common Share was $5.94, $6.39 and -7.04%, respectively.

The Trust cannot predict whether its Common Shares will trade in the future at a premium to or discount from net asset value, or the level of any premium or discount. Shares of closed-end investment companies frequently trade at a discount from net asset value. As a result of recent market conditions, the Trust’s net asset value may fluctuate significantly.

Annual Report | September 30, 2022 49

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

INVESTMENT OBJECTIVE

The investment objective of the Trust is to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle. There can be no assurance that the Trust will achieve its investment objective. The investment objective of the Trust may be changed by the Board of Trustees on 60 days’ prior written notice to shareholders.

INVESTMENT STRATEGY

The Trust seeks to achieve its investment objective by investing in a dynamically managed portfolio of opportunities primarily within the private credit markets. Under normal market conditions, the Trust will invest at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments.

Credit Instruments

The Trust’s investments may include (i) structured credit investments, including CLO debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments. The Trust may invest without limitation in loans, bonds and other debt securities, CLO securities, including debt and subordinated (i.e., residual or equity) CLO securities, credit default swaps and other credit and credit-related instruments. The Trust may invest in senior, junior, secured and unsecured credit instruments. Floating rate credit instruments have floating or variable interest rates, and include floating rate instruments the interest rates of which vary periodically based upon, or inverse to, a benchmark indicator of prevailing interest rates.

Below-Investment Grade Investments

The Trust currently intends to pursue its investment objective by investing primarily in below investment grade credit instruments, but may invest without limitation in investment grade credit instruments. A credit instrument is considered below investment grade quality if it is rated below investment grade (that is, below Baa3- by Moody’s or below BBB- by S&P or Fitch) or, if unrated, judged to be below investment grade quality by the Sub-Adviser. Below investment grade credit instruments are often referred to as “high yield” securities or “junk bonds.” Below investment grade credit instruments are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal.

The Trust will not invest more than 20% of its Managed Assets in credit instruments rated below Caa2 by Moody’s or CCC by S&P or Fitch. In the case of a security receiving two or more different ratings from different rating agencies, the Trust will apply the higher of the ratings for the purposes of the foregoing policy. The foregoing policy applies only at the time an instrument is purchased, and the Trust is not required to dispose of a security if a rating agency downgrades its assessment of that instrument. In determining whether to retain or sell an instrument that has been downgraded, the Sub-Adviser may consider such factors as its assessment of the credit quality of the instrument, the price at which the instrument could be sold, and the rating, if any, assigned to the instrument by other ratings agencies.

Rating agencies, such as Moody’s, S&P or Fitch, are private services that provide ratings of the credit quality of debt obligations. Ratings assigned by a rating agency are not absolute standards of credit quality but represent the opinion of the rating agency as to the quality of the obligation. Rating agencies may fail to make timely changes in credit ratings and an issuer’s current financial condition may be better or worse than a rating indicates. To the extent that the issuer of a security pays a rating agency for the analysis of its security, an inherent conflict of interest may exist that could affect the reliability of the rating. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk or liquidity of such obligations.

To the extent that the Trust invests in unrated lower grade securities, the Trust’s ability to achieve its investment objective will be more dependent on the Sub-Adviser’s credit analysis than would be the case when the Trust invests in rated securities.

Illiquid Investments

The Trust may invest without limitation in illiquid credit instruments, including instruments that are unregistered, restricted, for which there is no readily available trading market or that are otherwise illiquid.

50 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

Maturity and Duration 

The Trust may invest in credit instruments of any maturity, and does not manage its portfolio seeking to maintain a targeted dollar-weighted average maturity level. The Trust does not have a fixed duration target, and the portfolio’s duration may vary significantly over time based on the Sub-Adviser’s assessment of the current market conditions. In comparison to maturity, interest rate duration is a measure of the price volatility of a credit instrument as a result of changes in market interest rates, based on the weighted average timing of the instrument’s expected principal and interest payments. For example, if interest rates increase by 1%, the net asset value of a portfolio with a duration of five years would decrease by approximately 5%. Conversely, if interest rates decline by 1%, the net asset value of a portfolio with a duration of five years would increase by approximately 5%. The longer the duration, the more susceptible the portfolio will be to changes in interest rates. Duration is expressed as a number of years but differs from maturity in that it considers an instrument’s yield, coupon payments, principal payments and call features in addition to the amount of time until the instrument matures. As the value of an instrument changes over time, so will its duration. Prices of instruments with longer durations tend to be more sensitive to interest rate changes than instrument with shorter durations. Longer-maturity investments generally have longer interest rate durations because the investment’s fixed rate is locked in for longer periods of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down with the level of prevailing interest rates. The Trust intends to invest a significant portion of its assets in floating rate or adjustable rate securities and CLO subordinated notes, the income from which will vary based on income received from the underlying collateral and the payments made to the secured notes, both of which may be based on floating rates, which may mitigate risk associated with increases in prevailing short-term interest rates.

Opportunistic Credit Investments

The Trust may invest up to 20% of its Managed Assets in opportunistic credit investments, including stressed and distressed credit situations.

Short Sales

The Trust may, from time to time, engage in short sales of credit instruments in an amount not to exceed 10% of its Managed Assets. A short sale is a transaction in which the Trust sells an instrument that it does not own in anticipation that the market price will decline.

Non-U.S. Investments

While the investment strategy of the Trust does not focus primarily on non-U.S. corporate credit investments, under certain circumstances where such opportunities are favorable, the Trust may invest up to 20% of its Managed Assets in corporate credit instruments issued by non-U.S. issuers and in markets outside the United States. The Trust’s investments in structured credit instruments, which are commonly issued by special purpose vehicles formed in jurisdictions outside of the United States, are not subject to or limited by this policy.

Other Investment Companies

As an alternative to holding investments directly, the Trust may also obtain investment exposure to securities in which it may invest directly by investing up to 10% of its Managed Assets in other investment companies. The Trust may invest in mutual funds, closed-end funds and exchange-traded funds.

Derivatives Transactions

The Trust may, but is not required to, use various derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to earn income or enhance total return. The use of derivatives transactions to earn income or enhance total return may be particularly speculative. Derivatives are financial instruments the value of which is derived from a reference instrument. The Trust may engage in a variety of derivatives transactions, including options, swaps, futures contracts, options on futures contracts and forward currency contracts and options on forward currency contracts. The Trust may purchase and sell exchange-listed and off-exchange derivatives. The Trust may utilize derivatives that reference one or more securities, indices, commodities, currencies or interest rates. In addition, the Trust may utilize new techniques, transactions, instruments or strategies that are developed or permitted as regulatory changes occur.

Temporary Defensive Investments

During periods in which the Sub-Adviser believes that changes in economic, financial or political conditions make it advisable to maintain a temporary defensive posture, or in order to keep the Trust’s cash fully invested, including the period during which the net proceeds of an offering of securities are being invested, the Trust may, without limitation, hold cash or invest its assets in short term investments and repurchase agreements in respect of those instruments.

Portfolio Turnover

The Trust will buy and sell securities to seek to accomplish its investment objective. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Trust. Portfolio turnover generally involves some expense to the Trust, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Higher portfolio turnover may decrease the after-tax return to individual investors in the Trust to the extent it results in an increase in the short-term capital gains portion of distributions to shareholders. The Trust’s portfolio turnover rate may vary greatly from year to year. For the Trust’s fiscal years ended September 30, 2021 and September 30, 2022, the Trust’s portfolio turnover rate was approximately 34% and 29%, respectively.

Unless otherwise stated herein, the Trust’s investment policies and parameters shall apply at the time of investment, and the Trust will not be required to reduce a position solely due to market price fluctuations.

Annual Report | September 30, 2022 51

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

INVESTMENT PHILOSOPHY AND PROCESS

At the heart of Octagon’s investment philosophy is a deep understanding of fundamental credit analysis, enhanced by a process focused on maximizing risk adjusted returns. Octagon’s investment philosophy combines relative value focus and active portfolio management. Over Octagon’s 25-plus-year history, Octagon believes that it has developed a proven, repeatable and scalable credit selection and investment process.

Octagon’s investment process involves four key steps:

● ongoing assessment of investment opportunities;

● research, analysis and written recommendations with defined investment thesis;

● investment committee recommendation and approval of credits considered for investment; and

● continual monitoring which is a collaborative team effort to enhance decision making and risk management.

The Octagon portfolio management team manages positions in an effort to optimize relative value. Octagon’s process benefits from the firm’s history and experience in credit markets dating back to the mid-1990s. Octagon has made a significant investment in technology and human capital with respect to fundamental credit analysis which happens both at the loan-level and the CLO-level. To enhance their bottom-up security level analysis, Octagon has built over time a proprietary database with credit analysis of most of the corporate issuers in the broadly syndicated loan marketplace. Furthermore, for every credit security that Octagon analyzes, the investment team assigns proprietary credit ratings, liquidity ratings, collateral quality ratings, and documentation ratings. Octagon refreshes these internal ratings on an ongoing basis to identify buy and sell opportunities. The Octagon research method is robust, involving various key factors including the assessment of industry dynamics, competitive factors, performance history, deal sponsor, company management, cash flow estimates, liquidity, collateral values, quality, downside protection, capital structure, macroeconomic factors, technical supply and demand and potential political or regulatory influences.

Investment process

Octagon employs a disciplined asset selection process based on fundamental credit analysis and collaborative investment team input to identify attractive relative value opportunities, while seeking to minimize downside risk and produce returns that outperform industry benchmarks. In evaluating potential investments, Octagon assesses industry dynamics and competitive environments, performance history and prospects, investment sponsors and management, projected cash flow generation, quality and value of underlying collateral, downside protection and relative value opportunities within an issuer’s capital structure.

Octagon seeks to identify investment opportunities in both the primary and secondary leveraged credit markets through rigorous industry and company analysis guided by information from issuers, underwriters, agents, and sales and trading desks. Identified investment opportunities are initially screened with a focus on the applicable industry. Octagon utilizes industry expertise, discussions with company management, independent research, relative value data, and input from Octagon investment professionals to efficiently extract information that facilitates credit judgments and recommendations. Octagon considers the business’ competitive position, its ability to generate cash flow, the character of its sponsor and management team, the resilience of the capital structure and the asset’s positioning within it, structural and covenant protection, and the value of collateral in the context of the risk premium offered, as well as macroeconomic backdrop, technical supply and demand, liquidity, industry dynamics, and political and regulatory influences.

With respect to existing portfolio positions, Octagon’s analysis is centered on any changes to the underlying credit or industry that would impact the risk/return attributes of the position, which may lead to a decision to sell an existing position.

Although Octagon’s investment process typically involves investment committee recommendation and approval of credits considered for investment, a limited amount of the Trust’s assets may be invested in short-term trading opportunities within the Trust’s investment policies and parameters that seek near-term favorable price movements. Such investments are sourced by traders and discussed with Octagon’s portfolio managers and principals but are not subject to Octagon’s investment committee review process as described above. The Trust typically does not hold such investments on a long-term basis and typically disposes of such investments within several weeks of their acquisition. It is expected that such investments will typically constitute less than 2% of the Trust’s Managed Assets.

52 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

Risk management

Octagon dynamically manages the Trust’s portfolio based on its evolving credit market outlook in an effort to produce attractive risk-adjusted returns. The Octagon team meets several times each year to monitor portfolios using its robust review process and striving to manage risk via its proprietary internal credit rating and portfolio weighting system. The investment team has a set risk monitoring process which involves the following:

● Relative Value Meetings to examine new market trends and discuss technical dynamics with a focus on recent price changes and price target revisions. At these meetings Octagon investment professionals discuss seeking the best loan and bond relative value and return ideas.

● Loan & Bond Assets Meetings to discuss new leveraged loan and high yield bond issues and trading opportunities.

● Team Network Exchange for daily real-time updates with mobile access to address earnings, news, trading levels, buy/sell recommendations and watch lists.

● Full and Mini Portfolio Reviews to conduct credit review of all assets (full review) or lower-rated assets (mini review) in a single investment professional’s portfolio with a focus on action-oriented recommendations. The objective of these reviews is to affirm or change internal credit ratings and collateral grades.

● Watch List Reviews and Meetings to examine and discuss credits on watch list.

● Strategic Reviews to discuss credit cycle fundamentals and analyze macro factors including GDP, interest rate and default projections. Strategic reviews are designed to determine and forecast shifts in the economic cycle, evaluate the impact of the latest economic and market data and to determine tactical and strategic allocations.

Benchmark Index

The Trust’s opportunistic credit strategy seeks to outperform its primary benchmark, the Morningstar LSTA US Leveraged Loan 100 Index which is designed to measure the performance of the largest facilities in the leveraged loan market. The Morningstar LSTA US Leveraged Loan 100 Index is utilized by the Trust as a comparative measure only. The Trust may from time to time use additional benchmark indices to analyze certain aspects of the Trust’s performance. The Trust is actively managed and does not track any index. Index information is not meant to represent the performance of the Trust or its underlying investments.

THE TRUST’S INVESTMENTS

The Trust’s investment portfolio may consist of investments in the following types of securities. There is no guarantee the Trust will buy all of the types of securities or use all of the investment techniques that are described herein.

Collateralized Loan Obligations

The Trust may invest in CLO securities, including debt and subordinated (i.e., residual or equity) CLO securities. A CLO vehicle generally is an entity that is formed to hold a portfolio consisting principally (typically, 80% or more of its assets) of loan obligations. The loan obligations within the CLO vehicle are limited to loans which meet established credit criteria and are subject to concentration limitations in order to limit a CLO vehicle’s exposure to a single credit. A CLO issues various classes or “tranches” of securities. Each tranche has different payment characteristics and different credit ratings. These tranches are generally categorized as senior, mezzanine, or subordinated/equity, according to their degree of risk. The key feature of the CLO structure is the prioritization of the cash flows from a pool of securities among the several tranches of the CLO. As interest payments are received, the CLO makes contractual interest payments to each tranche of debt based on its seniority. If there are funds remaining after each tranche of debt receives its contractual interest rate and the CLO meets or exceeds required collateral coverage levels (or other similar covenants), the remaining funds may be paid to the subordinated tranche (often referred to as the “residual” or “equity” tranche). The contractual provisions setting out this order of payments are set out in detail in the relevant CLO’s indenture. These provisions are referred to as the “priority of payments” or the “waterfall” and determine the terms of payment of any other obligations that may be required to be paid ahead of payments of interest and principal on the securities issued by a CLO. In addition, for payments to be made to each tranche, after the most senior tranche of debt, there are various tests that must be complied with, which are different for each CLO.

The Trust invests in CLO securities issued by CLOs that principally hold senior secured loans (“Senior Loans”), diversified by industry and borrower. It is also possible that the underlying obligations of CLOs in which the Trust invests will include (i) second lien and/or subordinated loans, (ii) debt tranches of other CLOs, and (iii) equity securities incidental to investments in senior loans. The cash flows on the underlying obligations will primarily determine the payments to holders of CLO securities. CLO securities may have floating interest rates, fixed interest rates or, in the case of subordinated CLO securities, no set interest rate (but rather participate in residual cash flows of the relevant CLO). The rated tranches of CLO securities are generally assigned credit ratings by one or more nationally recognized statistical rating organizations (whether or not such tranches are issued as part of a component of a composite instrument with one or more other instruments). The subordinated tranche does not receive a rating. The transaction documents relating to the issuance of CLO securities impose eligibility criteria on the assets of the CLO, restrict the ability of the CLO’s investment manager to trade investments and impose certain portfolio-wide asset quality requirements.

Annual Report | September 30, 2022 53

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

CLO securities are generally limited recourse obligations of the CLO payable solely from the underlying assets of the CLO or the proceeds thereof. Consequently, holders of CLO securities must rely solely on distributions on the underlying assets or proceeds thereof for payment in respect thereof. The cash flows generated by the underlying obligations held in a CLO’s portfolio will generally determine the interest payments on CLO securities. Payments to holders of tranched CLO securities are made in sequential order of priority.

CLO Subordinated Notes

The Trust may invest in subordinated notes issued by a CLO (often referred to as the “residual,” “equity” or “subordinated” tranche), which are junior in priority of payment and are subject to certain payment restrictions generally set forth in an indenture governing the notes. In addition, CLO subordinated notes generally do not benefit from any creditors’ rights or ability to exercise remedies under the indenture governing the notes. The subordinated notes are not guaranteed by another party. The subordinated tranche is typically unrated and typically represents approximately 8% to 11% of a CLO’s capital structure. The subordinated tranche of a CLO represents the first loss position in the CLO, meaning that it is generally required to absorb the CLO’s losses before any of the CLO’s other tranches, yet it also has the lowest level of payment priority among the CLO’s tranches. The subordinated tranche is typically the riskiest of CLO investments.

Senior Loans

Senior secured loans are typically made to U.S. and, to a lesser extent, large non-U.S. corporations, partnerships, limited liability companies and other business entities (“Borrowers”) which operate in various industries and geographical regions. Senior Loans rated below investment grade are sometimes referred to as “leveraged loans.”

Senior Loans generally hold the most senior position in the capital structure of a Borrower, are typically secured with specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to that held by unsecured creditors, subordinated debt holders and holders of equity of the Borrower. Typically, in order to borrow money pursuant to a Senior Loan, a Borrower will, for the term of the Senior Loan, pledge collateral (subject to typical exceptions), including, but not limited to, (i) working capital assets, such as accounts receivable and inventory; (ii) tangible fixed assets, such as real property, buildings and equipment; (iii) intangible assets, such as trademarks and patent rights; and (iv) security interests in shares of stock of subsidiaries or affiliates. In the case of Senior Loans made to non-public companies, the company’s shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets that they own. In many instances, a Senior Loan may be secured only by stock in the Borrower or its subsidiaries. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of such assets would satisfy fully a Borrower’s obligations under a Senior Loan.

A Borrower must comply with various covenants contained in a loan agreement or note purchase agreement between the Borrower and the holders of the Senior Loan (the “Loan Agreement”). In a typical Senior Loan, an administrative agent (the “Agent”) administers the terms of the Loan Agreement. In such cases, the Agent is normally responsible for the collection of principal and interest payments from the Borrower and the apportionment of these payments to the credit of all institutions that are parties to the Loan Agreement. The Trust will generally rely upon the Agent or an intermediate participant to receive and forward to the Trust its portion of the principal and interest payments on the Senior Loan. Additionally, the Trust normally will rely on the Agent and the other loan investors to use appropriate credit remedies against the Borrower. The Agent is typically responsible for monitoring compliance with covenants contained in the Loan Agreement based upon reports prepared by the Borrower. The Agent may monitor the value of the collateral and, if the value of the collateral declines, may accelerate the Senior Loan, may give the Borrower an opportunity to provide additional collateral or may seek other protection for the benefit of the participants in the Senior Loan. The Agent is compensated by the Borrower for providing these services under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Senior Loan and other fees paid on a continuing basis.

Senior Loans typically have rates of interest that are determined daily, monthly, quarterly or semi-annually by reference to a base lending rate, plus a premium or credit spread. As a result, as short-term interest rates increase, interest payable to the Trust from its investments in Senior Loans should increase, and as short-term interest rates decrease, interest payable to the Trust from its investments in Senior Loans should decrease. These base lending rates are primarily the London Interbank Offered Rate (LIBOR) and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate or other base lending rates used by commercial lenders.

There may be less readily available information about most Senior Loans and the Borrowers thereunder than is the case for many other types of securities, including securities issued in transactions registered under the Securities Act or the Securities Exchange Act of 1934 (the “Exchange Act”) and Borrowers subject to the periodic reporting requirements of Section 13 of the Exchange Act. Senior Loans may be issued by companies that are not subject to SEC reporting requirements and these companies, therefore, do not file reports with the SEC that must comply with SEC form requirements and, in addition, are subject to a less stringent liability disclosure regime than companies subject to SEC reporting requirements. As a result, the Sub-Adviser will rely primarily on its own evaluation of a Borrower’s credit quality rather than on any available independent sources. Therefore, when investing in Senior Loans the Trust will be particularly dependent on the credit analysis of the Sub-Adviser.

54 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

No active trading market may exist for some Senior Loans, and some loans may be subject to restrictions on resale. Any secondary market for Senior Loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods, which may impair the ability of a seller to realize full value and thus cause a material decline in the net asset value of Common Shares. In addition, the Trust may not be able to readily dispose of its Senior Loans at prices that approximate those at which the Trust could sell such loans if they were more widely traded and, as a result of such illiquidity, the Trust may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. A limited supply or relative illiquidity of Senior Loans may adversely affect the Trust’s ability to achieve its investment objective.

The Trust may purchase and retain in its portfolio Senior Loans where the Borrower has experienced, or may be perceived to be likely to experience, credit problems, including involvement in or recent emergence from bankruptcy court proceedings or other forms of debt restructuring. Such investments may provide opportunities for enhanced income as well as capital appreciation, although they also will be subject to greater risk of loss. At times, in connection with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of bankruptcy court proceedings, the Trust may determine or be required to accept equity securities or junior credit securities in exchange for all or a portion of a Senior Loan.

In the process of buying, selling and holding Senior Loans, the Trust may receive and/or pay certain fees. These fees are in addition to interest payments received and may include facility fees, commitment fees, amendment fees, commissions and prepayment penalty fees. On an ongoing basis, the Trust may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a Senior Loan. In certain circumstances, the Trust may receive a prepayment penalty fee upon the prepayment of a Senior Loan by a Borrower. Other fees received by the Trust may include covenant waiver fees, covenant modification fees or other amendment fees.

Direct Assignments

The Trust generally will seek to purchase Senior Loans on a direct assignment basis. If the Trust purchases a Senior Loan on direct assignment, it typically succeeds to all the rights and obligations under the Loan Agreement of the assigning lender and becomes a lender under the Loan Agreement with the same rights and obligations as the assigning lender. Investments in Senior Loans on a direct assignment basis may involve additional risks to the Trust. For example, if such loan is foreclosed, the Trust could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral.

Loan Participations

The Trust may also acquire in participations in Senior Loans. The participation by the Trust in a lender’s portion of a Senior Loan typically will result in the Trust having a contractual relationship only with such lender, not with the Borrower. As a result, the Trust may have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by such lender of payments from the Borrower. Such indebtedness may be secured or unsecured. In connection with purchasing participations, the Trust generally will have no right to enforce compliance by the Borrower with the terms of the Loan Agreement, nor any rights with respect to any funds acquired by other investors through set-off against the Borrower and the Trust may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the participation. In the event of the insolvency of the entity selling a participation, the Trust may be treated as a general creditor of such entity. The selling entity and other persons interpositioned between such entity and the Trust with respect to such participations will likely conduct their principal business activities in the banking, finance and financial services industries. Persons engaged in these industries may be more susceptible to, among other things, fluctuations in interest rates, changes in the Federal Reserve Open Market Committee’s monetary policy, governmental regulations concerning these industries and concerning capital raising activities generally and fluctuations in the financial markets generally.

Second Lien And Subordinated Loans

The Trust may also invest in second lien and subordinated secured loans. Second lien and subordinated secured loans generally have similar characteristics as Senior Loans except that such loans are subordinated in payment and/or lower in lien priority to first lien holders. The Trust may purchase interests in second lien and subordinated secured loans through assignments or participations.

Unsecured Loans

Unsecured loans generally have lower priority in right of payment compared to holders of secured debt of the Borrower. Unsecured loans are not secured by a security interest or lien to or on specified collateral securing the Borrower’s obligation under the loan. Unsecured loans by their terms may be or may become subordinate in right of payment to other obligations of the borrower, including Senior Loans, second lien loans and subordinated secured loans. Unsecured loans may have fixed or floating rate interest payments. Because unsecured loans are subordinate to the secured debt of the borrower, they present a greater degree of investment risk but often pay interest at higher rates reflecting this additional risk. Such investments generally are of below investment grade quality. Other than their subordinated and unsecured status, such investments have many characteristics and risks similar to Senior Loans, second lien loans and subordinated secured loans discussed above. The Trust may purchase interests in unsecured loans through assignments or participations.

Annual Report | September 30, 2022 55

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

Corporate Bonds

Corporate bonds typically pay a fixed rate of interest and must be repaid on or before maturity. The investment return of corporate bonds reflects interest on the security and changes in the market value of the security. The market value of a corporate bond generally may be expected to rise and fall inversely with interest rates. The value of intermediate- and longer-term corporate bonds normally fluctuates more in response to changes in interest rates than does the value of shorter-term corporate bonds. The market value of a corporate bond also may be affected by investors’ perceptions of the creditworthiness of the issuer, the issuer’s performance and perceptions of the issuer in the market place. There is a risk that the issuers of corporate bonds may not be able to meet their obligations on interest or principal payments at the time called for by an instrument.

Stressed, Distressed And Defaulted Investments

The Trust may invest in loans, debt securities and other instruments of companies undergoing, or that have recently completed, bankruptcies, reorganizations, insolvencies, liquidations or other fundamental changes or similar proceedings or other stressed issuers. In any investment opportunity involving any such type of special situation, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities, the value of which will be less than the purchase price to the Trust of the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, the Trust may be required to sell its investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including but not limited to (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which the Trust may invest, there is a potential risk of loss by the Trust of its entire investment in such companies.

The Trust may invest in loans, debt securities and other instruments that are in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Trust. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy bankruptcy or other reorganization proceedings, during which the issuer might not make any interest or other payments.

Distressed and defaulted instruments generally present the same risks as investment in below investment grade instruments. However, in most cases, these risks are of a greater magnitude because of the uncertainties of investing in an issuer undergoing financial distress. Distressed instruments present a risk of loss of principal value, including potentially a total loss of value. Distressed instruments may be highly illiquid and the prices at which they may be sold may represent a substantial discount to what the Sub-Adviser believes to be their ultimate value.

Variable, Floating, And Fixed Rate Debt Obligations

Floating rate securities are generally offered at an initial interest rate which is at or above prevailing market rates. The interest rate paid on floating rate securities is then reset periodically (commonly every 90 days) to an increment over some predetermined interest rate index. Commonly utilized indices include the three-month Treasury bill rate, the 180-day Treasury bill rate, the one-month or three-month LIBOR, the prime rate of a bank, the commercial paper rates, or the longer term rates on U.S. Treasury securities. Variable and floating rate securities are relatively long-term instruments that often carry demand features permitting the holder to demand payment of principal at any time or at specified intervals prior to maturity. If the Sub-Adviser incorrectly forecasts interest rate movements, the Trust could be adversely affected by use of variable and floating rate securities. In addition, the Trust invests in CLO subordinated notes. CLO subordinated notes do not have a fixed coupon and payments on CLO subordinated notes will be based on the income received from the underlying collateral and the payments made to the secured notes, both of which may be based on floating rates.

Fixed rate securities pay a fixed rate of interest and tend to exhibit more price volatility during times of rising or falling interest rates than securities with variable or floating rates of interest. The value of fixed rate securities will tend to fall when interest rates rise and rise when interest rates fall. The value of variable or floating rate securities, on the other hand, fluctuates much less in response to market interest rate movements than the value of fixed rate securities. This is because variable and floating rate securities behave like short-term instruments in that the rate of interest they pay is subject to periodic adjustments according to a specified formula, usually with reference to some interest rate index or market interest rate. Fixed rate securities with short-term characteristics are not subject to the same price volatility as fixed rate securities without such characteristics. Therefore, they behave more like variable or floating rate securities with respect to price volatility.

Short Sales

The Trust may engage in short sales of credit instruments and exchange-traded funds (“ETFs”) in an amount not to exceed 10% of its Managed Assets. to the extent the Sub-Adviser deems it advisable in connection with the Trust’s investments or as opportunistic investments. A short sale is a transaction in which the Trust sells an instrument that it does not own in anticipation that the market price will decline. To deliver the securities to the buyer, the Trust arranges through a broker to borrow the securities and, in so doing, the Trust becomes obligated to replace the securities borrowed at their market price at the time of replacement. When selling short, the Trust intends to replace the securities at a lower price at a later date and therefore profit from the difference between the cost to replace the securities and the proceeds received from the earlier sale of the securities. When the Trust makes a short sale, the proceeds it receives from the sale will be held on behalf of a broker, and will accrue interest, until the Trust replaces the borrowed securities. The Trust may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced. The Trust’s obligation to replace the securities borrowed in connection with a short sale will be secured by collateral deposited with the broker that consists of cash and/or liquid securities. In addition, the Trust will place in a segregated account an amount of cash and/or liquid securities equal to the difference, if any, between (i) the market value of the securities sold at the time they were sold short, and (ii) any cash and/or liquid securities deposited as collateral with the broker in connection with the short sale.

56 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

The Trust may use derivative transactions, including futures, options, swaps, credit default swaps, total return swaps, forward sales or other transactions, to effectuate short exposure in the portfolio.

Other Investment Companies

As an alternative to holding investments directly, the Trust may also obtain investment exposure to securities in which it may invest directly by investing in other investment companies. The Trust may invest in mutual funds, closed-end funds and exchange-traded funds. Under the 1940 Act, the Trust generally may invest only up to 10% of its total assets in the aggregate in shares of other investment companies and only up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such shares are purchased. However, pursuant to certain exemptions set forth in the 1940 Act and the rules and regulations promulgated thereunder, the Trust may invest in excess of this limitation provided that certain conditions are met. Further, on October 7, 2020, the SEC adopted Rule 12d1-4, which changed the regulation of investments in other investment companies. Rule 12d1-4 permits closed-end funds to invest in other investment companies in excess of the 1940 Act limits, including those described above, subject to certain conditions.

Investments in other investment companies involve operating expenses and fees at the other investment company level that are in addition to the expenses and fees borne by the Trust and are borne indirectly by Common Shareholders. For purposes of the Trust’s policy of investing at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments, the Trust will include the value of its investments in other investment companies that invest at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in floating rate credit instruments or other structured credit investments.

Derivative Transactions

The Trust may, but is not required to, use various derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to earn income or enhance total return. The use of derivatives transactions to earn income or enhance total return may be particularly speculative. Derivatives are financial instruments the value of which is derived from a reference instrument. The Trust may engage in a variety of derivatives transactions, including options, swaps, swaptions, futures contracts, options on futures contracts and forward currency contracts and options on forward currency contracts. The Trust may purchase and sell exchange-listed, centrally cleared and off-exchange derivatives. If a derivative is centrally cleared, a central clearing entity stands between the two parties to the trade as counterparty to each. The Trust may utilize derivatives that reference one or more securities, indices, commodities, currencies or interest rates. In addition, the Trust may utilize new techniques, transactions, instruments or strategies that are developed or permitted as regulatory changes occur. Derivatives may allow the Trust to increase or decrease the level of risk to which the Trust is exposed more quickly and efficiently than transactions in other types of instruments. If the Trust invests in a derivative for speculative purposes, the Trust will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. The use of derivatives may involve substantial economic leverage and consequently substantial volatility.

There is no assurance that these derivative strategies will be available at any time, that the Sub-Adviser will determine to use them for the Trust or, if used, that the strategies will be successful.

Options

An option on a security (or an index) is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of a call option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price. The writer of a put option has the obligation upon exercise of the option to pay the exercise price upon delivery of the underlying security. The Trust may buy, sell and write exchange-traded and off-exchange call and put options.

If an option written by the Trust expires unexercised, the Trust realizes on the expiration date a capital gain equal to the premium the Trust received at the time the option was written. If an option purchased by the Trust expires unexercised, the Trust realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Trust desires.

Annual Report | September 30, 2022 57

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

The Trust may sell put or call options it has previously purchased, which could result in a net gain or loss depending on whether the amount realized on the sale is more or less than the premium and other transaction costs paid on the put or call option which is sold. Prior to exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series. The Trust will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Trust will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Trust will realize a capital gain or, if it is less, the Trust will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index and the time remaining until the expiration date.

The Trust may buy or write straddles consisting of a combination of a call and a put written on the same underlying security. A straddle will be covered when sufficient assets are deposited to meet the Trust’s immediate obligations. The Trust may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Trust will also segregate liquid assets equivalent to the amount, if any, by which the put is “in the money.”

The Trust may “cover” its obligations when it writes call options or put options. In the case of a call option on a credit instrument or other security, the option is covered if the Trust owns the instrument underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, cash or other liquid assets in such amount are segregated by its custodian) upon conversion or exchange of other instruments held by the Trust.

A call option written on an instrument is also “covered” if the Trust does not hold the underlying instrument or have the right to acquire it (a so-called “naked” call option), but the Trust segregates liquid assets in an amount equal to the contract value of the position (minus any collateral deposited with a broker-dealer), on a mark-to-market basis.

For a call option on an index, the option is covered if the Trust segregates liquid assets in an amount equal to the contract value of the index. A call option is also covered if the Trust holds a call on the same index or security as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by the Trust in segregated liquid assets. A put option on a security or an index is covered if the Trust segregates liquid assets equal to the exercise price. A put option is also covered if the Trust holds a put on the same security or index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written, or (ii) less than the exercise price of the put written, provided the difference is maintained by the Trust in segregated liquid assets. Obligations under written call and put options so covered will not be construed to be “senior securities” for purposes of the Trust’s investment restrictions concerning senior securities and borrowings.

A put option written by the Trust is “covered” if the Trust segregates liquid assets equal to the exercise price. A put option is also covered if the Trust holds a put on the same security as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written, or (ii) less than the exercise price of the put written, provided the difference is maintained by the Trust in segregated liquid assets.

Futures and Options on Futures

The Trust may buy, sell and write futures contracts that relate to: interest rates, credit instruments and related indices, volatility indices, credit-linked notes and individual stocks and stock indices.

A futures contract is an agreement between two parties to buy and sell a security, index or interest rate (each a “financial instrument”) for a set price on a future date. Certain futures contracts, such as futures contracts relating to individual securities, call for making or taking delivery of the underlying financial instrument. However, these contracts generally are closed out before delivery by entering into an offsetting purchase or sale of a matching futures contract (same exchange, underlying financial instrument, and delivery month). Other futures contracts, such as futures contracts on interest rates and indices, do not call for making or taking delivery of the underlying financial instrument, but rather are agreements pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the financial instrument at the close of the last trading day of the contract and the price at which the contract was originally written. These contracts also may be settled by entering into an offsetting futures contract.

Unlike when the Trust purchases or sells a security, no price is paid or received by the Trust upon the purchase or sale of a futures contract. Initially, the Trust will be required to deposit with the futures broker, known as a futures commission merchant (“FCM”), an amount of cash or securities equal to a varying specified percentage of the contract amount. This amount is known as initial margin. The margin deposit is intended to ensure completion of the contract. Minimum initial margin requirements are established by the futures exchanges and may be revised. In addition, FCMs may establish margin deposit requirements that are higher than the exchange minimums. Cash held in the margin account generally is not income producing. However, coupon-bearing securities, such as Treasury securities, held in margin accounts generally will earn income. Subsequent payments to and from the FCM, called variation margin, will be made on a daily basis as the price of the underlying financial instrument fluctuates, making the futures contract more or less valuable, a process known as marking the contract to market. Changes in variation margin are recorded by the Trust asunrealized gains or losses. At any time prior to expiration of the futures contract, the Trust may elect to close the position by taking an opposite position that will operate to terminate its position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Trust, and the Trust realizes a gain or loss. In the event of the bankruptcy or insolvency of an FCM that holds margin on behalf of the Trust, the Trust may be entitled to the return of margin owed to it only in proportion to the amount received by the FCM’s other customers, potentially resulting in losses to the Trust. Futures transactions also involve brokerage costs and the Trust may have to segregate additional liquid assets in accordance with applicable SEC requirements under the 1940 Act.

58 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

The Trust also may buy and write options on the futures contracts in which it may invest (“futures options”) and may buy or write straddles, which consist of a call and a put option on the same futures contract. A futures option gives the purchaser of such option the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call futures option, the purchaser acquires a long position in the futures contract and the writer is assigned the opposite short position. Upon the exercise of a put futures option, the opposite is true. The Trust will only write futures options and straddles which are “covered.” This means that, when writing a call option, the Trust must either segregate liquid assets with a value equal to the fluctuating market value of the optioned futures contract, or the Trust must own an option to purchase the same futures contract having an exercise price that is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by the Trust in segregated liquid assets. When writing a put option, the Trust must segregate liquid assets in an amount not less than the exercise price, or own a put option on the same futures contract where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written, or (ii) less than the exercise price of the put written, provided the difference is maintained by the Trust in segregated liquid assets. A straddle will be covered when sufficient assets are deposited to meet the Trust’s immediate obligations. The Trust may use the same liquid assets to cover both the call and put options in a straddle where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Trust will also segregate liquid assets equivalent to the amount, if any, by which the put is “in the money.”

Swaps

Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index). The “notional amount” of the swap agreement is only a basis on which to calculate the obligations that the parties to a swap agreement have agreed to exchange. The Trust’s obligations (or rights) under a swap agreement generally will be equal only to the “net amount” to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement. The Trust’s obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Trust) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by marking as segregated liquid, unencumbered assets.

Credit Default Swaps

The Trust may enter into credit default swap agreements and similar agreements. Among other purposes, credit default swaps provide investment exposure to changes in credit spreads and relative interest rates. The credit default swap agreement or similar instrument may have as reference obligations one or more securities that are not currently held by the Trust (including a “basket” of securities representing an index). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Trust may be either the buyer or seller in the transaction. If the Trust is a buyer and no credit event occurs, the Trust recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the Trust may elect to receive the full notional value of the swap in exchange for delivery of an equal face amount of deliverable obligations of the reference entity that may have little or no value. As a seller, the Trust generally receives an upfront payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value.

Total Return Swaps

The Trust may enter into total return swaps. Total return swaps are used as substitutes for owning a particular physical security, or the securities comprising a given market index, or to obtain exposure in markets where no physical securities are available such as an interest rate index. Total return refers to the payment (or receipt) of the total return on the security, index or other instrument underlying the swap, which is then exchanged for the receipt (or payment) of a floating interest rate. Total return swaps provide the Trust with the additional flexibility of gaining exposure to a particular security or index by using the most cost-effective vehicle available. Total return swaps provide the Trust with the opportunity to actively manage the cash maintained by the Trust as a result of not having to purchase the actual securities or other instruments underlying the swap. The cash backing total return swaps is actively managed to seek to earn a return in excess of the floating rate paid on the swap.

Annual Report | September 30, 2022 59

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

Interest Rate Swap

Interest rate swaps involve the exchange by the Trust with another party of respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments).

Currency Swaps

Currency swaps involve the exchange of the two parties’ respective commitments to pay or receive fluctuations with respect to a notional amount of two different currencies (e.g., an exchange of payments with respect to fluctuations in the value of the U.S. dollar relative to the Japanese yen).

Swaptions

 The Trust may enter into “swaptions,” which are options on swap agreements. A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. The Trust may write (sell) and purchase put and call swaptions. Depending on the terms of the particular option agreement, the Trust generally will incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When the Trust purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. When the Trust writes a swaption, upon exercise of the option the Trust will become obligated according to the terms of the underlying agreement.

Credit-Linked Securities

Credit-linked securities are issued by a limited purpose trust or other vehicle that, in turn, invests in a derivative or basket of derivatives, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to certain fixed income markets. Like an investment in a bond, investments in these credit-linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these payments are conditioned on the issuer’s receipt of payments from, and the issuer’s potential obligations to, the counterparties to the derivatives and other securities in which the issuer invests. For instance, the issuer may sell one or more credit default swaps, under which the issuer would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated to pay the counterparty the par (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that the Trust would receive. The Trust’s investments in these instruments are indirectly subject to the risks associated with derivatives, including, among others, counterparty risk, credit risk and leverage risk. There may be no established trading market for these securities.

Synthetic Investments

As an alternative to holding investments directly, the Trust may also obtain investment exposure to investments in which the Trust may invest directly through the use of derivative instruments. The Trust may utilize swaps, options, forwards, notional principal contracts or other derivative instruments to replicate, modify or replace the economic attributes associated with an investment in which the Trust may invest directly. To the extent that the Trust invests in synthetic investments with economic characteristics similar to floating rate instruments or other structured credit investments, the value of such investments will be counted for purposes of the Trust’s policy of investing at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments.

Unfunded Commitments

From time to time, the Trust’s investments may involve unfunded commitments, which are contractual obligations of the Trust to make loans up to a specified amount at future dates. Certain of the loan participations or assignments acquired by the Trust may involve unfunded commitments of the lenders or revolving credit facilities under which a Borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Trust would have an obligation to provide its portion of such additional borrowings when drawn upon in the future, upon the terms specified in the loan documentation. Such an obligation may have the effect of requiring the Trust to increase its investment in a company at a time when it might not be desirable to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid).

Equity Securities

Incidental to the Trust’s investments in credit instruments, the Trust may acquire or hold equity securities, or warrants to purchase equity securities, of a Borrower or issuer. Equity securities held by the Trust may include common equity securities and preferred securities. Common stock represents an equity ownership interest in a company. Warrants give holders the right, but not the obligation, to buy common stock of an issuer at a given price, usually higher than the market price at the time of issuance, during a specified period. Preferred securities are generally equity securities of the issuer that have priority over the issuer’s common shares as to the payment of dividends (i.e., the issuer cannot pay dividends on its common shares until the dividends on the preferred shares are current) and as to the payout of proceeds of bankruptcy or other liquidation, but are subordinate to an issuer’s senior debt and junior debt as to both types of payments. The equity interests held by the Trust, if any, may not pay dividends or otherwise generate income.

60 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Investment Objective and Policies
	September 30, 2022 (Unaudited)

Temporary Defensive Investments

During periods in which the Sub-Adviser believes that changes in economic, financial or political conditions make it advisable to maintain a temporary defensive posture, or in order to keep the Trust’s cash fully invested, including the period during which the net proceeds of an offering of securities are being invested, the Trust may, without limitation, hold cash or invest its assets in in short-term investments, including high quality, short-term securities or may invest in short-, intermediate-, or long-term U.S. Treasury bonds and repurchase agreements in respect of those instruments. Short- term investments in which the Trust may invest including obligations of the U.S. Government, its agencies or instrumentalities; commercial paper; and certificates of deposit and bankers’ acceptances. During a temporary defensive period, the Trust may also invest in shares of money market mutual funds. Money market mutual funds are investment companies. As a shareholder in a mutual fund, the Trust will bear its ratable share of its expenses, including management fees. There can be no assurance that such strategies will be successful. The Trust may not achieve its investment objective during a temporary defensive period or be able to sustain its historical distribution levels.

U.S. Government Securities

U.S. government securities include (1) U.S. Treasury obligations, which differ in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one year to ten years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. government agencies and instrumentalities that are supported by any of the following: (i) the full faith and credit of the U.S. Treasury, (ii) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Treasury, (iii) discretionary authority of the U.S. government to purchase certain obligations of the U.S. government agency or instrumentality or (iv) the credit of the agency or instrumentality. The Trust also may invest in any other security or agreement collateralized or otherwise secured by U.S. government securities. Agencies and instrumentalities of the U.S. government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, FHLMC, FNMA, GNMA, Student Loan Marketing Association, United States Postal Service, Small Business Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S. government. Because the U.S. government generally is not obligated to provide support to its instrumentalities, the Trust will invest in obligations issued by these instrumentalities only if the Sub-Adviser determines that the credit risk with respect to such obligations is minimal.

Investors should consider the following risk factors and special considerations associated with investing in the Trust. Investors should be aware that in light of the current uncertainty, volatility and distress in economies, financial markets, and labor and health conditions over the world, the risks below are heightened significantly compared to normal conditions and therefore subject the Trust’s investments and a shareholder’s investment in the Trust to elevated investment risk, including the possible loss of your entire investment.

Annual Report | September 30, 2022 61

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Investment and Market Risk

An investment in Common Shares is subject to investment risk, particularly under current economic, financial, labor and health conditions, including the possible loss of the entire principal amount that you invest. Your investment in Common Shares represents an indirect investment in the securities owned by the Trust. The value of, or income generated by, the investments held by the Trust are subject to the possibility of rapid and unpredictable fluctuation. These movements may result from factors affecting individual companies, or from broader influences, including real or perceived changes in prevailing interest rates, changes in inflation or expectations about inflation, investor confidence or economic, political, social or financial market conditions, environmental disasters, governmental actions, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and other similar events, that each of which may be temporary or last for extended periods of time. For example, the risks of a borrower’s default or bankruptcy or non-payment of scheduled interest or principal payments from senior floating rate interests held by the Trust are especially acute under these conditions. Furthermore, interest rates and bond yields may fall as a result of types of events, including responses by governmental entities to such events, which would magnify the Trust’s fixed-income instruments’ susceptibility to interest rate risk and diminish their yield and performance. Moreover, the Trust’s investments in asset-backed securities are subject to many of the same risks that are applicable to investments in securities generally, including interest rate risk, credit risk, foreign currency risk, below-investment grade securities risk, financial leverage risk, prepayment and regulatory risk, which would be elevated under the foregoing circumstances.

Different sectors, industries and security types may react differently to such developments and, when the market performs well, there is no assurance that the Trust’s investments will increase in value along with the broader markets. Volatility of financial markets, including potentially extreme volatility caused by the events described above, can expose the Trust to greater market risk than normal, possibly resulting in greatly reduced liquidity. Moreover, changing economic, political, social or financial market conditions in one country or geographic region could adversely affect the value, yield and return of the investments held by the Trust in a different country or geographic region because of the increasingly interconnected global economies and financial markets. The Adviser potentially could be prevented from considering, managing and executing investment decisions at an advantageous time or price or at all as a result of any domestic or global market or other disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, such as the current conditions, which have also resulted in impediments to the normal functioning of workforces, including personnel and systems of the Trust’s service providers and market intermediaries.

Your Common Shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of distributions. A prospective investor should invest in the Common Shares only if the investor can sustain a complete loss in its investment.

Market Discount Risk

Shares of closed-end management investment companies frequently trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Trust’s net asset value could decrease as a result of its investment activities. Although the value of the Trust’s net assets is generally considered by market participants in determining whether to purchase or sell Common Shares, whether investors will realize gains or losses upon the sale of Common Shares will depend entirely upon whether the market price of Common Shares at the time of sale is above or below the investor’s purchase price for Common Shares. Because the market price of Common Shares will be determined by factors such as net asset value, dividend and distribution levels (which are dependent, in part, on expenses), supply of and demand for Common Shares, stability of dividends or distributions, trading volume of Common Shares, general market and economic conditions and other factors beyond the control of the Trust, the Trust cannot predict whether Common Shares will trade at, below or above net asset value or at, below or above the initial public offering price. This risk may be greater for investors expecting to sell their Common Shares soon after the completion of a public offering, as the net asset value of the Common Shares will be reduced immediately following an offering as a result of the payment of certain offering costs. Common Shares of the Trust are designed primarily for long-term investors; investors in Common Shares should not view the Trust as a vehicle for trading purposes.

Below Investment Grade Securities Risk

The Trust invests primarily in below investment grade credit instruments, which are commonly referred to as “high-yield” securities or “junk” bonds. Investment in securities of below investment grade quality involves substantial risk of loss, the risk of which is particularly high in volatile market conditions. Securities of below investment grade quality are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default or decline in market value due to adverse economic and issuer-specific developments. Issuers of below investment grade securities are not perceived to be as strong financially as those with higher credit ratings. These issuers face ongoing uncertainties and exposure to adverse business, financial or economic conditions and are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their ability to make interest and principal payments. Securities of below investment grade quality display increased price sensitivity to changing interest rates and to a deteriorating economic environment. The market values of certain below investment grade securities tend to reflect individual issuer developments to a greater extent than do higher-rated securities, which react primarily to fluctuations in the general level of interest rates. The market values for securities of below investment grade quality tend to be more volatile and such securities tend to be less liquid than investment grade debt securities, which could result in the Trust being unable to sell such securities for an extended period of time, if at all. The market for high-yield securities has historically been subject to disruptions that have caused substantial volatility in the prices of such securities. Consolidation in the financial services industry has resulted in there being fewer market makers for high-yield securities, which may result in further risk of illiquidity and volatility with respect to high-yield securities, and this trend may continue in the future. To the extent that a secondary market does exist for certain below investment grade securities, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Because of the substantial risks associated with investments in below investment grade securities, you could have an increased risk of losing money on your investment in Common Shares, both in the short-term and the long-term.

62 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

The ratings of Moody’s, S&P, Fitch and other nationally recognized statistical rating organizations (“NRSRO”) represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. To the extent that the Trust invests in securities that have not been rated by an NRSRO, the Trust’s ability to achieve its investment objectives will be more dependent on the Sub-Adviser’s credit analysis than would be the case when the Trust invests in rated securities.

The Trust may invest in securities rated in the lower rating categories (rated Caa1/CCC+ or below, or unrated but judged to be of comparable quality by the Sub-Adviser). For these securities, the risks associated with below investment grade instruments are more pronounced. Investments in the securities of financially distressed issuers involve substantial risks. See “Risks—Stressed and Distressed Investments Risk.”

Structured Credit Instruments Risk

Holders of structured credit instruments bear risks of the underlying investments, index or reference obligation as well as risks associated with the issuer of the instrument, which is often a special purpose vehicle, and may also be subject to counterparty risk. As an investor in structured credit instruments, the Trust typically will have the right to receive payments only from the issuer of the structured credit instrument, and generally would not have direct rights against the issuer of or entity that sold the underlying assets. While certain structured credit instruments enable the Trust to obtain exposure to a pool of credit instruments without the brokerage and other expenses associated with directly holding the same instruments, investors in structured credit instruments generally pay their share of the administrative and other expenses of the issuer of the instrument. The prices of indices and instruments underlying structured credit instruments, and, therefore, the prices of structured credit instruments, will be influenced by, and will rise and fall in response to, the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured credit instrument uses shorter term financing to purchase longer term instruments, the issuer may be forced to sell its instruments at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value of the structured credit instruments owned by the Trust. Certain structured credit instruments may be thinly traded or have a limited trading market.

The Trust may invest in structured credit instruments collateralized by low grade or defaulted loans or securities. Investments in such structured credit instruments are subject to the risks associated with below investment grade securities. Such securities are characterized by high risk.

The Trust may invest in senior classes and subordinated classes, including residual or equity interests, issued by structured credit vehicles. The payment of cash flows from the underlying assets to senior classes take precedence over those of subordinated classes, and therefore subordinated classes are subject to greater risk. Furthermore, the leveraged nature of each subordinated class may magnify the adverse impact on such class of changes in the value of the assets, changes in the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets, prepayment on the assets and availability, price and interest rates of the assets.

CLO Risk

CLOs often involve risks that are different from or more acute than risks associated with other types of credit instruments, including: (1) the possibility that distributions from collateral assets will not be adequate to make interest or other payments; (2) the quality of the collateral may decline in value or default; (3) investments in CLO junior debt tranches and CLO subordinated notes will likely be subordinate in right of payment to other senior classes of CLO debt; and (4) the complex structure of a particular security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

There may be less information available to the Trust regarding the underlying investments held by CLOs than if the Trust had invested directly in credit securities of the underlying issuers. Trust shareholders will not know the details of the underlying investments of the CLOs in which the Trust invests. Due to their often complicated structures, various CLOs may be difficult to value and may constitute illiquid investments. In addition, there can be no assurance that a liquid market will exist in any CLO when the Trust seeks to sell its interest therein. Moreover, the value of CLOs may decrease if the ratings agencies reviewing such securities revise their ratings criteria and, as a result, lower their original rating of a CLO in which the Trust has invested. Further, the complex structure of the security may produce unexpected investment results. Also, it is possible that the Trust’s investment in a CLO will be subject to certain contractual limitations on transfer.

Annual Report | September 30, 2022 63

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

The market value of CLO securities may be affected by, among other things, changes in the market value of the underlying assets held by the CLOs, changes in the distributions on the underlying assets, defaults and recoveries on the underlying assets, capital gains and losses on the underlying assets, prepayments on underlying assets and the availability, prices and interest rate of underlying assets. Therefore, changes in the market value of the Trust’s CLO investments could be greater than the change in the market value of the underlying instruments.

The Trust invests in CLO securities issued by CLOs that principally hold Senior Loans. As a result, as an investor in such CLOs, the Trust is subject to the risk of default on the Senior Loans by the Borrowers. While interest rates remain below historical averages, the Federal Reserve has recently implemented several increases to the Federal Funds rate. Increases in interest rates may adversely impact the ability of Borrowers to meet interest payment obligations on Senior Loans held by a CLO and increase the likelihood of default. Although a CLO’s holdings are typically diversified by industry and borrower, an increase in interest rates coupled with a general economic downturn may result in an increase in defaults on Senior Loans across various sectors of the economy. See “Risks—Senior Loan Risk” for a discussion of risks related to Senior Loans.

CLOs in which the Trust invests in may hold underlying instruments that are concentrated in a limited number of industries or borrowers. A downturn in any particular industry or borrower in which a CLO is heavily invested may subject that vehicle, and in turn the Trust, to a risk of significant loss and could significantly impact the aggregate returns realized by the Trust.

Investments in primary issuances of CLO securities may involve certain additional risks. Between the pricing date and the effective date of a CLO, the CLO collateral manager will generally expect to purchase additional collateral obligations for the CLO. During this period, the price and availability of these collateral obligations may be adversely affected by a number of market factors, including price volatility and availability of investments suitable for the CLO, which could hamper the ability of the collateral manager to acquire a portfolio of collateral obligations that will satisfy specified concentration limitations and allow the CLO to reach the target initial par amount of collateral prior to the effective date. An inability or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of interest or principal payments received by the holders of the CLO debt securities and distributions on the CLO subordinated notes and could result in early redemptions which may cause CLO debt and subordinated note investors to receive less than face value of their investment.

The failure by a CLO to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to securityholders, including the Trust. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that would, in turn, reduce the payments that holders of junior debt and subordinated securities would otherwise be entitled to receive.

In recent years there has been a marked increase in the number of, and flow of capital into, investment vehicles established to pursue investments in CLO securities whereas the size of this market is relatively limited. Such increase may result in greater competition for investment opportunities, which may result in an increase in the price of such investments relative to the risk taken on by holders of such investments. In addition, the volume of new CLO issuances varies over time as a result of a variety of factors including new regulations, changes in interest rates, and other market forces. Such competition may also result under certain circumstances in increased price volatility or decreased liquidity with respect to certain positions.

The Trust invests in CLO debt and subordinated (i.e., residual or equity) securities. While the Trust may invest in CLO debt securities having any rating, the Trust currently intends to focus its investments in CLO debt securities that are rated below investment grade. CLO subordinated notes are generally not rated. Below investment grade and unrated instruments are often referred to as “junk” bonds and are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal. See “Risks—Below Investment Grade Securities Risk.”

Restructuring of Investments Held by CLOs. The manager of a CLO has broad authority to direct and supervise the investment and reinvestment of the investments held by the CLO, which may include the execution of amendments, waivers, modifications and other changes to the investment documentation in accordance with the collateral management agreement. During periods of economic uncertainty and recession, the incidence of amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers, modifications and other restructurings will change the terms of the investments and in some cases may result in the CLO holding assets not meeting the CLO’s criteria for investments. This could adversely impact the coverage tests under an indenture governing the notes issued by the CLO. Any amendment, waiver, modification or other restructuring that reduces the CLO’s compliance with certain financial tests will make it more likely that the CLO will need to utilize cash to pay down the unpaid principal amount of secured notes to cure any breach in such test instead of making payments on subordinated notes. Any such use of cash would reduce distributions available and delay the timing of payments to the Trust.

The Trust cannot be certain that any particular restructuring strategy pursued by the CLO manager will maximize the value of or recovery on any investment. Any restructuring can fundamentally alter the nature of the related investment, and restructurings are not subject to the same underwriting standards that are employed in connection with the origination or acquisition of investments. Any restructuring could alter, reduce or delay the payment of interest or principal on any investment, which could delay the timing and reduce the amount of payments made to the Trust. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to the Trust.

64 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

If as a result of any such restructurings, the Sub-Adviser determines that continuing to hold instruments issued by such CLO is no longer in the best interest of the Trust, the Sub-Adviser may dispose of such CLO instruments. In certain instances, the Trust may be unable to dispose of such investments at advantageous prices and/or may be required to reinvest the proceeds of such disposition in lower-yielding investments.

CLO Management Risk. The activities of any CLO in which the Trust may invest will generally be directed by a collateral manager. In the Trust’s capacity as holder of CLO securities, the Trust is generally not able to make decisions with respect to the management, disposition or other realization of any investment, or other decisions regarding the business and affairs, of that CLO. Consequently, the success of any CLOs in which the Trust invests will depend, in large part, on the financial and managerial expertise of the collateral manager’s investment professionals. Subject to certain exceptions, any change in the investment professionals of the collateral manager will not present grounds for termination of the collateral management agreement. In addition, such investment professionals may not devote all of their professional time to the affairs of the CLOs in which the Trust invests. There can be no assurance that for any CLO, in the event that underlying instruments are prepaid, the collateral manager will be able to reinvest such proceeds in new instruments with equivalent investment returns. If the collateral manager cannot reinvest in new instruments with equivalent investment returns, the interest proceeds available to pay interest on the CLO securities may be adversely affected.

The transaction documents relating to the issuance of CLO securities may impose eligibility criteria on the assets of the CLO, restrict the ability of the CLO’s investment manager to trade investments and impose certain portfolio-wide asset quality requirements. These criteria, restrictions and requirements may limit the ability of the CLO’s investment manager to maximize returns on the CLO securities. In addition, other parties involved in CLOs, such as third-party credit enhancers and investors in the rated tranches, may impose requirements that have an adverse effect on the returns of the various tranches of CLO securities. Furthermore, CLO securities issuance transaction documents generally contain provisions that, in the event that certain tests are not met (generally interest coverage and over-collateralization tests at varying levels in the capital structure), proceeds that would otherwise be distributed to holders of a junior tranche must be diverted to pay down the senior tranches until such tests are satisfied. Failure (or increased likelihood of failure) of a CLO to make timely payments on a particular tranche will have an adverse effect on the liquidity and market value of such tranche.

The CLOs in which the Trust invests are generally not registered as investment companies under the 1940 Act. As investors in these CLOs, the Trust is not afforded the protections that shareholders in an investment company registered under the 1940 Act would have.

The terms of CLOs set forth in their applicable transaction documents, including with respect to collateralization and/or interest coverage tests and asset eligibility criteria, may vary from CLO to CLO. Similarly the terms of the Senior Loans that constitute the underlying assets held by CLOs may vary. The Senior Loan and/or CLO market and loan market may evolve in ways that result in typical terms being less protective for the holders of CLO securities. As a result, the Trust will be reliant upon the Sub-Adviser’s ability to obtain and evaluate the terms of the CLOs in which the Trust invests, the terms of and creditworthiness of the borrowers with respect to the underlying assets held by those CLOs and information about the collateral managers of the CLOs.

CLO Interest Rate Risk. Although senior secured loans are generally floating rate instruments, the Trust’s investments in senior secured loans through CLOs are sensitive to interest rate levels and volatility. Although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may be some difference between the timing of interest rate resets on the assets and liabilities of a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO subordinated notes. In addition, CLOs may not be able to enter into hedge agreements, even if it may otherwise be in the best interests of the CLO to hedge such interest rate risk. Furthermore, in the event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase and result in credit losses.

Because CLOs generally issue debt on a floating rate basis, an increase in LIBOR will increase the financing costs of CLOs. Many of the senior secured loans held by these CLOs have LIBOR floors such that, when LIBOR is below the stated LIBOR floor, the stated LIBOR floor (rather than LIBOR itself) is used to determine the interest payable under the loans. Therefore, if LIBOR increases but stays below the average LIBOR floor rate of the senior secured loans held by a CLO, there would not be a corresponding increase in the investment income of such CLOs. The combination of increased financing costs without a corresponding increase in investment income in such a scenario would result in smaller distributions to holders of the CLO subordinated notes.

Many underlying corporate borrowers can elect to pay interest based on 1-month LIBOR, 3-month LIBOR and/or other rates in respect of the loans held by CLOs in which we are invested, in each case plus an applicable spread, whereas CLOs generally pay interest to holders of the CLO’s debt tranches based on 3-month LIBOR plus a spread. The 3-month LIBOR currently exceeds the 1-month LIBOR by a significant amount, which may result in many underlying corporate borrowers electing to pay interest based on 1-month LIBOR. This mismatch in the rate at which CLOs earn interest and the rate at which they pay interest on their debt tranches negatively impacts the cash flows on a CLO’s subordinated note tranche. Unless spreads are adjusted to account for such increases, these negative impacts may worsen to the extent the amount by which the 3-month LIBOR exceeds the 1-month LIBOR increases.

Annual Report | September 30, 2022 65

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

CLO Subordinated Notes Risk

The Trust may invest in subordinated notes issued by a CLO (often referred to as the “residual,” “equity” or “subordinated” tranche), which are junior in priority of payment and are subject to certain payment restrictions generally set forth in an indenture governing the notes. In addition, CLO subordinated notes generally do not benefit from any creditors’ rights or ability to exercise remedies under the indenture governing the notes. The subordinated notes are not guaranteed by another party. Subordinated notes are subject to greater risk that the senior notes issued by the CLO. CLOs are typically highly levered, utilizing up to approximately 10 times leverage, and therefore subordinated notes are subject to a higher risk of total loss. There can be no assurance that distributions on the assets held by the CLO will be sufficient to make any distributions or that the yield on the subordinated notes will meet the Trust’s expectations.

CLOs typically have no significant assets other than their underlying instruments. Accordingly, payments on CLO investments are and will be payable solely from the cash flows from such instruments, net of all management fees and other expenses. CLOs generally may make payments on subordinated notes only to the extent permitted by the payment priority provisions of an indenture governing the notes issued by the CLO. CLO indentures generally provide that principal payments on subordinated notes may not be made on any payment date unless all amounts owing under secured notes are paid in full. In addition, if a CLO does not meet the asset coverage tests or the interest coverage test set forth in the indenture governing the notes issued by the CLO, cash would be diverted from the subordinated notes to first pay the secured notes in amounts sufficient to cause such tests to be satisfied.

The subordinated notes are unsecured and rank behind all of the secured creditors, known or unknown, of the issuer, including the holders of the secured notes it has issued. Consequently, to the extent that the value of the issuer’s portfolio of loan investments has been reduced as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates, the value of the subordinated notes realized at their redemption could be reduced. Accordingly, the subordinated notes may not be paid in full and may be subject to up to 100% loss. As a result, relatively small numbers of defaults of instruments underlying CLOs in which the Trust holds subordinated notes may adversely impact the Trust’s returns.

The market value of subordinated notes may be significantly affected by a variety of factors, including changes in the market value of the investments held by the issuer, changes in distributions on the investments held by the issuer, defaults and recoveries on those investments, capital gains and losses on those investments, prepayments on those investments and other risks associated with those investments. The leveraged nature of subordinated notes are likely to magnify the adverse impact on the subordinated notes of changes in the market value of the investments held by the issuer, changes in the distributions on those investments, defaults and recoveries on those investments, capital gains and losses on those investments, prepayments on those investments and availability, prices and interest rates of those investments. The Trust must be prepared to hold subordinated notes for an indefinite period of time or until their stated maturity.

CLO subordinated notes do not have a fixed coupon and payments on CLO subordinated notes will be based on the income received from the underlying collateral and the payments made to the secured notes, both of which may be based on floating rates. While the payments on CLO subordinated notes will be variable, CLO subordinated notes may not offer the same level of protection against changes in interest rates as other floating rate instruments. An increase in interest rates would materially increase the financing costs of CLOs. Since underlying instruments held by a CLO may have LIBOR floors, there may not be corresponding increases in investment income to the CLO (if LIBOR increases but stays below the LIBOR floor rate of such instruments) resulting in smaller distribution payments on CLO subordinated notes.

Subordinated notes are illiquid investments and subject to extensive transfer restrictions, and no party is under any obligation to make a market for subordinated notes. At times, there may be no market for subordinated notes, and the Trust may not be able to sell or otherwise transfer subordinated notes at their fair value, or at all, in the event that it determines to sell them. Since 2007, subordinated notes issued in securitization transactions generally have experienced historically high volatility and significant fluctuations in market value. Additionally, some potential buyers of such notes may view securitization products as an inappropriate investment, thereby reducing the number of potential buyers and/or potentially affecting liquidity in the secondary market.

Subordinated notes are subject to certain transfer restrictions and can only be transferred to certain specified transferees. The issuer may, in the future, impose additional transfer restrictions to comply with changes in applicable law. Restrictions on the transfer of subordinated notes may further limit their liquidity. Investments in CLO subordinated notes may have complicated accounting and tax implications.

Corporate Credit Investment Risk

Corporate debt instruments pay fixed, variable or floating rates of interest. Some debt securities, such as zero coupon bonds, do not make regular interest payments but are issued at a discount to their principal or maturity value. The value of fixed-income securities in which the Trust invests will change in response to fluctuations in interest rates. In addition, the value of certain fixed-income securities can fluctuate in response to perceptions of creditworthiness, political stability or soundness of economic policies. Fixed-income securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e., credit risk) and are subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).

66 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

The reorganization of an issuer under the Federal or other bankruptcy laws may result in the issuer’s debt securities being cancelled without repayment, repaid only in part, or repaid in part or in whole through an exchange thereof for any combination of cash, debt securities, convertible securities, equity securities, or other instruments or rights in respect of the same issuer or a related entity. Fixed income securities generally are not traded on exchanges. The off-exchange market may be illiquid and there may be times when no counterparty is willing to purchase or sell certain securities. The nature of the market may make valuations difficult or unreliable.

Senior Loan Risk

Senior Loans are generally of below investment grade credit quality and therefore are subject to greater risks than investment grade corporate obligations. The prices of these investments may be volatile and will generally fluctuate due to a variety of factors that are inherently difficult to predict, including, but not limited to, changes in interest rates, prevailing credit spreads, general economic conditions, financial market conditions,

U.S. and non-U.S. economic or political events, developments or trends in any particular industry, and the financial condition of certain Borrowers. Additionally, Senior Loans have significant liquidity and market value risks since they are not traded in organized exchange markets but are traded by banks and other institutional counterparties. Furthermore, because such loans are privately syndicated and the applicable loan agreements are privately negotiated and customized, such loans are not purchased or sold as easily as publicly listed securities.

While such loans are generally intended to be secured by collateral, losses could result from default and foreclosure. Therefore, the value of the underlying collateral, the creditworthiness of the Borrower and the priority of the lien are each of great importance. The Adviser and the Sub-Adviser cannot guarantee the adequacy of the protection of the Trust’s interests. If the terms of a Senior Loan do not require the Borrower to pledge additional collateral in the event of a decline in the value of the already pledged collateral, the Trust will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the Borrower’s obligations under the Senior Loans. Furthermore, the Adviser and the Sub-Adviser cannot assure investors that claims may not be asserted that might interfere with enforcement of the Trust’s rights. In the event of a foreclosure, the Trust may assume direct ownership of the underlying collateral. The liquidation proceeds upon sale of collateral may not satisfy the entire outstanding balance of principal and interest on the loan, resulting in a loss. Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. To the extent that a Senior Loan is collateralized by stock in the Borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy of the Borrower. Such Senior Loans involve a greater risk of loss.

While interest rates remain below historical averages, the Federal Reserve has recently implemented several increases to the Federal Funds rate. Increases in interest rates may adversely impact the ability of Borrowers to meet interest payment obligations and/or refinance their outstanding Senior Loans on attractive terms, which may adversely impact Borrowers and increase defaults on Senior Loans. The terms and covenants of Senior Loans may vary, and market expectations for such terms and covenants may change over time. More permissive covenants, with respect to the financial condition, operations and use of collateral by Borrowers, may provide Borrowers with additional flexibility, which may reduce the likelihood of default, but may also reduce the extent to which the holders of Senior Loans can recover in the event of a default. In the event of an economic downturn, recoveries upon default of Senior Loans may be less than in past market cycles.

Senior Loans are subject to legislative risk. If legislation or state or federal regulations impose additional requirements or restrictions on the ability of financial institutions to make loans, the availability of Senior Loans for investment by the Trust may be adversely affected. In addition, such requirements or restrictions could reduce or eliminate sources of financing for certain Borrowers. This would increase the risk of default. If legislation or federal or state regulations require financial institutions to increase their capital requirements this may cause financial institutions to dispose of Senior Loans that are considered highly levered transactions. Such sales could result in prices that, in the opinion of the Adviser and the Sub-Adviser, do not represent fair value. If the Trust attempts to sell a Senior Loan at a time when a financial institution is engaging in such a sale, the price the Trust could receive for the Senior Loan may be adversely affected.

Second Lien Loans Risk

Second lien loans are secured by liens on the collateral securing the loan that are subordinated to the liens of at least one other class of obligations of the related obligor, and thus, the ability of the Trust to exercise remedies after a second lien loan becomes a defaulted loan is subordinated to, and limited by, the rights of the senior creditors holding such other classes of obligations. In many circumstances, the Trust may be prevented from foreclosing on the collateral securing a second lien loan until the related senior loan is paid in full. Moreover, any amounts that might be realized as a result of collection efforts or in connection with a bankruptcy or insolvency proceeding involving a second lien loan must generally be turned over to the senior secured lender until the senior secured lender has realized the full value of its own claims. In addition, certain of the second lien loans may contain provisions requiring the Trust’s interest in the collateral to be released in certain circumstances. These lien and payment obligation subordination provisions may materially and adversely affect the ability of the Trust to realize value from second lien loans.

Annual Report | September 30, 2022 67

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Unsecured Loan Risk

Unsecured loans do not benefit from any security interest in the assets of the Borrower. Liens on such Borrowers’ assets, if any, will secure the applicable Borrower’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the Borrower under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before repayment of unsecured instruments held by the Trust. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy the Trust’s unsecured obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then the Trust’s unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the borrower’s remaining assets, if any.

Loan Participation and Assignment Risk

The Trust may purchase Senior Loans, second lien loans and unsecured loans on a direct assignment basis from a participant in the original syndicate of lenders or from subsequent assignees of such interests. The Trust may also purchase, without limitation, participations in Senior Loans, second lien loans and unsecured loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchaser’s rights can be more restricted than those of the assigning institution, and, in any event, the Trust may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest, not with the Borrower. In purchasing participations, the Trust generally will have no right to enforce compliance by the Borrower with the terms of the loan agreement against the Borrower, and the Trust may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Trust will be exposed to the credit risk of both the Borrower and the institution selling the participation. Further, in purchasing participations in lending syndicates, the Trust may not be able to conduct the same due diligence on the Borrower with respect to a loan that the Trust would otherwise conduct. In addition, as a holder of the participations, the Trust may not have voting rights or inspection rights that the Trust would otherwise have if it were investing directly in the loan, which may result in the Trust being exposed to greater credit or fraud risk with respect to the Borrower. Investments in bank loans may not be securities as defined within the Securities Act and therefore may not have the protections afforded by the federal securities laws.

Illiquid Investments Risk

The Trust may invest in restricted, as well as thinly traded, instruments and securities (including privately placed securities and instruments that are subject to Rule 144A). There may be no trading market for these securities and instruments, and the Trust might only be able to liquidate these positions, if at all, at disadvantageous prices. As a result, the Trust may be required to hold such securities despite adverse price movements. Privately issued securities have additional risk considerations than investments in comparable public investments. Whenever the Trust invests in companies that do not publicly report financial and other material information, it assumes a greater degree of investment risk and reliance upon the Sub-Adviser’s ability to obtain and evaluate applicable information concerning such companies’ creditworthiness and other investment considerations.

Certain stressed and distressed investments, for various reasons, may not be capable of an advantageous disposition prior to the date the Trust is to be dissolved. The Trust may be required to sell, distribute in kind or otherwise dispose of investments at a disadvantageous time as a result of any such dissolution.

Stressed and Distressed Investments Risk

The Trust may invest in stressed and distressed credit instruments. The ability of the Trust to obtain a profit from these investments may often depend upon factors that are intrinsic to the particular issuer, rather than the market as a whole. Appreciation in the value of such investments may be contingent upon the occurrence of certain events, such as a successful reorganization or merger. If the expected event does not occur, the Trust may incur a loss on the position. Stressed and distressed investments may have a limited trading market, resulting in limited liquidity and presenting difficulties to the Trust in valuing its positions. Stressed and distressed investments by the nature of their issuers’ leveraged capital structures, will involve a high degree of financial risk. These investments may be unsecured and subordinated to substantial amounts of senior indebtedness, all or a significant portion of which may be secured. In addition, these investments may not be protected by financial covenants or limitations upon additional indebtedness, may have limited liquidity and may not be rated by a credit rating agency. Adverse changes in the financial condition of an issuer or in general economic conditions (or both) may impair the ability of such issuer to make payments on the subordinated securities and result in defaults on and declines in the value of such securities more quickly than in the case of the senior obligations of such issuer.

Uncertain Exit Strategies. Due to the illiquid nature of many stressed and distressed investments, as well as the uncertainties of the reorganization and active management process, the Sub-Adviser may be unable to predict with confidence what the exit strategy will ultimately be for any given position, or that one will definitely be available. Exit strategies that appear to be viable when an investment is initiated may be precluded by the time the investment is ready to be realized, due to economic, legal, political or other factors.

Control Position Risk. Certain stressed and distressed investment opportunities may allow a holder to have significant influence on the management, operations and strategic direction of the portfolio companies in which it invests. The exercise of control and/or significant influence over a company imposes additional risks of liability for environmental damage, product defects, failure to supervise management and other types of liability in which the limited liability generally characteristic of business operations may be ignored. The exercise of control and/or significant influence over a portfolio company could expose the assets of the Trust to claims by such portfolio company, its securities holders and its creditors. While the Sub-Adviser intends to manage the Trust in a way that will minimize exposure to these risks, the possibility of successful claims cannot be precluded.

68 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Leverage Risk

The Trust utilizes leverage to seek to enhance total return and income. The Trust currently utilizes leverage through (i) the issuance of Indebtedness and (ii) the issuance of Preferred Shares. There can be no assurance that the Adviser’s and the Sub-Adviser’s expectations will be realized or that a leveraging strategy will be successful in any particular time period. Use of leverage creates an opportunity for increased income and capital appreciation but, at the same time, creates special risks. Leverage is a speculative technique that exposes the Trust to greater risk and increased costs than if it were not implemented. There can be no assurance that a leveraging strategy will be utilized or will be successful.

The use of leverage by the Trust will cause the net asset value of the Common Shares to fluctuate significantly in response to changes in interest rates and other economic indicators. As a result, the net asset value, market price and dividend rate of the Common Shares is likely to be more volatile than those of a closed-end management investment company that is not exposed to leverage. In a declining market the use of leverage may result in a greater decline in the net asset value and market price of the Common Shares than if the Trust were not leveraged.

Leverage will increase operating costs, which may reduce total return. The Trust will have to pay interest on its Indebtedness, if any, which may reduce the Trust’s return. This interest expense may be greater than the Trust’s return on the underlying investment, which would negatively affect the performance of the Trust. Increases in interest rates that the Trust must pay on its Indebtedness will increase the cost of leverage and may reduce the return to Common Shareholders. This risk may be greater in the current market environment because while interest rates remain below historical averages, the Federal Reserve has recently implemented several increases to the Federal Funds rate.

Certain types of Indebtedness subject the Trust to covenants in credit agreements relating to asset coverage and portfolio composition requirements. Certain Indebtedness issued by the Trust also may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such Indebtedness. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.

The Trust may have leverage outstanding during a shorter-term period during which such leverage may not be beneficial if the Trust believes that the long-term benefits of such leverage would outweigh the costs and portfolio disruptions associated with redeeming and reissuing such leverage. However, there can be no assurance that the Trust’s judgment in weighing such costs and benefits will be correct.

During the time in which the Trust is utilizing leverage, the amount of the fees paid to the Adviser, and thereby to the Sub-Adviser, for investment advisory services will be higher than if the Trust did not utilize leverage because the fees paid will be calculated based on the Trust’s Managed Assets, including proceeds of leverage. This may create a conflict of interest between the Adviser and the Sub-Adviser on the one hand and the Common Shareholders, as holders of Indebtedness, Preferred Shares or other forms of leverage do not bear the management fee. Rather, Common Shareholders bear the portion of the management fee attributable to assets purchased with the proceeds of leverage, which means that Common Shareholders effectively bear the entire management fee. There can be no assurance that a leveraging strategy will be utilized or, if utilized, will be successful.

To the extent that the Trust increases its net assets as a result of sales of additional Common Shares, the Trust will be required to incur additional financial leverage in order to maintain its current levels of financial leverage as a percentage of Managed Assets. There can be no assurance that the Trust will be able to incur such additional financial leverage or to do so on favorable terms.

In addition, the Trust may engage in certain derivatives transactions that have economic characteristics similar to leverage. To the extent the terms of any such transaction obligate the Trust to make payments, the Trust intends to earmark or segregate cash or liquid securities in an amount at least equal to the current value of the amount then payable by the Trust under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. To the extent the terms of any such transaction obligate the Trust to deliver particular securities to extinguish the Trust’s obligations under such transactions, the Trust may “cover” its obligations under such transaction by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate right to acquire such securities or collateral without additional cash consideration.

Other Investment Companies Risk

Investments in other investment companies present certain special considerations and risks not present in making direct investments in securities in which the Trust may invest. Investments in other investment companies involve operating expenses and fees that are in addition to the expenses and fees borne by the Trust. Such expenses and fees attributable to the Trust’s investments in other investment companies are borne indirectly by Common Shareholders. Accordingly, investment in such entities involves expense and fee layering. Investments in other investment companies may expose the Trust to an additional layer of financial leverage. To the extent management fees of other investment companies are based on total gross assets, it may create an incentive for such entities’ managers to employ financial leverage, thereby adding additional expense and increasing volatility and risk. Investments in other investment companies also expose the Trust to additional management risk; the success of the Trust’s investments in other investment companies will depend in large part on the investment skills and implementation abilities of the advisers or managers of such entities. Decisions made by the advisers or managers of such entities may cause the Trust to incur losses or to miss profit opportunities. To the extent the Trust invests in ETFs or other investment companies that seek to track a specified index, such investments will be subject to tracking error risk.

Annual Report | September 30, 2022 69

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Exchange-Traded Fund Risk

For ETFs tracking an index of securities, the cumulative percentage increase or decrease in the net asset value of the shares of an ETF may over time diverge significantly from the cumulative percentage increase or decrease in the relevant index due to the compounding effect experienced by an ETF which results from a number of factors, including, leverage (if applicable), daily rebalancing, fees, expenses and interest income, which in turn results in greater non-correlation between the return of an ETF and its corresponding index. Moreover, because an ETF’s portfolio turnover rate may be very high due to daily rebalancing, holding both long and short futures contracts, leverage (if applicable) and and/or market volatility, such ETF will incur additional brokerage costs, operating costs and may generate increased taxable capital gains, which, in turn, would adversely affect the value of the shares of such ETF. In addition, fixed-income ETFs that track an index often require some type of sampling or optimization because they are typically market benchmarks but not tradable portfolios. Such ETFs often include many more securities than equity ETFs, and the securities included are often less liquid, resulting in fewer opportunities and greater costs to replicate the relevant index. Many instruments in fixed-income indices are illiquid or hard to obtain, as many investors may buy them at issuance and hold them to maturity.

Short Sales Risk

Short sales involve selling securities of an issuer short in the expectation of covering the short sale with securities purchased in the open market at a price lower than that received in the short sale. If the price of the issuer’s securities declines, the Trust may then cover the short position with securities purchased in the market. The profit realized on a short sale will be the difference between the price received in the sale and the cost of the securities purchased to cover the sale. The possible losses from selling short a security differ from losses that could be incurred from a cash investment in the security; the former may be unlimited, whereas the latter can only equal the total amount of the cash investment. Short selling activities are also subject to restrictions imposed by the federal securities laws and the various national and regional securities exchanges, which restrictions could limit the Trust’s investment activities. There can be no assurance that securities necessary to cover a short position will be available for purchase.

Synthetically created short positions will involve both hedging situations, where the position is intended to wholly or partially offset risk associated with another position in a related security, and speculative situations, where the Sub-Adviser uses shorting techniques to take advantage of the decline in the price of particular assets. The Trust will generally realize a profit or a loss as a result of a synthetically created short position if the value of the underlying asset decreases or increases respectively during the relevant term of the short position. In addition, the Trust will be required to post collateral on such positions as required pursuant to the agreement with the relevant transaction counterparty. The use of short selling through credit default swaps and total return swaps will subject the Trust to counterparty credit risk in the event of a default by the counterparty which could result in the loss of collateral posted with such counterparty and gains to which the Trust would otherwise be entitled absent the default of the counterparty. In addition, depending on the nature of the synthetic instrument used by the Trust to create short exposure, the Trust could be subject to the risk of unlimited losses.

Derivatives Risk

Derivatives are financial contracts in which the value depends on, or is derived from, the value of an underlying asset, reference rate or index. The Trust may, but is not required to, engage in various derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to seek to enhance total return of earn income. The Trust’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks, such as interest rate risk, market risk, counterparty risk, and credit risk. They also involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. If the Trust invests in a derivative instrument it could lose more than the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Trust will engage in these transactions to reduce exposure to other risks when that would be beneficial.

The instruments, indices and rates underlying derivative transactions expected to be entered into by the Trust may be extremely volatile in the sense that they are subject to sudden fluctuations of varying magnitude, and may be influenced by, among other things, government trade, fiscal, monetary and exchange control programs and policies; national and international political and economic events; and changes in interest rates. The volatility of such instruments, indices or rates, which may render it difficult or impossible to predict or anticipate fluctuations in the value of instruments traded by the Trust, could result in losses.

70 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Off-Exchange Derivatives Risk

The Trust may invest a portion of its assets in investments which are not traded on organized exchanges and as such are not standardized. Such transactions may include forward contracts, swaps or options. While some markets for such derivatives are highly liquid, transactions in off-exchange derivatives may involve greater risk than investing in exchange-traded derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid and offer prices need not be quoted and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price. In respect of such trading, the Trust is subject to the risk of counterparty failure or the inability or refusal by a counterparty to perform with respect to such contracts. Market illiquidity or disruption could result in major losses to the Trust.

Options Risk

Trading in options involves a number of risks. Specific market movements of the option and the instruments underlying an option cannot be predicted. No assurance can be given that a liquid offset market will exist for any particular option or at any particular time. If no liquid offset market exists, the Trust might not be able to effect an offsetting transaction in a particular option. To realize any profit in the case of an option, therefore, the option holder would need to exercise the option and comply with margin requirements for the underlying instrument. A writer could not terminate the obligation until the option expired or the writer was assigned an exercise notice. The purchaser of an option is subject to the risk of losing the entire purchase price of the option. The writer of an option is subject to the risk of loss resulting from the difference between the premium received for the option and the price of the futures contract underlying the option that the writer must purchase or deliver upon exercise of the option. The writer of a naked option may have to purchase the underlying contract in the market for substantially more than the exercise price of the option in order to satisfy his delivery obligations. This could result in a large net loss.

Futures Risk

Futures contracts markets are highly volatile and are influenced by a variety of factors, including national and international political and economic developments. In addition, because of the low margin deposits normally required in futures trading, a high degree of leverage is typical of a futures trading account. As a result, a relatively small price movement in a futures contract may result in substantial losses to the trader. Moreover, futures positions are marked to market each day and variation margin payment must be paid to or by a trader. Positions in futures contracts may be closed out only on the exchange on which they were entered into or through a linked exchange, and no secondary market exists for such contracts. Certain futures exchanges do not permit trading in particular futures contracts at prices that represent a fluctuation in price during a single day’s trading beyond certain set limits. If prices fluctuate during a single day’s trading beyond those limits, the Trust could be prevented from promptly liquidating unfavorable positions and thus be subjected to substantial losses. When used for hedging purposes, an imperfect or variable degree of correlation between price movements of the futures contracts and the underlying investment sought to be hedged may prevent the Trust from achieving the intended hedging effect or expose the Trust to the risk of loss.

Swaps Risk

The Trust may utilize swap agreements including, without limitation, interest rate, index and currency swap agreements. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than a year. In a standard swap transaction, two parties agree to exchange the returns earned on specified assets, such as the return on, or increase in value of, a particular dollar amount invested at a particular interest rate, in a particular foreign currency. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary securities transactions. There are risks relating to the financial soundness and creditworthiness of the counterparty to swap agreements. If the other party to an interest rate swap defaults, the Trust’s risk of credit loss may be the amount of interest payments that the Trust is contractually obligated to receive on a net basis. However, where swap agreements require one party’s payments to be “up-front” and timed differently than the other party’s payments (such as is often the case with currency swaps), the entire principal value of the swap may be subject to the risk that the other party to the swap will default on its contractual delivery obligations. The investment performance of the Trust, however, may be adversely affected by the use of swaps if the Sub-Adviser’s forecasts of market values, interest rates or currency exchange rates are inaccurate.

Credit Default Swaps Risk

The Trust may enter into credit default swap agreements. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. The Trust may be either the buyer or seller in a credit default swap transaction. If the Trust is a buyer and no event of default occurs, the Trust may lose its investment and recover nothing. However, if an event of default occurs, the Trust (if the buyer) will receive the full notional value of the reference obligation that may have little or no value. As a seller, the Trust receives a fixed rate of income throughout the term of the contract provided that there is no default event. If an event of default occurs, the Trust must pay the buyer the full notional value of the reference obligation. Credit default swap transactions involve greater risks than if a Trust had invested in the reference obligation directly. Credit default swaps are subject to the risk of non-performance by the swap counterparty, including risks relating to the financial soundness and creditworthiness of the swap counterparty.

Annual Report | September 30, 2022 71

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Hedging Transactions Risk

The success of any hedging strategy utilized by the Trust’s will be subject to the Sub-Adviser’s ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the Trust’s hedging strategy will also be subject to the Sub-Adviser’s ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner.

While the Trust may enter into hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance for the Trust than if it had not engaged in any such hedging transactions. Hedging against a decline in the value of a portfolio position does not eliminate fluctuations in the values of those portfolio positions or prevent losses if the values of those positions decline. Rather, it establishes other positions designed to gain from those same declines, thus seeking to moderate the decline in the portfolio position’s value. Such hedging transactions also limit the opportunity for gain if the value of the portfolio position should increase. For a variety of reasons, the Sub-Adviser may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the Trust from achieving the intended hedge or expose the Trust to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs. The Sub-Adviser may determine, in its sole discretion, not to hedge against certain risks and certain risks may exist that cannot be hedged. Furthermore, the Sub-Adviser may not anticipate a particular risk so as to hedge against it effectively. The successful utilization of hedging and risk management transactions requires skills complementary to those needed in the selection of the Trust’s portfolio holdings.

The Trust may seek to hedge currency risks by investing in currencies, currency exchange forward or futures contracts, swaps, swaptions or any combination thereof (whether or not exchange-traded), but these or other instruments necessary to hedge such currency risks may not generally be available, may not provide a perfect hedge or may not be, in the Sub-Adviser’s judgment, economically priced. There can be no assurance that these strategies will be effective, and such techniques entail costs and additional risks.

Counterparty Risk

Counterparty risk is the risk that a counterparty to a Trust transaction (e.g., prime brokerage or securities lending arrangement or derivatives transaction) will be unable or unwilling to perform its contractual obligation to the Trust. The Trust is exposed to credit risks that the counterparty may be unwilling or unable to make timely payments or otherwise meet its contractual obligations. If the counterparty becomes bankrupt or defaults on (or otherwise becomes unable or unwilling to perform, the risk of which is particularly acute under current conditions) its payment or other obligations to the Trust, the Trust may not receive the full amount that it is entitled to receive or may experience delays in recovering the collateral or other assets held by, or on behalf of, the counterparty. The Trust bears the risk that counterparties may be adversely affected by legislative or regulatory changes, adverse market conditions (such as the current conditions), increased competition, and/or wide scale credit losses resulting from financial difficulties of the counterparties’ other trading partners or borrowers. If a counterparty’s credit becomes significantly impaired, requests for collateral posting could increase the risk that the Trust will not receive adequate collateral. Concerns about, or a default by, one large market participant could lead to significant liquidity problems for other participants.

The counterparty risk for cleared derivatives is generally lower than for uncleared derivatives transactions since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations under the derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations to the Trust.

Synthetic Investment Risk

The Trust may be exposed to certain additional risks should the Sub-Adviser uses derivatives transactions as a means to synthetically implement the Trust’s investment strategies. Customized derivative instruments will likely be highly illiquid, and it is possible that the Trust will not be able to terminate such derivative instruments prior to their expiration date or that the penalties associated with such a termination might impact the Trust’s performance in a materially adverse manner. Synthetic investments may be imperfectly correlated to the investment the Sub-Adviser is seeking to replicate. There can be no assurance that the Sub-Adviser’s judgments regarding the correlation of any particular synthetic investment will be correct. The Trust may be exposed to certain additional risks associated with derivatives transactions should the Sub-Adviser use derivatives as a means to synthetically implement the Trust’s investment strategies. The Trust would be subject to counterparty risk in connection with such transactions. If the Trust enters into a derivative instrument whereby it agrees to receive the return of a security or financial instrument or a basket of securities or financial instruments, it will typically contract to receive such returns for a predetermined period of time. During such period, the Trust may not have the ability to increase or decrease its exposure. In addition, such customized derivative instruments will likely be highly illiquid, and it is possible that the Trust will not be able to terminate such derivative instruments prior to their expiration date or that the penalties associated with such a termination might impact the Trust’s performance in a material adverse manner. Furthermore, certain derivative instruments typically contain provisions giving the counterparty the right to terminate the contract upon the occurrence of certain events, such as a decline in the value of the reference securities and material violations of the terms of the contract or the portfolio guidelines as well as other events determined by the counterparty. If a termination were to occur, the Trust’s return could be adversely affected as it would lose the benefit of the indirect exposure to the reference securities and it may incur significant termination expenses.

72 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Segregation and Cover Risk

In connection with certain derivatives transactions, the Trust may be required to segregate liquid assets or otherwise cover such transactions and/or to deposit amounts as premiums or to be held in margin accounts. Regulators have adopted rules that generally require margin to be posted and collected for off-exchange derivatives. Such amounts may not otherwise be available to the Trust for investment purposes. The Trust may earn a lower return on its portfolio than it might otherwise earn if it did not have to segregate assets in respect of, or otherwise cover, its derivatives transactions positions. To the extent the Trust’s assets are segregated or committed as cover, it could limit the Trust’s investment flexibility. Segregating assets and covering positions will not limit or offset losses on related positions.

Interest Rate Risk

Interest rate risk is the risk that credit securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of fixed income credit securities generally will fall. These risks may be greater in the current market environment because while interest rates were historically low in recent years, the Federal Reserve has begun increasing the Federal Funds rate to address inflation. Prevailing interest rates may be adversely impacted by market and economic factors. Markets are currently experiencing increased volatility due to the impact of inflation and rising interest rates, which may adversely affect the value and/or liquidity of certain of the Trust’s investments. The prices of longer-term securities fluctuate more than prices of shorter-term securities as interest rates change. The Trust’s use of leverage will tend to increase the interest rate risk to which its Common Shares are subject. The Trust invests primarily in variable and floating rate credit instruments and other structured credit investments, which generally are less sensitive to interest rate changes than fixed rate instruments, but generally will not increase in value if interest rates decline. A rise in interest rates may negatively impact the Trust’s or its investments’ leverage expenses and future income, as the Trust or its investments will be required to earn more income investments to recoup any increased costs of leverage.

Prepayment Risk

The frequency at which prepayments (including voluntary prepayments by the obligors and accelerations due to defaults) occur on bonds and loans will be affected by a variety of factors including the prevailing level of interest rates and spreads as well as economic, demographic, tax, social, legal and other factors. Generally, obligors tend to prepay their fixed rate obligations when prevailing interest rates fall below the coupon rates on their obligations. Similarly, floating rate issuers and borrowers tend to prepay their obligations when spreads narrow.

In general, “premium” securities (securities whose market values exceed their principal or par amounts) are adversely affected by faster than anticipated prepayments, and “discount” securities (securities whose principal or par amounts exceed their market values) are adversely affected by slower than anticipated prepayments. Since many fixed rate obligations will be discount securities when interest rates and/or spreads are high, and will be premium securities when interest rates and/or spreads are low, such securities and asset-backed securities may be adversely affected by changes in prepayments in any interest rate environment.

The adverse effects of prepayments may impact the Trust’s portfolio in several ways. During periods of declining interest rates, when the issuer of a security exercises its option to prepay principal earlier than scheduled, the Trust may be required to reinvest the proceeds of such prepayment in lower-yielding securities. Particular investments may experience outright losses, as in the case of an interest-only security in an environment of faster actual or anticipated prepayments. In addition, particular investments may underperform relative to hedges that the Sub-Adviser may have constructed for these investments, resulting in a loss to the Trust’s overall portfolio. In particular, prepayments (at par) may limit the potential upside of many securities to their principal or par amounts, whereas their corresponding hedges often have the potential for unlimited loss.

Inflation/Deflation Risk

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of Common Shares and distributions can decline. Inflation rates may change frequently and significantly as a result of various factors, including unexpected shifts in the U.S. or global economy and changes in monetary or economic policies (or expectations that these policies may change), and the Trust’s investments may not keep pace with inflation, which would adversely affect the Trust. This risk is significantly elevated compared to normal conditions because of recent monetary policy measures and the low interest rate environment in recent years. In response to the recent rise in inflation rates, the Federal Reserve has begun raising the Federal Funds rate. During any periods of rising inflation, the dividend rates or borrowing costs associated with the Trust’s use of leverage would likely increase, which would tend to further reduce returns to Common Shareholders. Deflation risk is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Trust’s portfolio.

Duration and Maturity Risk

The Trust has no set policy regarding maturity or duration of credit instruments in which it may invest or of the Trust’s portfolio generally. The price of fixed rate securities with longer maturities or duration generally is more significantly impacted by changes in interest rates than those of fixed rate securities with shorter maturities or duration. Therefore, generally speaking, the longer the duration of the Trust’s portfolio, the more exposure the Trust will have to interest rate risk described above. The Sub-Adviser may seek to adjust the portfolio’s duration or maturity based on its assessment of current and projected market conditions and all factors that the Sub-Adviser deems relevant. Any decisions as to the targeted duration or maturity of any particular category of investments or of the Trust’s portfolio generally will be made based on all pertinent market factors at any given time. The Trust may incur costs in seeking to adjust the portfolio average duration or maturity. There can be no assurance that the Sub-Adviser’s assessment of current and projected market conditions will be correct or that any strategy to adjust the portfolio’s duration or maturity will be successful at any given time.

Annual Report | September 30, 2022 73

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Credit Risk

Credit risk is the risk that an issuer of securities in which the Trust invests or an asset underlying a CLO in which the Trust invests will be unable to pay principal and interest when due, or that the value of the security will suffer because investors believe the issuer is less able to pay. This is broadly gauged by the credit ratings of the securities in which the Trust invests. However, ratings are only the opinions of the agencies issuing them, may change less quickly than relevant circumstances and are not absolute guarantees of the quality of the securities. Furthermore, the Trust’s investments may not be rated by any rating agency or may be below investment grade. The Trust will be more dependent upon the judgment of the Sub-Adviser as to the credit quality of such unrated securities. A default, downgrade or credit impairment of any of its investments could result in a significant or even total loss of the investment.

Non-U.S. Investments Risk

Issuers of foreign securities are not subject to United States reporting and accounting requirements. Foreign reporting requirements may result in less information being available or in a lack of uniformity in the manner in which information is presented. The risk of loss associated with investments in securities of foreign issuers, particularly in less developed markets, include currency exchange risks, expropriation, or limits on repatriating an investment, government intervention, confiscatory taxation, political, economic or social instability, illiquidity, less efficient markets, price volatility and market manipulation.

Some foreign securities may be subject to brokerage or stock transfer taxes levied by foreign governments, which would have the effect of increasing the cost of investment and which may reduce the realized gain or increase the loss on such securities at the time of sale. The issuers of some of these securities, such as banks and other financial institutions, may be subject to less stringent or different regulations than would be the case for U.S. issuers and therefore potentially carry greater risk. Custodial expenses for a portfolio of non-U.S. securities generally are higher than for a portfolio of U.S. securities. In addition, dividend and interest payments from, and capital gains in respect of, certain foreign securities may be subject to foreign taxes that may or may not be reclaimable.

In addition, costs associated with transactions in non-U.S. markets (including brokerage, execution, clearing and custodial costs) may be substantially higher than costs associated with transactions in U.S. markets. Such non-U.S. transactions may also involve additional costs for the purchase or sale of currencies in which the Trust’s assets are denominated in order to settle such transactions. Furthermore, clearing and registration procedures may be under-developed enhancing the risks of error, fraud, or default.

Many of the laws that govern foreign investment, securities transactions and other contractual relationships in non-U.S. securities markets are different than or not as fully developed as those in the United States. As a result, the Trust may be subject to a number of risks, including inadequate investor protection, contradictory legislation, incomplete, unclear and changing laws, ignorance or breaches of regulations on the part of other market participants, lack of established or effective avenues for legal redress, lack of standard practices and confidentiality customs characteristic of

U.S. markets, and lack of enforcement of existing regulations. There can be no assurance that this difficulty in protecting and enforcing rights will not have a material adverse effect on the Trust and its operations. In addition, the income and gains of the Trust may be subject to withholding taxes imposed by foreign governments for which investors may not receive a full foreign tax credit. Furthermore, it may be more difficult to obtain and enforce a judgment in a court outside of the United States than to enforce one in the United States.

Bankruptcy Cases Risk

Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a bankruptcy court would not approve actions that may be contrary to the interests of the partners. Furthermore, there are instances where creditors lose their ranking and priority as such if they are considered to have taken over management and functional operating control of a debtor. Generally, the duration of a bankruptcy case can only be roughly estimated. The reorganization of a Borrower usually involves the development and negotiation of a plan of reorganization, plan approval by creditors and confirmation by the bankruptcy court. This process can involve substantial legal, professional and administrative costs to the Borrower and the Trust; it is subject to unpredictable and lengthy delays; and during the process the Borrower’s competitive position may erode, key management may depart and the company may not be able to invest adequately.

U.S. bankruptcy law permits the classification of “substantially similar” claims in determining the classification of claims in a reorganization for the purpose of voting on a plan of reorganization. Because the standard for classification is vague, there exists a significant risk that the Trust’s influence with respect to a class of securities can be lost by the inflation of the number and the amount of claims in, or other gerrymandering of, the class.

In addition, certain administrative costs and claims that have priority by law over the claims of certain creditors (for example, claims for taxes) may be quite high. The administrative costs in connection with a bankruptcy proceeding are frequently high and will be paid out of the debtor’s estate prior to any return to creditors (other than out of assets or proceeds thereof, which are subject to valid and enforceable liens and other security interests). In addition, certain claims that have priority by law over the claims of certain creditors (for example, claims for taxes) may be quite high.

74 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Creditor Committee Risk

The Sub-Adviser, on behalf of the Trust as a holder of distressed investments and other credit instruments, may participate on committees formed by creditors to negotiate with the management of financially troubled companies that may or may not be in bankruptcy or seek to negotiate directly with debtors with respect to restructuring issues. In situations where the Sub-Adviser chooses to join creditors’ committees, the Trust would likely be only one of many participants, each of whom would be interested in obtaining an outcome that is in its individual best interests. There can be no assurance that participation on a creditors’ committee will yield favorable results in such proceedings, and such participation may entail significant legal fees and other expenses. Participation on such committees may expose the Trust to liability to other creditors.

Participation in restructuring activities may provide the Sub-Adviser with material non-public information that may restrict the Trust’s ability to trade in the Borrower’s securities or other instruments. Determination of whether information is material and non-public and how long knowledge of such information restricts trading is a matter of considerable uncertainty and judgment. While the Sub-Adviser intends to comply with all applicable securities laws and to make judgments concerning restrictions on trading in good faith, there may be circumstances where the Trust may trade in a Borrower’s securities or instruments while engaged in restructuring activities relating to that Borrower. Such trading creates a risk of litigation and liability that may result in significant legal fees and potential losses.

Board Participation Risk

From time to time, an investment by the Trust may provide the Trust with the right to appoint or more members of the board of directors of a portfolio company or to appoint representatives to serve as observers to such boards of directors. Although such positions in certain circumstances enhance the ability to manage such investment, due to the duties imposed on the Trust’s representatives on boards of directors or receipt of material nonpublic information by such representatives, these positions may also have the effect of impairing the Trust’s ability to sell the related securities or instruments when, and upon the terms, it may otherwise desire. These restrictions may subject the Trust or its representatives to claims they would not otherwise be subject to as an investor, including claims of breach of duty of loyalty, securities claims and other director related claims.

Certain Other Creditor Risks

Debt securities are also subject to other creditor risks, including, without limitation, (a) the possible invalidation of an investment transaction as a “fraudulent conveyance” under relevant creditors’ rights laws, (b) so-called “lender liability” claims by the issuer of the obligations and (c) environmental liabilities that may arise with respect to collateral securing the obligations.

Equity Investments Risk

Incidental to the Trust’s investments in credit instruments, the Trust may acquire or hold equity securities, or warrants to purchase equity securities, of a Borrower or issuer. Common equity securities prices fluctuate for a number of reasons, including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant stock market and broader domestic and international political and economic events. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. The value of a particular common stock held by the Trust may decline for a number of other reasons which directly relate to the issuer, such as management performance, financial leverage, the issuer’s historical and prospective earnings, the value of its assets and reduced demand for its goods and services. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. The prices of common equity securities are also sensitive to general movements in the stock market, so a drop in the stock market may depress the prices of common stocks and other equity securities to which the Trust has exposure. Dividends on common equity securities are not fixed but are declared at the discretion of an issuer’s board of directors. There is no guarantee that the issuers of the common equity securities will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.

Warrants give holders the right, but not the obligation, to buy common stock of an issuer at a given price, usually higher than the market price at the time of issuance, during a specified period. The risk of investing in a warrant is that the warrant may expire prior to the market value of the common stock exceeding the price fixed by the warrant. Warrants have a subordinate claim on a borrower’s assets compared with debt securities. As a result, the values of warrants generally are dependent on the financial condition of the borrower and less dependent on fluctuations in interest rates than are the values of many debt securities. The values of warrants may be more volatile than those of Senior Loans or corporate bonds and this may increase the volatility of the net asset value of the Common Shares.

The Trust’s goal is ultimately to dispose of equity interests and realize gains upon its disposition of such interests. However, the equity interests the Trust receives may not appreciate in value and, in fact, may decline in value. Accordingly, the Trust may not be able to realize gains from its equity interests, and any gains that it does realize on the disposition of any equity interests may not be sufficient to offset any other losses the Trust experiences.

Annual Report | September 30, 2022 75

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Allegation of Equitable Subordination Risk

Under common law principles that, in some cases, form the basis for lender liability claims, certain actions by creditors may result in the subordination of the claim of the offending lending institution to the claims of the disadvantaged creditor or creditors, called equitable subordination. Because of the nature of certain distressed investments, a fund holding such investments could be subject to allegations of lender liability and/or subject to claims from creditors of an obligor that investments issued by such obligor should be equitably subordinated. A portion of the Trust’s investments may involve situations in which the Trust will not be the lead creditor. Accordingly, it is possible that lender liability or equitable subordination claims that affect the Trust’s investments could arise without the direct involvement of the Trust.

Limited Term Risk

Unless the Trust completes an Eligible Tender Offer and converts to perpetual existence, the Trust will terminate on or about the Termination Date. The Trust should not be confused with a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as the fund’s target date, often associated with retirement, approaches, and does not typically terminate on the target date. In addition, the Trust should not be confused with a “target term” fund whose investment objective is to return the fund’s original net asset value on the termination date. The Trust’s investment objective and policies are not designed to seek to return to investors their initial investment on the Termination Date or in an Eligible Tender Offer. Investors may receive more or less than their original investment upon termination or in an Eligible Tender Offer.

Because the assets of the Trust will be liquidated in connection with the termination, the Trust will incur transaction costs in connection with dispositions of portfolio securities. The Trust does not limit its investments to securities having a maturity date prior to the Termination Date and may be required to sell portfolio securities when it otherwise would not, including at times when market conditions are not favorable, which may cause the Trust to lose money. In particular, the Trust’s portfolio may still have significant remaining average maturity and duration, and large exposures to below investment grade securities, as the Termination Date approaches, losses due to portfolio liquidation may be significant. Beginning one year before the Termination Date (the “wind-down period”), the Trust may begin liquidating all or a portion of the Trust’s portfolio, and may deviate from its investment policies, including its policy of investing at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments and may not achieve its investment objective. During the wind-down period, the Trust’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation. Rather than reinvesting the proceeds of matured, called or sold securities, the Trust may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect its performance. The Trust may distribute the proceeds in one or more liquidating distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under management. Upon a termination, it is anticipated that the Trust will have distributed substantially all of its net assets to shareholders, although securities for which no market exists or securities trading at depressed prices, if any, may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining a liquidating trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until they can be sold or pay out all of their cash flows. The Trust cannot predict the amount, if any, of securities that will be required to be placed in a liquidating trust.

If the Trust conducts an Eligible Tender Offer, the Trust anticipates that funds to pay the aggregate purchase price of Common Shares accepted for purchase pursuant to the tender offer will be first derived from any cash on hand and then from the proceeds from the sale of portfolio investments held by the Trust. In addition, the Trust may be required to dispose of portfolio investments in connection with any reduction in the Trust’s outstanding leverage necessary in order to maintain the Trust’s desired leverage ratios following a tender offer. The disposition of portfolio investments by the Trust could cause market prices of such instruments, and hence the net asset value of the Common Shares, to decline. In addition, disposition of portfolio investments will cause the Trust to incur increased brokerage and related transaction expenses. The Trust may receive proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Trust. It is likely that during the pendency of a tender offer, and possibly for a time thereafter, the Trust will hold a greater than normal percentage of its total assets in cash and cash equivalents, which may impede the Trust’s ability to achieve its investment objective and decrease returns to shareholders. If the Trust’s tax basis for the investments sold is less than the sale proceeds, the Trust will recognize capital gains, which the Trust will be required to distribute to shareholders. In addition, the Trust’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering shareholders and may have tax consequences for non-tendering shareholders. The purchase of Common Shares by the Trust pursuant to a tender offer will have the effect of increasing the proportionate interest in the Trust of non-tendering shareholders. All shareholders remaining after a tender offer will be subject to proportionately higher expenses due to the reduction in the Trust’s total assets resulting from payment for the tendered Common Shares. Such reduction in the Trust’s total assets may also result in less investment flexibility, reduced diversification and greater volatility for the Trust, and may have an adverse effect on the Trust’s investment performance.

The Trust is not required to conduct an Eligible Tender Offer. If the Trust conducts an Eligible Tender Offer, there can be no assurance that tendered Common Shares will not exceed the Termination Threshold, in which case the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and the Trust will terminate on or before the Termination Date (subject to possible extensions).

Following the completion of an Eligible Tender Offer in which the tendered Common Shares do not exceed the Termination Threshold, the Board of Trustees may eliminate the Termination Date upon the affirmative vote of a majority of the Board of Trustees and without a shareholder vote. Thereafter, the Trust will have a perpetual existence. The Trust is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to perpetual existence. Therefore, remaining shareholders may not have another opportunity to participate in a tender offer. Shares of closed-end management investment companies frequently trade at a discount from their net asset value, and as a result remaining shareholders may only be able to sell their Common Shares at a discount to net asset value.

76 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Management Risk

The Trust is subject to management risk because the Trust has an actively managed portfolio. The Adviser and Sub-Adviser will apply investment techniques and risk analysis in making investment decisions for the Trust, but there can be no guarantee that these will produce the desired results.

Valuation Risk

Because the secondary markets for certain investments may be limited, they may be difficult to value. Where market quotations are not readily available or deemed unreliable, the Trust will value such securities at its valuation designee’s direction and in accordance with fair value procedures adopted by the Trust and the Adviser as valuation designee. The Trust generally uses non-binding indicative bid prices provided by an independent pricing service or broker as the primary basis for determining the value of CLO debt and subordinated securities, which may be adjusted for pending distributions, as applicable, as of the applicable valuation date. These bid prices are non-binding, and may not be determinative of fair value. Valuations of some or all of the Trust’s investments may include input from the Sub-Adviser and third parties, which may be based on subjective inputs of the Sub-Adviser or such third parties. Valuation of such securities may require more research than for more liquid investments. In valuing the Trust’s investments in CLO debt and subordinated securities, in addition to non-binding indicative bid prices provided by an independent pricing service or broker, the valuation designee also may consider a variety of relevant factors, including recent trading prices for specific investments, recent purchases and sales known to the Trust in similar securities, other information known to the Trust relating to the securities, and discounted cash flows based on output from a third-party financial model, using projected future cash flows. Elements of judgment may play a greater role in valuation in such cases than for investments with a more active secondary market because there is less reliable objective data available. In some cases, valuation of certain investments may be based upon models, indicative quotes or estimates of value and not actual executed historical trades. Reasonable efforts will be made to base such inputs on observable market prices and inputs but there can be no assurances that such information will be readily available. Generally, there is not a public market for the CLO securities in which the Trust invests. A security that is fair valued may be valued at a price higher or lower than the value determined by other funds using their own fair valuation procedures. Prices obtained by the Trust upon the sale of such securities may not equal the value at which the Trust carried the investment on its books, which would adversely affect the net asset value of the Trust. The Trust may incur costs in connection with valuing its investments, including costs associated with the retention of valuation firms to value certain of the Trust’s investments.

Dependence on Occurrence of Events Risk

The ability to realize a profit on many of the Trust’s investments is dependent upon the occurrence (or non-occurrence) of certain events, including, among other things, reorganization transactions involving portfolio companies, restructurings or renegotiations of the terms of loans or debt securities issued by portfolio companies or the successful implementation of business strategies or completion of certain projects by portfolio companies. If the event that the Sub-Adviser is expecting does not occur (or an unexpected event occurs), the Trust may sustain a significant loss.

Competition Risk

Since an inherent part of the Sub-Adviser’s strategy will be to identify securities that provide for attractive risk adjusted yield, competitive investment activity by other firms may reduce the Trust’s opportunity for profit by reducing mispricings in the market as well as the margins available on such mispricings as can still be identified.

Conflicts of Interest Risk

Various potential and actual conflicts of interest may arise from the overall investment activity of the Trust, the Sub-Adviser and its affiliates. Certain inherent conflicts of interest may arise from the fact that the Sub-Adviser and its affiliates may in the future carry on substantial investment activities for other client accounts, including discretionary accounts and other investment vehicles (collectively, the “Other Accounts”).

Some of the Other Accounts may invest in the same or different securities as the Trust, compete with the Trust for the same investment opportunities (which may be limited) and/or engage in transactions or other activities or pursue investment strategies which are inconsistent with those effected for the Trust or which are contrary to or conflict with the interests of the Trust.

The Sub-Adviser and its affiliates may give advice to or effect transactions on behalf of Other Accounts that are inconsistent with or contrary to advice given or transactions effected on behalf of the Trust.

The Sub-Adviser or its affiliates could manage one or more Other Accounts that may invest in different levels of the capital structure of a portfolio company, the debt or equity of which is held by the Trust. If a common portfolio company were to experience financial difficulty, the interests of the Trust could be different from the interest in such portfolio company held by one or more Other Accounts. To the extent that such a conflict arises, the Sub-Adviser and its affiliates will seek to resolve such conflicts on a case-by-case basis in the best interest of Trust and such Other Accounts, and in accordance with the restrictions of the 1940 Act.

Annual Report | September 30, 2022 77

XAI Octagon Floating Rate &
Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Allocation of Investment Opportunities. The Sub-Adviser and its affiliates are not obligated to allocate all investment opportunities that may be appropriate for the Trust to the Trust. Allocation of investment opportunities among the Trust and the Other Accounts will be subject to the Sub-Adviser’s allocation procedures which generally provide that investments will be allocated on a fair and equitable basis over time (but not necessarily on a pro rata basis), having regard to such matters as available capital, relative exposure to market trends, risk tolerance, expected duration of the Trust or the investments, the investment programs and portfolio positions of the Trust and the affiliated entities for which participation is appropriate, guidelines, concentration limits and other limitations established by the respective entities, and applicable tax and regulatory considerations.

Allocation of Personnel. Such Other Accounts may be managed by current employees of the Sub-Adviser or by new portfolio managers hired by the Sub-Adviser and may follow a similar investment strategy as that employed by the Trust. The Sub-Adviser may have an incentive to retain such portfolio managers to manage the assets of such Other Accounts rather than or in addition to managing the assets of the Trust. Although the officers and employees of the Sub-Adviser will devote as much time to the Trust as the Sub-Adviser deems appropriate, the officers and employees, if any, may have conflicts in allocating their time and services among the Trust and other accounts now or hereafter advised by the Sub-Adviser and/or its affiliates.

Lack of Information Barriers. Situations may occur where the Trust may be deemed to have possession of material non-public information, including material non-public information concerning specific companies, as a result of other activities by the Sub-Adviser, including on behalf of other clients. Under applicable securities laws, this may limit the Sub-Adviser’s ability to buy or sell securities issued by such companies and the Trust may be unable to engage in certain transactions they would otherwise find attractive, or may be able to engage in such transactions only during limited periods of time. Due to these restrictions, the Trust may not be able to initiate a transaction that it otherwise might have initiated and may not be able to sell an investment that it otherwise might have sold. Similarly, the Sub-Adviser may decline to receive material nonpublic information in order to avoid trading restrictions with regard to any Other Account, even though access to such information may have been advantageous to the Trust. Clients and investors may be adversely affected by such restrictions.

While the Sub-Adviser has procedures in place to manage the risk associated with insider trading, the management of material non-public information could fail and result in the Sub-Adviser or one of its investment professionals buying and selling a security while, at least constructively, in possession of material non-public information. Inadvertent trading on material non-public information could have adverse effects on the Sub-Adviser’s reputation, or result in the imposition of regulatory or financial sanctions, and as a consequence, negatively impact the Sub-Adviser’s ability to perform its investment management services on behalf of regulations, or decide that it is advisable to establish information barriers in the future, which may affect how they provides advice.

Restrictions on Transactions with Affiliates. The 1940 Act limits the Trust’s ability to enter into certain transactions with certain of its affiliates. As a result of these restrictions, the Trust may be prohibited from buying or selling any security directly from or to any portfolio company of a registered investment company or other pooled investment vehicle managed by the Sub-Adviser or any of its affiliates. The 1940 Act also prohibits certain “joint” transactions with certain of the Trust’s affiliates, which could include investments in the same portfolio company (whether at the same or different times). The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing. These limitations may limit the scope of investment opportunities that would otherwise be available to the Trust. For example, these limitations may limit the extent to which the Trust may invest in CLOs for which the Sub-Adviser or its affiliates act as CLO manager, even if such CLOs were otherwise attractive investments for the Trust.

Confidential Information Risk

The Trust frequently may possess material non-public information about an issuer as a result of its ownership of a credit instrument of an issuer. Because of prohibitions on trading in securities while in possession of material non-public information, the Trust might be unable to enter into a transaction in a security of the issuer when it would otherwise be advantageous to do so.

Tax Risk

The Trust has elected to be treated and intends to continue to qualify each year as a RIC under the Code. As a RIC, the Trust generally would not be subject to U.S. federal income tax to the extent that it distributes its investment company taxable income and net capital gains. To qualify for the special tax treatment available to RICs, the Trust must comply with certain income, distribution, and diversification requirements. If the Trust failed to meet any of these requirements, subject to the opportunity to cure such failures under applicable provisions of the Code, the Trust would be subject to U.S. federal income tax at regular corporate rates on its taxable income, including its net capital gain, even if such income were distributed to shareholders. All distributions by the Trust from earnings and profits, including distributions of net capital gain (if any), would be taxable to shareholders as dividends.

78 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Certain of the Trust’s investments will cause the Trust to take into account taxable income in a taxable year in excess of the cash generated on those investments during that year. In particular, the Trust expects to invest in loans and other debt obligations that will be treated as having “market discount” and/or original issue discount (“OID”) for U.S. federal income tax purposes. Because the Trust may be allocated taxable income in respect of these investments before, or without receiving, cash representing such income, the Trust may have difficulty satisfying the annual distribution requirements applicable to RICs and avoiding Trust-level U.S. federal income and/or excise taxes. Accordingly, the Trust may be required to sell assets, including at potentially disadvantageous times or prices, raise additional debt or equity capital or reduce new investments, to obtain the cash needed to make these income distributions. If the Trust liquidates assets to raise cash, the Trust may realize gain or loss on such liquidations. In the event the Trust realizes net capital gains from such liquidation transactions, the Trust and, ultimately, its Common Shareholders, may receive larger capital gain distributions than it or they would in the absence of such transactions.

The Trust may invest a portion of its net assets in below investment grade instruments. Investments in these types of instruments may present special tax issues for the Trust. U.S. federal income tax rules are not entirely clear about issues such as when the Trust may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues will be addressed by the Trust to the extent necessary in order to seek to ensure that it distributes sufficient income that it does not become subject to U.S. federal income or excise tax.

Portfolio Turnover Risk

The Trust may engage in active and frequent trading of its portfolio securities. High portfolio turnover may result in increased transaction costs to the Trust, including brokerage commissions, dealer mark-ups and other transaction costs on the sale of securities and on reinvestment in other securities. The sale of portfolio securities may result in the realization and/or distribution to shareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effects of higher than normal portfolio turnover may adversely affect Trust performance.

Reliance on Service Providers

The Trust must rely upon the performance of service providers to perform certain functions, which may include functions that are integral to the operations and financial performance of the Trust. Fees and expenses of these service providers are borne by the Trust, and therefore indirectly by Common Shareholders. Failure by any service provider to carry out its obligations to the Trust in accordance with the terms of its appointment, to exercise due care and skill, or to perform its obligations to the Trust at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Trust’s performance and ability to achieve its investment objective. The termination of the Trust’s relationship with any service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Trust and could have a material adverse effect on the Trust’s performance and ability to achieve its investment objective.

The Trust and its service providers are currently impacted by quarantines and similar measures being enacted by governments in response to COVID-19, which are obstructing the regular functioning of business workforces (including requiring employees to work from external locations and their homes). Accordingly, certain risks described above are heightened under current conditions.

Technology Risk

Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. As the use of internet technology has become more prevalent, the Trust and their respective service providers have become more susceptible to potential operational risks through breaches in cyber security (generally, intentional and unintentional events that may cause the Trust, or a service provider to lose proprietary information, suffer data corruption or lose operational capacity). There can be no guarantee that any risk management systems established by the Trust, their service providers, or issuers of the securities in which the Trust invests that are intended to reduce cyber security risks will succeed. The Trust cannot control such systems put in place by service providers or other third parties whose operations may affect the Trust and Common Shareholders.

Recent Market, Economic and Social Developments Risk

Periods of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events both within and outside the United States. These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect the Trust, including by making valuation of some of the Trust’s securities uncertain and/or result in sudden and significant valuation increases or declines in the Trust’s holdings. If there is a significant decline in the value of the Trust’s portfolio, this may impact the asset coverage levels for the Trust’s outstanding leverage.

Annual Report | September 30, 2022 79

XAI Octagon Floating Rate & Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

Risks resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery, the financial condition of financial institutions and the Trust’s business, financial condition and results of operation. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, the Trust’s business, financial condition and results of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or unfavorable economic conditions could impair the Trust’s ability to achieve its investment objective.

The outbreak of infectious respiratory illness caused by the coronavirus known as “COVID-19” and the ongoing recovery has caused disruption to consumer demand, economic output and supply chains. Adverse impacts on local and global economies linger despite the ongoing recovery. As with other serious economic disruptions, governmental authorities and regulators have in the past responded to this crisis (and may in the future respond to similar crises) with significant fiscal and monetary policy changes, including by providing direct capital infusions to companies and consumers, introducing new monetary programs and considerably lowering interest rates, which in some cases resulted in negative interest rates and higher inflation. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, contribute to higher inflation, heighten investor uncertainty and adversely affect the value of the Trust’s investments and the performance of the Trust.

The current economic situation and the unprecedented measures taken by state, local and national governments around the world to combat the spread of COVID-19, as well as various social, political and psychological tensions in the United States and around the world, may continue to contribute to severe market disruptions and volatility and reduced economic activity, may have long-term negative effects on the U.S. and worldwide financial markets and economy and may cause further economic uncertainties in the United States and worldwide. Downgrades by rating agencies of loans in which the Trust has invested or that are held by CLOs in which the Trust has invested may adversely impact the performance of the Trust. The further slowing or reversal of the current U.S. and global economic recovery could adversely impact the Trust’s portfolio. It is difficult to predict how long the financial markets and economic activity will continue to be impacted by these events and the Trust cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets. The Adviser intends to monitor developments and seek to manage the Trust’s portfolio in a manner consistent with achieving the Trust’s investment objective, but there can be no assurance that it will be successful in doing so.

Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a registered investment company, the Trust generally is not able to issue additional Common Shares at a price less than net asset value without first obtaining approval for such issuance from Common Shareholders.

Market Disruption and Geopolitical Risk

The occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental disasters, terrorist attacks in the U.S. and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly strained relations between the U.S. and a number of foreign countries, new and continued political unrest in various countries, the exit or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of political power among and within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide. In particular, the consequences of the Russian military invasion of Ukraine, including comprehensive international sanctions, the impact on inflation and increased disruption to supply chains and energy resources may impact our portfolio companies, result in an economic downturn or recession either globally or locally in the U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the form of traditional military action, reignited “cold” wars or in the form of virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences and have an adverse impact on the Trust’s investments and the performance of the Trust. The Trust cannot predict the duration or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond the Trust’s control. Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on the Trust’s investments. Such consequences also may increase the Trust’s funding cost or limit the Trust’s access to the capital markets.

The current political climate has intensified concerns about a potential trade war between China and the U.S., as each country has imposed tariffs on the other country’s products. These actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export industry, which could have a negative impact on the Trust’s performance. U.S. companies that source material and goods from China and those that make large amounts of sales in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future. Any of these effects could have a material adverse effect on the Trust’s business, financial condition and results of operations.

80 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

UK Departure from EU (“Brexit”) Risk

On January 31, 2020, the United Kingdom officially withdrew from the EU, commonly referred to as “Brexit”. Following a transition period, the United Kingdom and the EU signed a Trade and Cooperation Agreement (“UK/EU Trade Agreement”), which came into full force on May 1, 2021 and set out the foundation of the economic and legal framework for trade between the United Kingdom and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation of the UK/EU Trade Agreement may result in uncertainty in its application and periods of volatility in both the United Kingdom and wider European markets. The United Kingdom’s exit from the EU is expected to result in additional trade costs and disruptions in this trading relationship. Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that regulatory standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global financial markets, and adversely affect the performance of the Trust.

In addition to the effects on the Trust’s investments in European issuers, the unavoidable uncertainties and events related to Brexit could negatively affect the value and liquidity of the Trust’s other investments, increase taxes and costs of business and cause volatility in currency exchange rates and interest rates. European, UK or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions, regulatory agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws and regulations as the new relationship between the UK and EU is further defined and as the UK determines which EU laws to replace or replicate. In addition, Brexit could lead to further disintegration of the EU and related political stresses (including those related to sentiment against cross border capital movements and activities of investors like the Trust), prejudice to financial services businesses that are conducting business in the EU and which are based in the UK, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to or in contemplation of Brexit. Any of these effects of Brexit, and others that cannot be anticipated, could adversely affect the Trust’s business, results of operations and financial condition.

Redenomination Risk

The result of the Referendum, the progression of the European debt crisis and the possibility of one or more Eurozone countries exiting the EMU, or even the collapse of the euro as a common currency, has created significant volatility in currency and financial markets generally. The effects of the collapse of the euro, or of the exit of one or more countries from the EMU, on the U.S. and global economies and securities markets are impossible to predict and any such events could have a significant adverse impact on the value and risk profile of the Trust’s portfolio. Any partial or complete dissolution of the EMU could have significant adverse effects on currency and financial markets, and on the values of the Trust’s portfolio investments. If one or more EMU countries were to stop using the euro as its primary currency, the Trust’s investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of. The Trust may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.

Legislation and Regulation Risk

At any time after the date of this report, legislation may be enacted that could negatively affect the companies in which the Trust invests. Changing approaches to regulation may also have a negative impact on companies in which the Trust invests. In addition, legislation or regulation may change the way in which the Trust is regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Trust or will not impair the ability of the Trust to achieve its investment objective.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July 2010, has resulted in significant revisions to the U.S. financial regulatory framework. The Dodd-Frank Act covers a broad range of topics, including, among many others: a reorganization of federal financial regulators; the creation of a process designed to ensure financial system stability and the resolution of potentially insolvent financial firms; the enactment of new rules for derivatives trading; the creation of a consumer financial protection watchdog; the registration and regulation of managers of private funds; the regulation of rating agencies; and the enactment of new federal requirements for residential mortgage loans. The regulation of various types of derivative instruments pursuant to the Dodd-Frank Act may adversely affect the Trust or its counterparties.

Section 619 of the Dodd-Frank Act, commonly referred to as the “Volcker Rule,” generally prohibits, subject to certain exemptions, covered banking entities from engaging in proprietary trading or sponsoring, or acquiring or retaining an ownership interest in covered funds (which has been broadly defined in a way which could include many CLOs). On June 25, 2020, the Federal Reserve Board issued a final rule to simplify and tailor compliance requirements relating to the Volcker Rule.

Given the limitations on banking entities investing in CLOs that are covered funds, the Volcker Rule may adversely affect the market value or liquidity of CLOs. Although the Volcker Rule and the implementing rules exempt “loan securitizations” from the definition of covered fund, not all CLOs may qualify for this exemption. Accordingly, in an effort to qualify for the “loan securitization” exemption, many current CLOs have amended their transaction documents to restrict the ability of the issuer to acquire bonds and certain other securities and future CLOs may contain similar restrictions.

Annual Report | September 30, 2022 81

XAI Octagon Floating Rate & Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

The staff of the SEC has, in correspondence with registered management investment companies, raised questions about the level of, and special risks associated with, investments in CLO securities. While it is not possible to predict what conclusions, if any, the staff may reach in these areas, or what recommendations, if any, the staff might make to the SEC, the imposition of limitations on investments by registered management investment companies in CLO securities could adversely impact the Trust’s ability to implement its investment strategy and/or the Trust’s ability to raise capital through public offerings, or could cause the Trust to take certain actions that may result in an adverse impact on the Trust’s financial condition and results of operations.

In October 2014, six federal agencies adopted joint final rules implementing certain credit risk retention requirements contemplated in Section 941 of the Dodd-Frank Act (the “Risk Retention Rules”). A 2018 court ruling vacated the application of Risk Retention Rules to collateral managers of certain CLOs. As a result, it is possible that some collateral managers of such CLOs will decide to dispose of the interests they had retained in accordance with the Risk Retention Rules, or decide to take other action with respect to such interests that was not otherwise permitted by the Risk Retention Rules. In light of the outcome of the litigation described above, proposed legislation designed to modify the Risk Retention Rules, reports from the Department of the Treasury recommending potential modifications to the Risk Retention Rules and possible future interpretations by governmental authorities with respect to the Risk Retention Rules, the ultimate impact of the Risk Retention Rules on market generally remains uncertain.

In the EU, there has also been an increase in political and regulatory scrutiny of the securitization industry. This has resulted in a number of measures for increased regulation which are currently at various stages of implementation. CLOs issued in Europe are generally structured in compliance with the applicable EU securitization retention requirements. Such requirements may reduce the issuance of new CLOs and reduce the liquidity provided by CLOs to the leveraged loan market generally. Reduced liquidity in the loan market could reduce investment opportunities for collateral managers, which could negatively affect the return of the Trust’s investments. Any reduction in the volume and liquidity provided by CLOs to the leveraged loan market could also reduce opportunities to redeem or refinance the securities comprising a CLO in an optional redemption or refinancing and could negatively affect the ability of obligors to refinance of their collateral obligations.

Moreover, the SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas, including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting from these efforts could increase the Trust’s expenses and impact its returns to shareholders or, in the extreme case, impact or limit the Trust’s use of various portfolio management strategies or techniques and adversely impact the Trust.

Changes enacted by the current presidential administration could significantly impact the regulation of financial markets in the United States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19 pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement priorities and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential administration could include an increase in the corporate income tax rate and changes to regulatory enforcement priorities. It is not possible to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities markets or the financial stability of the United States. The Trust may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse effect on the Trust and its ability to achieve its investment objective.

Although the Trust cannot predict the impact, if any, of these changes to the Trust’s business, they could adversely affect the Trust’s business, financial condition, operating results and cash flows. Until the Trust knows what policy changes are made and how those changes impact the Trust’s business and the business of the Trust’s competitors over the long term, the Trust will not know if, overall, the Trust will benefit from them or be negatively affected by them. The Adviser and the Sub-Adviser intend to monitor developments and seek to manage the Trust’s portfolio in a manner consistent with achieving the Trust’s investment objectives, but there can be no assurance that they will be successful in doing so.

LIBOR Risk

Instruments in which the Trust invests may pay interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Trust and issuers of instruments in which the Trust invests may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Trust and/or issuers of instruments in which the Trust may invest may also reference LIBOR. The Trust utilizes leverage or borrowings primarily based on LIBOR.

82 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Risks
	September 30, 2022 (Unaudited)

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased to be published or are no longer representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings will cease to be published or will no longer be representative. Various financial industry groups have begun planning for the transition away from LIBOR, but there are challenges to converting certain securities and transactions to a new reference rate (e.g., the Secured Overnight Financing Rate, which is intended to replace the U.S. dollar LIBOR). Neither the effect of the LIBOR transition process nor its ultimate success can yet be known. CLOs generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations. Recently, some CLOs have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate upon the occurrence of certain material disruption events. However, not all CLOs may adopt such provisions, nor can there be any assurance the CLO investment managers will undertake the suggested amendments when able. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. While some instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and there is significant uncertainty regarding the effectiveness of any such alternative methodologies. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities. Abandonment of LIBOR could lead to significant short-term and long-term uncertainty and market instability. It remains uncertain how such changes would be implemented and the effects such changes would have on the Trust, issuers of instruments in which the Trust invests and financial markets generally.

At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, based on the recommendations of the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has begun publishing the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR. Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.

The state of New York has adopted legislation that requires LIBOR-based contracts that do not include a fallback to a rate other than LIBOR or an inter-bank quotation poll to use a SOFR-based rate plus a spread adjustment. On March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act, which provides for the automatic replacement of U.S. Dollar LIBOR with a benchmark replacement selected by the Board of Governors of the Federal Reserve System in certain instruments that contain no LIBOR transition or fallback language. The New York and federal statues each include safe harbors from liability, which may limit the recourse the Trust may have if the alternative reference rate does not fully compensate the Trust for the transition of an instrument from LIBOR.

These developments could negatively affect financial markets in general and present heightened risks, including with respect to the Trust’s investments. As a result of this uncertainty and developments relating to the transition process, the Trust and its investments may be adversely affected.

Anti-Takeover Provisions in the Trust’s Governing Documents Risk

The Trust’s governing documents include provisions that could limit the ability of other entities or persons to acquire control of the Trust or convert the Trust to open-end status. These provisions could have the effect of depriving Common Shareholders of opportunities to sell their Common Shares at a premium over the then current market price of Common Shares.

Annual Report | September 30, 2022 83

XAI Octagon Floating Rate & Alternative Income Term Trust	Use of Leverage
	September 30, 2022 (Unaudited)

The Trust utilizes leverage to seek to enhance total return and income. The Trust may use leverage through (i) Indebtedness, including through borrowing from financial institutions or issuance of debt securities, including notes or commercial paper, (ii) the issuance of Preferred Shares and/or (iii) reverse repurchase agreements, securities lending, short sales or derivatives, such as swaps, futures or forward contracts, that have the effect of leverage. The Trust may utilize leverage to the maximum extent permitted under the 1940 Act (including the proceeds of leverage). As of September 30, 2022, the Trust had outstanding Indebtedness in amount representing approximately 42% of the Trust’s Managed Assets.

The Adviser and the Sub-Adviser anticipate that the use of leverage may result in higher total return to Common Shareholders over time; however, there can be no assurance that such expectations will be realized or that a leveraging strategy will be successful in any particular time period. Use of leverage creates an opportunity for increased income and capital appreciation but, at the same time, creates special risks. The use of leverage will cause the Trust’s net asset value, market price and level of distributions to be more volatile than if leverage were not used. The costs associated with the issuance of leverage will be borne by the Trust, which will result in a reduction of net asset value of the Common Shares and as a result such costs will be borne by Common Shareholders. The fees paid to the Adviser, and thereby to the Sub-Adviser, will be calculated on the basis of the Trust’s Managed Assets, including proceeds from leverage, so the fees paid to the Adviser and Sub-Adviser will be higher when leverage is utilized. Common Shareholders bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of leverage, which means that Common Shareholders effectively bear the entire management fee. There can be no assurance that a leveraging strategy will be utilized or, if utilized, will be successful.

INDEBTEDNESS

The Trust’s Declaration of Trust provides that the Board of Trustees may authorize the borrowing of money by the Trust, without the approval of the holders of the Common Shares. The Trust may issue notes or other evidences of indebtedness and may secure any such borrowings by mortgaging, pledging or otherwise subjecting the Trust’s assets as security.

Under the 1940 Act the Trust may not incur Indebtedness if, immediately after incurring such Indebtedness, the Trust would have asset coverage (as defined in the 1940 Act) of less than 300% (i.e., for every dollar of Indebtedness outstanding, the Trust is required to have at least three dollars of total assets, including the proceeds of leverage). In addition, the Trust generally is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration and after deducting the amount of such dividend or other distribution, the Trust maintains asset coverage of 300%. However, the foregoing restriction does not apply with respect to certain types of Indebtedness of the Trust, including a line of credit or other privately arranged borrowings from a financial institution.

Pursuant to the Trust’s Indebtedness, lenders would have the right to receive interest on and repayment of principal of any such Indebtedness, which right will be senior to those of Common Shareholders. The terms of any such Indebtedness may require the Trust to pay a fee to maintain a line of credit, such as a commitment fee, or to maintain minimum average balances with a lender. Any such requirements would increase the cost of such Indebtedness over the stated interest rate. If the Trust utilizes Indebtedness, the Common Shareholders will indirectly bear the offering costs of the issuance of any Indebtedness.

The 1940 Act grants to the lenders, under certain circumstances, certain voting rights in the event of default in the payment of interest on or repayment of principal. Failure to maintain certain asset coverage requirements could result in an event of default and entitle the debt holders to elect a majority of the Board of Trustees.

Credit Facility

The Trust has entered into a credit agreement dated October 6, 2017, as amended from time to time, with Société Générale pursuant to which the Trust may borrow up to $175,000,000. As of September 30, 2022, outstanding borrowings under the Credit Agreement were approximately $113.15 million, which represented approximately 29% of the Trust’s Managed Assets. The terms of the Credit Agreement require that if the Trust’s borrowings exceed 33 1/3% of the Trust’s managed assets, the Trust must reduce its borrowings below such ratio within a specified period of time.

The Trust’s borrowings are secured by eligible securities held in its portfolio of investments. The Credit Agreement includes usual and customary covenants. Among other things, these covenants place limitations or restrictions on the Trust’s ability to (i) incur other indebtedness, (ii) change certain investment policies, (iii) pledge or create liens upon the assets of the Trust. In addition, the Trust is required to deliver financial information to the Lender, maintain an asset coverage ratio of not less than 300% and maintain its registration as a closed-end management investment company.

84 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Use of Leverage
	September 30, 2022 (Unaudited)

Notes

The Trust may also issue notes or other debt securities. As a condition to obtaining financing or obtaining ratings on the notes or other debt securities, the terms of any notes or other debt securities issued would be expected to include asset coverage maintenance provisions that would require the redemption of the notes or other debt securities in the event of non-compliance by the Trust and might also prohibit dividends and other distributions on the Common Shares in such circumstances. In order to meet such redemption requirements, the Trust might have to liquidate portfolio securities. These liquidations and redemptions, or reductions in Indebtedness, would cause the Trust to incur related transaction costs and could result in capital losses. Prohibitions on dividends and other distributions could impair the Trust’s ability to qualify as a regulated investment company (“RIC”) under the Code.

If the Trust issues notes or other debt securities, it may be subject to certain restrictions imposed by guidelines of one or more ratings agencies that may issue ratings for the notes or may be subject to covenants or other restrictions imposed by its lenders. These guidelines would be expected to impose asset coverage or portfolio composition requirements that would be more stringent than those imposed on the Trust by the 1940 Act. It is not anticipated that these covenants or guidelines would impede the Sub-Adviser from managing the Trust portfolio in accordance with its investment objective and policies. If the Trust were to issue notes or other debt securities as well as utilize a credit facility, such notes would have an equal security interest, if any, with and rank pari passu, or equally in right of payment, with any borrowings under the credit facility.

PREFERRED SHARES

The Trust’s Declaration of Trust provides that the Board of Trustees may authorize and issue an unlimited amount of Preferred Shares with rights as determined by the Board of Trustees, by action of the Board of Trustees without prior approval of the Common Shareholders as of September 30, 2022, the Trust has issued and outstanding 1,596,000 shares of its 6.50% Series 2026 Term Preferred Shares and 400,000 shares of its 6.00% Series 2029 Convertible Preferred Shares. The aggregate liquidation preference of the Preferred Shares is $49,900,000, which represented 11.19% of the Trust’s managed assets as of September 30, 2022.

Under the 1940 Act, the Trust may not issue Preferred Shares if, immediately after issuance, the Trust would have asset coverage (as defined in the 1940 Act) of less than 200% (i.e., for every dollar of Preferred Shares outstanding, the Trust is required to have at least two dollars of total assets, including the proceeds of leverage). The Trust would not be permitted to declare any distribution (unless payable in stock) on its capital stock or purchase its capital stock unless, at the time of such declaration or purchase, the Trust has an asset coverage of at least 200% after deducting the amount of such distribution or purchase price, as applicable.

While the Trust has Preferred Shares outstanding, two of the Trust’s Trustees will be elected by the holders of Preferred Shares voting separately as a class. The remaining Trustees of the Trust will be elected by Common Shareholders and preferred shareholders voting together as a single class. In the event dividends on the Preferred Shares are unpaid in an amount equal to two full years’ dividends on such securities, holders of Preferred Shares would be entitled to elect a majority of the Trustees of the Trust (subject to any prior rights, if any, of the holders of any other class of senior securities outstanding) and continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for. Additionally, the holders of Preferred Shares would have separate voting rights for certain matters pursuant to the 1940 Act and the terms of the Preferred Shares.

In addition, as a condition to obtaining ratings on the Preferred Shares, the terms of the Preferred Shares include asset coverage maintenance provisions that would require the redemption of Preferred Shares in the event of non-compliance by the Trust and might also prohibit dividends and other distributions on the Common Shares in such circumstances. In order to meet such redemption requirements, the Trust might have to liquidate portfolio securities. These liquidations and redemptions would cause the Trust to incur related transaction costs and could result in capital losses. Prohibitions on dividends and other distributions could impair the Trust’s ability to qualify as a RIC under the Code.

If the Trust issues rated Preferred Shares, it may be subject to certain restrictions imposed by guidelines of one or more ratings agencies that may issue ratings for Preferred Shares issued by the Trust. These guidelines would be expected to impose asset coverage or portfolio composition requirements that would be more stringent than those imposed on the Trust by the 1940 Act. It is not anticipated that these covenants or guidelines would impede the Sub-Adviser from managing the Trust’s portfolio in accordance with its investment objective and policies.

The Trust’s Preferred Shares are not rated.

DERIVATIVES

In addition, the Trust may engage in certain derivatives transactions that have economic characteristics similar to leverage. Pursuant to Rule 18f-4 under the 1940 Act, the Trust uses derivative transactions in a limited manner and has adopted policies and procedures designed to manage the Trust’s level of derivatives risk. As a result, the Trust’s obligations under such transactions will not be considered indebtedness for purposes of the 1940 Act, including the asset coverage requirements applicable to indebtedness under the 1940 Act.

Annual Report | September 30, 2022 85

XAI Octagon Floating Rate & Alternative Income Term Trust	Use of Leverage
	September 30, 2022 (Unaudited)

EFFECTS OF LEVERAGE

Assuming financial leverage representing approximately 41.84% of the Trust’s Managed Assets (the Trust’s outstanding financial leverage as of September 30, 2022), at an annual interest rate of 5.04% payable on such financial leverage (the interest rate on the Trust’s outstanding financial leverage as of September 30, 2022), the income generated by the Trust’s portfolio (net of non-leverage expenses) must exceed 2.11% in order to cover such interest payments and other expenses specifically related to Indebtedness. Of course, these numbers are merely estimates, used for illustration. Actual interest rates may vary frequently and may be significantly higher or lower than the rate assumed above.

The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Trust’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table further reflects the use of financial leverage representing approximately 41.84% of the Trust’s Managed Assets (the Trust’s outstanding financial leverage as of September 30, 2022) and an interest rate of 5.04% payable on such financial leverage (the interest rate on the Trust’s outstanding financial leverage as of September 30, 2022). These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Trust. See “Risks.”

Assumed Portfolio Total Return (Net of Expenses)	(10.00)%	(5.00)%	0.00%	5.00%	10.00%
Common Share Total Return	(25.86)%	(17.26)%	(8.67)%	(0.07)%	8.53%

Common Share Total Return is composed of two elements: the distributions paid by the Trust (the amount of which is largely determined by the net investment income of the Trust after paying interest and other expenses on its leverage) and gains or losses on the value of the securities the Trust owns. As required by SEC rules, the table above assumes that the Trust is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Trust must assume that the interest received on the Trust’s portfolio investments is entirely offset by losses in the value of those investments.

86 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Limited Term and Eligible Tender Offer
	September 30, 2022 (Unaudited)

The Trust will terminate on or before December 31, 2029 (the “Termination Date”); provided, that if the Board of Trustees believes that under then- current market conditions it is in the best interests of the Trust to do so, the Trust may extend the Termination Date (i) once for up to one year (i.e., up to December 31, 2030), and (ii) once for up to an additional six months (i.e. up to June 30, 2031), in each case upon the affirmative vote of a majority of the Board of Trustees and without a shareholder vote. In determining whether to extend the Termination Date, the Board of Trustees may consider the inability to sell the Trust’s assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances. Additionally, the Board of Trustees may determine that market conditions are such that it is reasonable to believe that, with an extension, the Trust’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful relative to the cost and expense of continuing the operation of the Trust.

Beginning one year before the Termination Date (the “wind-down period”), the Trust may begin liquidating all or a portion of the Trust’s portfolio, and may deviate from its investment policies, including its policy of investing at least 80% of its Managed Assets in floating rate credit instruments and other structured credit investments and may not achieve its investment objective. During the wind-down period, the Trust’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation. Rather than reinvesting the proceeds of matured, called or sold securities, the Trust may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect its performance.

In addition, within twelve months preceding the Termination Date, the Board of Trustees may cause the Trust to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to purchase 100% of the then outstanding Common Shares of the Trust at a price equal to the net asset value per Common Share on the expiration date of the tender offer. The terms of an Eligible Tender Offer will include a condition pursuant to which in the event that the number of Common Shares properly tendered in the Eligible Tender Offer exceeds a stated percentage of the outstanding Common Shares, with such percentage to be established at the time of such Eligible Tender Offer by the Board of Trustees representing the minimum threshold for the continued viability of the Trust (the “Termination Threshold”), the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Trust will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related transaction costs associated with disposition of portfolio investments in connection with the Eligible Tender Offer, which will be borne by the Trust and its shareholders.

If the number of properly tendered Common Shares is less than the Termination Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Trust pursuant to the terms of the Eligible Tender Offer. See “Risks—Limited Term Risk.” Following such completion of the Eligible Tender Offer, the Board of Trustees may eliminate the Termination Date and convert the Trust to a perpetual trust upon the affirmative vote of a majority of the Board of Trustees and without a shareholder vote. In making such decision, the Board of Trustees will take such actions with respect to the continued operations of the Trust as it deems to be in the best interests of the Trust, based on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by the Board of Trustees in consultation with the Adviser and Sub-Adviser.

The Trust should not be confused with a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as the fund’s target date, often associated with retirement, approaches, and does not typically terminate on the target date. In addition, the Trust should not be confused with a “target term” fund whose investment objective is to return the fund’s original net asset value on the termination date. The Trust’s investment objective and policies are not designed to seek to return to investors their initial investment on the Termination Date or in an Eligible Tender Offer. Investors may receive more or less than their original investment upon termination or in an Eligible Tender Offer.

Annual Report | September 30, 2022 87

XAI Octagon Floating Rate & Alternative Income Term Trust	Dividend Reinvestment Plan
	September 30, 2022 (Unaudited)

Under the Trust’s Dividend Reinvestment Plan (the “Plan”), a Common Shareholder whose Common Shares are registered in his or her own name will have all distributions reinvested automatically by DST Systems, Inc., which is agent under the Plan (the “Plan Agent”), unless the Common Shareholder elects to receive cash.

Distributions with respect to Common Shares registered in the name of a broker-dealer or other nominee (that is, in “street name”) will be reinvested in additional Common Shares under the Plan, unless the broker or nominee does not participate in the Plan or the Common Shareholder elects to receive distributions in cash. Investors who own Common Shares registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by DST Systems, Inc., as dividend disbursing agent. A participant in the Plan who wishes to opt out of the Plan and elect to receive distributions in cash should contact DST Systems, Inc. in writing at the address specified below or by calling the telephone number specified below.

Under the Plan, whenever the market price of the Common Shares is equal to or exceeds NAV at the time Common Shares are valued for purposes of determining the number of Common Shares equivalent to the cash dividend or capital gains distribution, participants in the Plan are issued new Common Shares from the Trust, valued at the greater of (i) the NAV as most recently determined or (ii) 95% of the then-current market price of the Common Shares. The valuation date is the dividend or distribution payment date or, if that date is not a NYSE trading day, the next preceding trading day. If the NAV of the Common Shares at the time of valuation exceeds the market price of the Common Shares, the Plan Agent will buy the Common Shares for the Plan in the open market, on the NYSE or elsewhere, for the participants’ accounts, except that the Plan Agent will endeavor to terminate purchases in the open market and cause the Trust to issue Common Shares at the greater of NAV or 95% of market value if, following the commencement of such purchases, the market value of the Common Shares exceeds net NAV. If the Trust should declare a distribution or capital gains distribution payable only in cash, the Plan Agent will buy the Common Shares for the Plan in the open market, on the NYSE or elsewhere, for the participants’ accounts. There is no charge from the Trust for reinvestment of dividends or distributions in Common Shares pursuant to the Plan and no brokerage charges will be incurred with respect to Common Shares issued directly by the Trust pursuant to the Plan; however, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open-market purchases.

The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent in non-certificated form in the name of the participant.

In the case of shareholders such as banks, brokers or nominees, which hold Common Shares for others who are the beneficial owners, and participate in the Plan, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the Common Shareholder as representing the total amount registered in the shareholder’s name and held for the account of beneficial owners who participate in the Plan.

Participants that request a sale of shares through the Plan Agent will incur brokerage charges in connection with such sales.

The automatic reinvestment of dividends and other distributions will not relieve participants of any income tax that may be payable or required to be withheld on such dividends or distributions.

Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate its Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of such Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Plan Agent on at least 90 days’ prior written notice to the participants in such Plan. All correspondence concerning the Plan should be directed to the Plan Agent, DST Systems, Inc., 430 W. 7^th Street, Kansas City, Missouri 64105-1594.

88 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Net Asset Value
	September 30, 2022 (Unaudited)

The net asset value of Common Shares of the Trust is calculated by subtracting the Trust’s total liabilities (including from Indebtedness) and the liquidation preference of any outstanding Preferred Shares from total assets (the market value of the securities the Trust holds plus cash and other assets). The per share net asset value of the Common Shares is calculated by dividing the net asset value of the Trust by the number of Common Shares outstanding and rounding the result to the nearest full cent. The Trust calculates its net asset value as of the close of regular trading on the NYSE on each day on which there is a regular trading session on the NYSE and at such other times as may be determined by the Board of Trustees from time to time.

The Trust values debt securities at the last available bid price for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality, and type. The Trust values exchange-traded options and other exchange-traded derivative contracts at the midpoint of the best bid and asked prices at the close on those exchanges on which they are traded.

The Trust values equity securities at the last reported sale price on the principal exchange or in the principal off-exchange market in which such securities are traded, as of the close of regular trading on the NYSE on the day the securities are being valued or, if there are no sales, at the mean between the last available bid and asked prices on that day. Securities traded primarily on the Nasdaq Stock Market (“Nasdaq”) are normally valued by the Trust at the Nasdaq Official Closing Price (“NOCP”) provided by Nasdaq each business day. The NOCP is the most recently reported price as of 4:00 p.m., Eastern Time, unless that price is outside the range of the “inside” bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, Nasdaq will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes.

Generally, trading in many foreign securities will be substantially completed each day at various times prior to the close of the NYSE. The values of these securities used in determining the net asset value generally will be computed as of such times. Occasionally, events affecting the value of foreign securities may occur between such times and the close of the NYSE which will not be reflected in the computation of net asset value unless it is determined that such events would materially affect the net asset value, in which case adjustments would be made and reflected in such computation pursuant to the fair valuation procedures described herein. Such adjustments may be based upon factors such as developments in non-U.S. markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent non-U.S. securities.

Short-term securities with remaining maturities of less than 60 days may be valued at amortized cost, to the extent that amortized cost is determined to approximate fair value.

The Trust values derivatives transactions in accordance with valuation guidelines adopted by the Board of Trustees and the Adviser, as “valuation designee”. Accrued payments to the Trust under such transactions will be assets of the Trust and accrued payments by the Trust will be liabilities of the Trust.

The Trust may utilize bid quotations provided by independent pricing services or, if independent pricing services are unavailable, dealers to value certain of its securities and other instruments at their market value. The Trust may use independent pricing services to value certain securities held by the Trust at their market value. The Trust periodically verifies valuations provided by independent pricing services.

If independent pricing services or dealer quotations are not available for a given security, such security will be valued in accordance with valuation guidelines adopted by the Board of Trustees and the Adviser as “valuation designee” that the Board of Trustees believes are designed to accurately reflect the fair value of securities valued in accordance with such guidelines.

Annual Report | September 30, 2022 89

XAI Octagon Floating Rate & Alternative Income Term Trust	Net Asset Value
	September 30, 2022 (Unaudited)

The Board of Trustees has designated XA Investments LLC (“XAI” or the “Adviser”), as the “valuation designee” for the Trust pursuant to Rule 2a-5 under the 1940 Act. The valuation designee is responsible for making fair value determinations pursuant to Valuation Policies and Procedures adopted by the Adviser and the Trust (the “Valuation Policy”). A committee of voting members comprised of senior personnel of the Adviser considers various pricing issues and establishes fair valuations of portfolio securities and other instruments held by the Trust in accordance with the Valuation Policy (the “Pricing Committee”). The Adviser as valuation designee is subject to monitoring and oversight by the Board of Trustees. As a general principle, the fair value of a portfolio instrument is the amount that an owner might reasonably expect to receive upon the instrument’s current sale. A range of factors and analysis may be considered when determining fair value, including relevant market data, interest rates, credit considerations and/or issuer specific news. The Pricing Committee may consult with and receive input from third parties, such as the Sub-Adviser, and will utilize a variety of market data including yields or prices of investments of comparable quality, type of issue, coupon, maturity, rating, indications of value from security dealers, evaluations of anticipated cash flows or collateral, spread over U.S. Treasury obligations, and other information and analysis. In addition, the Pricing Committee may consider valuations provided by valuation firms retained to assist in the valuation of certain of the Trust’s investments. Fair valuation involves subjective judgments. While the Trust’s use of fair valuation is intended to result in calculation of net asset value that fairly reflects values of the Trust’s portfolio securities as of the time of pricing, the Trust cannot guarantee that any fair valuation will, in fact, approximate the amount the Trust would actually realize upon the sale of the securities in question. It is possible that the fair value determined for a portfolio instrument may be materially different from the value that could be realized upon the sale of that instrument.

The Trust generally uses non-binding indicative bid prices provided by an independent pricing service or broker as the primary basis for determining the value of CLO debt and subordinated securities, which may be adjusted for pending distributions, as applicable, as of the applicable valuation date. These bid prices are non-binding, and may not be determinative of an actual transaction price. In valuing the Trust’s investments in CLO debt and subordinated securities, in addition to non-binding indicative bid prices provided by an independent pricing service or broker, the Pricing Committee also may consider a variety of relevant factors, as set forth in the Valuation Policy, including recent trading prices for specific investments, recent purchases and sales known to the Trust in similar securities, other information known to the Trust relating to the securities, and discounted cash flows based on output from a third-party financial model, using projected future cash flows.

Information that becomes known after the Trust’s net asset value has been calculated on a particular day will not be used to retroactively adjust the price of a security or the Trust’s previously determined net asset value.

90 www.xainvestments.com

XAI Octagon Floating Rate & Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

INDEPENDENT TRUSTEES

Name, Business Address(1) and Year of Birth	Position(s) Held with Trust	Term of Office(2) and Length of Time Served	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex(3) Overseen by Trustee	Other Directorships held by Trustee During the Past Five Years
Danielle Cupps Year of Birth: 1970	Trustee	Trustee since 2017	Former: Director, Digital Customer Engagement, McDonald’s Corporation (2019-2022); Managing Director, Kinzie Capital Partners (2018) (private equity); Managing Director, BLG Capital Advisors (2016-2018) (family office); Director, Finance and Chief of Staff to CFO, Boeing Company (2006-2012); Vice President, Code Hennessy & Simmons LLC (2000-2005) (private equity); Associate, Goldman, Sachs & Co. (1998-2000).	1	None.
Gregory G. Dingens Year of Birth: 1964	Trustee (Chair of the Board)	Trustee since 2017	Current: Executive Vice President, Monroe Financial Partners, Inc. (2006-present) (investment banking and trading); Member, Siena Capital Partners GP LLC (2006-present) (private investment fund); Director, Qwickrate LLC (2012-present) (online marketplace for financial institutions). Former: Managing Director, Lehman Brothers (2004-2006); Managing Director, Merrill Lynch (1993-2003).	1	None.
Philip G. Franklin Year of Birth: 1951	Trustee	Trustee since 2017	Former: Chief Financial Officer and Executive Vice President, Littelfuse, Inc. (1998-2016) (electronics components); Chief Financial Officer and Vice President, OmniQuip International (1995-1998) (construction equipment).	1	Current: TTM Technologies Inc. (2011-present); Chairman, Tribune Publishing Company (2014-2021).
Scott Craven Jones Year of Birth: 1962	Trustee	Trustee since 2017	Current: Director, Carne Global Financial Services (US) LLC (2013-present); Managing Director, Park Agency, Inc. (2020-present).	1	Current: Madison Covered Call & Equity Strategy Fund (2021-present); Madison Funds (14 portfolios) (2019-present); Manager Directed Portfolios, a U.S. Bancorp series trust (9 portfolios) (2016-present). Former: Guestlogix Inc. (2015-2016) (travel technology).

Annual Report | September 30, 2022 91

XAI Octagon Floating Rate & Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

INTERESTED TRUSTEE
Name, Business Address(1) and Year of Birth	Position(s) Held with Trust	Term of Office(2) and Length of Time Served	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex(3) Overseen by Trustee	Other Directorships held by Trustee During the Past Five Years
Theodore J. Brombach* Year of Birth: 1963	Trustee, President and Chief Executive Officer	Trustee since 2017	Current: Co-Chief Executive Officer of XAI (2016-present); Co-Founding Partner of XMS Capital Partners, LLC (2006-present). Former: Co-Head of Midwest Investment Banking, Managing Director, Founding Member of Financial Sponsors Group at Morgan Stanley (1990-2006); Analyst, Kidder, Peabody & Co. (1985-1988).	1	Current: RiverWood Bank (2006-present); Power & Digital Infrastructure Acquisition II Corp. (Chair of the Board) (2021-present). Former: Power & Digital Infrastructure Acquisition Corp. (Chair of the Board) (2020-2022).

* Mr. Brombach is an interested person of the Trust because of his position as an officer of the Adviser and certain of its affiliates.

(1) The business address of each Trustee of the Trust is 321 North Clark Street, Suite 2430, Chicago, Illinois 60654, unless otherwise noted.1

92 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

EXECUTIVE OFFICERS

The following information relates to the executive officers of the Trust who are not Trustees. The officers of the Trust were appointed by the Board and will serve until their respective successors are chosen and qualified. The principal business address of each executive officer is 321 North Clark Street, Suite 2430, Chicago, Illinois 60654.

Name, Business Address(1) and Year of Birth	Position	Term of Office(2) and Length of Time Served	Principal Occupations During the Past Five Years
Kimberly Ann Flynn Year of Birth: 1977	Vice President	Officer since 2017	Current: Managing Director of XAI (2016-present). Former: Senior Vice President, Head of Product Development (2013-2016), Vice President (2009-2013), Assistant Vice President (2007-2009) and Associate (2004-2007), Nuveen Investments.
Benjamin D. McCulloch Year of Birth: 1981	Chief Legal Officer and Secretary	Officer since 2019	Current: General Counsel & Managing Director (2019-present); Chief Compliance Officer (2021-present), XAI. Former: Associate, Drinker Biddle & Reath LLP (2015-2019); Associate Counsel, First Trust Portfolios LP (2012-2015).
Derek Mullins Year of Birth: 1973 c/o PINE Advisor Solutions, LLC 501 S. Cherry St., Suite 610 Denver, CO 80246	Chief Financial Officer and Treasurer	Officer since 2020	Current: Managing Partner, PINE Advisor Solutions, LLC (2018-present); Chief Financial Officer and Treasurer, Destra Investment Trust (2 portfolios) (2018-present); Chief Financial Officer and Treasurer, BlueBay Destra International & Event-Driven Credit Fund (2018-present); Chief Financial Officer and Treasurer, Destra Multi-Alternative Fund (2018-present); Chief Financial Officer and Treasurer, Primark Private Equity Investments Fund (2020-present), Chief Financial Officer and Treasurer, Bow River Capital Evergreen Fund (2020-present); Chief Financial Officer and Treasurer, Forum Real Estate Income Fund (2021-present). Former: Director of Operations, ArrowMark Partners LLC (2009-2018), Chief Financial Officer and Treasurer, Meridian Fund, Inc. (2013-2018).
John “Yogi” Spence Year of Birth: 1962	Vice President	Officer since 2017	Current: Co-Chief Executive Officer, XAI (2016-present); Co-Founding Partner, XMS Capital Partners, LLC (2006-present).
Theodore J. Uhl Year of Birth: 1974 c/o ALPS Fund Services, Inc. 1290 Broadway, Ste. 1000 Denver, CO 80203	Chief Compliance Officer	Officer since 2017	Current: Vice President and Deputy Chief Compliance Officer, ALPS Fund Services, Inc. (2006-present); Chief Compliance Officer, Financial Investors Trust (28 portfolios) (2010-present); Chief Compliance Officer, Centre Funds (2 portfolios) (2013-present); Chief Compliance Officer, GraniteShares ETF Trust (3 portfolios) (2019-present); Chief Compliance Officer, Alpha Alternative Assets Fund (2020-present). Former: Internal Audit Manager/Senior Risk Manager, ALPS Fund Services, Inc. (2006-2010).

(1) The business address of each Officer of the Trust is 321 North Clark Street, Suite 2430, Chicago, Illinois 60654, unless otherwise noted.

(2) Officers serve at the pleasure of the Board and until his or her successor is appointed and qualified or until his or her earlier resignation or removal.

Annual Report | September 30, 2022 93

XAI Octagon Floating Rate &
Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

THE ADVISER

XA Investments LLC acts as investment adviser to the Trust and is responsible for overseeing the Trust’s overall investment strategy and its implementation, including the use of leverage by the Trust. XAI is an investment adviser registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). XAI is a Delaware limited liability company, with its principal offices located at 321 North Clark Street, Suite 2430, Chicago, Illinois 60654. As of September 30, 2022, the Adviser managed approximately $390 million in assets.

XAI is controlled by Theodore J. Brombach, Co-Chief Executive Officer of the Adviser and a founding partner of XMS Capital Partners, LLC, and John “Yogi” Spence, Co-Chief Executive Officer of XAI and a founding partner of XMS Capital Partners, LLC. XAI was founded by the principals of XMS Capital Partners, LLC in April 2016. The XAI leadership team believes that the investing public needs better access to a broader range of alternative investment strategies and managers. XAI sponsors registered investment companies designed to provide investors with access to institutional caliber alternative investments, by partnering with established alternative asset managers selected from among numerous alternative credit managers, hedge fund managers and private debt and equity firms to sub-advise XAI funds.

XAI is responsible for the management of the Trust, furnishes offices, necessary facilities and equipment on behalf of the Trust, oversees the activities of the Sub-Adviser, provides personnel, including certain officers required for the Trust’s administrative management, and pays the compensation of all officers and Trustees of the Trust who are its affiliates.

THE SUB-ADVISER

Octagon Credit Investors, LLC acts as investment sub-adviser to the Trust and is responsible for investing the Trust’s assets. The Sub-Adviser is an investment adviser registered under the Advisers Act. The Sub-Adviser is a Delaware limited liability company, with its principal offices located at 250 Park Avenue, 15th Floor, New York, NY 10177. The Sub-Adviser is majority-owned by Conning & Company, which is an indirect subsidiary of Cathay Financial Holding Co., Ltd., a Taiwan-based company.

The Sub-Adviser’s experienced team of investment professionals has worked together for many years and managed funds through multiple credit cycles over Octagon’s 25-plus year history. The Sub-Adviser, as of September 30, 2022, manages $33.0 billion in assets under management across 46 CLOs, 10 commingled funds and 18 separately managed accounts. The Sub-Adviser provides non-discretionary investment management services for one sub-advised fund.

The Sub-Adviser, under the direction and supervision of the Board of Trustees and the Adviser, is responsible for the management of the Trust’s investment portfolio and provides certain facilities and personnel related to such management.

Octagon Investment Committee

The Sub-Adviser’s investment process is led by an experienced Investment Committee made up of the following investment professionals:

• Andrew D. Gordon, Chief Executive Officer of the Sub-Adviser

• Michael B. Nechamkin, Chief Investment Officer & Senior Portfolio Manager of the Sub-Adviser

• Gretchen M. Lam, CFA, Senior Portfolio Manager of the Sub-Adviser

• Lauren B. Law, CFA, Portfolio Manager of the Sub-Adviser

• Maegan Gallagher, Head of Trading & Capital Markets of the Sub-Adviser

• Sean M. Gleason, Portfolio Manager of the Sub-Adviser

For additional information regarding the members of the Investment Committee who serve as portfolio managers of the Trust, See “Portfolio Management.”

94 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

CONFLICTS OF INTEREST

During the time in which the Trust is utilizing leverage, the amount of the management fees paid to the Adviser and Sub-Adviser for investment advisory services will be higher than if the Trust did not utilize leverage because the fees paid will be calculated based on the Trust’s Managed Assets, including proceeds of leverage. This may create a conflict of interest between the Adviser and the Sub-Adviser, on the one hand, and the Common Shareholders, on the other hand, as holders of Indebtedness, Preferred Shares or other forms of leverage do not bear the management fee. Rather, Common Shareholders bear the portion of the management fee attributable to the assets purchased with the proceeds of leverage, which means that Common Shareholders effectively bear the entire management fee. In addition, because the percentage of the advisory fee paid by the Adviser to the Sub-Adviser may vary based on Managed Assets, conflicts of interest may exist between the Adviser and Common Shareholders, with respect to subsequent opportunities to raise additional assets for the Trust.

PORTFOLIO MANAGEMENT

Gretchen Lam, Senior Portfolio Manager of Octagon, serves as lead portfolio manager of the Trust. Ms. Lam is supported by a team of Octagon investment professionals in the day-to-day management of the Trust’s portfolio, including the following members of the Octagon Investment Committee: Andrew D. Gordon, Michael B. Nechamkin and Lauren B. Law. In addition, Sean M. Gleason (Portfolio Manager) and Maegan Gallagher (Head of Trading and Capital Markets) are members of the Octagon Investment Committee.

Gretchen M. Lam, CFA, Senior Portfolio Manager of the Sub-Adviser

Ms. Lam is a member of Octagon’s Investment Committee and serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Ms. Lam oversees the Firm’s Structured Credit (CLO debt & equity) investment strategies. Ms. Lam is also the Co-Chair of Octagon & Conning’s Global DEI (diversity, equity and inclusion) Council and a member of the Firm’s ESG (environmental, social, and corporate governance) Committee. Prior to becoming a Portfolio Manager, Ms. Lam oversaw Octagon's investments in the software, business services, finance & insurance, paper & packaging, gaming & lodging, homebuilding and real estate industries. She was also responsible for the structured credit exposure held in Octagon’s CLO vehicles. Prior to joining Octagon in 1999, Ms. Lam attended Babson College where she graduated Summa Cum Laude with a B.S. in Investments. She received her CFA Charter in 2006.

Andrew D. Gordon, Chief Executive Officer of the Sub-Adviser

Mr. Gordon is a member of Octagon’s Investment Committee and serves as the Firm’s Chief Executive Officer. He co-founded Octagon in 1994 and subsequently managed numerous Octagon funds before assuming his current position. He possesses over 30 years of experience in the below- investment grade leveraged loan and high yield bond asset classes, in both sell-side and buy-side capacities. Mr. Gordon is also a member of Octagon’s ESG (environmental, social, and corporate governance) Committee. Prior to co-founding Octagon, Mr. Gordon was a Managing Director at Chemical Securities, Inc., where he focused primarily on the oil and gas industries. Mr. Gordon advised on and arranged below-investment grade loans for corporate clients, while also undertaking special projects in M&A advisory and distressed credit situations. Prior to Chemical, Mr. Gordon served as Vice President in the Acquisition Finance Division of Manufacturers Hanover Trust Company. In this capacity, he structured, syndicated and managed leveraged buyout transactions. From 2010 to 2015, Mr. Gordon served on the Board of Directors of the Loan Syndications and Trading Association, Inc. ("LSTA") and on the LSTA's Executive Committee. He graduated Cum Laude with an A.B. in Economics from Duke University. Mr. Gordon holds FINRA Series 7 & 63 Registrations.

Michael B. Nechamkin, Chief Investment Officer & Senior Portfolio Manager of the Sub-Adviser

Mr. Nechamkin is a member of Octagon’s Investment Committee and the Firm's Chief Investment Officer. He serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Prior to joining Octagon as Portfolio Manager in 1999, Mr. Nechamkin was a Vice President in the High Yield Research Group at Bankers Trust. Prior to that, he served as a Convertible Securities Analyst at Mabon Securities and a Financial Consultant at Merrill Lynch. He earned a Bachelor and a Master of Talmudic Law, and holds an M.B.A. from the University of Baltimore.

Lauren B. Law, CFA, Portfolio Manager of the Sub-Adviser

Ms. Law is a member of Octagon’s Investment Committee and serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Ms. Law joined Octagon in 2004. In addition, she helps oversee the Firm’s Structured Credit (CLO debt and equity) investment strategies. Prior to becoming a Portfolio Manager, Ms. Law was an Investment Team Principal whose coverage areas included healthcare, industrials, financials, business services, and the Firm’s CLO debt and equity investments. She holds a Bachelor of Science from Babson College, where she graduated Magna Cum Laude. She received her CFA Charter in 2009.

The Trust’s statement of additional information provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities of the Trust.

Annual Report | September 30, 2022 95

XAI Octagon Floating Rate &
Alternative Income Term Trust	Management of the Trust
	September 30, 2022 (Unaudited)

INVESTOR SUPPORT SERVICES AND SECONDARY MARKET SUPPORT SERVICES

The Trust has retained the Adviser to provide investor support services and secondary market support services in connection with the ongoing operation of the Trust. Such services include responding to questions about the Trust from financial intermediaries; assisting in drafting and editing mailings to financial intermediaries; distributing mailings to financial intermediaries; scheduling, organizing and preparing conference calls, meetings and other communications with financial intermediaries; communicating with the NYSE specialist for the Common Shares, and with the closed-end fund analyst community regarding the Trust on a periodic basis; assisting in producing communications targeted to current Trust shareholders and the investment community generally (excluding marketing materials targeted to prospective investors or prepared for use in an offering of Common Shares); assisting in the formatting, development and maintenance of the Trust’s website; assisting with administrative matters (including in connection with the preparation of press releases, shareholder reports and regulatory filings) with respect to the Trust.

EXPENSES

The Trust pays all costs and expenses of its operations (in addition to the advisory fee and investor support services and secondary market support services fee paid to XAI), including compensation of its Trustees (other than those affiliated with the Adviser), custodian fees, transfer agency and dividend disbursing agent fees, administration fees, fund accounting agent fees, legal fees, expenses of its independent registered public accounting firm, expenses of pricing services or valuation agents, expenses of repurchasing Common Shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies, listing fees and taxes, if any. All fees and expenses are accrued daily and deducted before paying distributions to shareholders.

96 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Additional Information
	September 30, 2022 (Unaudited)

PROXY VOTING

You may obtain (i) Information on how the Trust voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 and (ii) a description of the policies and procedures that the Trust used to determine how to vote proxies relating to portfolio securities, without charge, upon request, by calling (888) 903-3358. This information is also available on the SEC’s website at www.sec.gov.

RESULTS OF SHAREHOLDER MEETING

The annual meeting of shareholders of the Trust was held on May 24, 2022. Shareholders voted on the election of Trustees. With regards to the election of the following Class II Trustees by the shareholders of the Trust:

	Number of Shares in Favor	Number of Shares Against	Number of Shares Abstaining
Gregory G. Dingens1	22,825,777	393,768	151,945
Philip G. Franklin2	1,398,614	13,829	974

1 Mr. Dingens was elected by the holders of Common Shares and Preferred Shares voting together as a single class.

2 Mr. Franklin was elected by the holders of Preferred Shares voting as a separate class.

The other Trustees whose terms did not expire in 2022 are Danielle Cupps, Scott Craven Jones and Theodore J. Brombach.

NOTICE TO SHAREHOLDERS REGARDING PURCHASES OF COMMON SHARES

Notice is hereby given in accordance with Section 23(c) of the 1940 Act, that the Trust from time to time may purchase its Common Shares in the open market or in private transactions.

TRUST CERTIFICATIONS

The Trust’s Chief Executive Officer (“CEO”) has submitted to the NYSE the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. The Trust has filed with the SEC the certification of its CEO and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.

DELAWARE STATUTORY TRUST ACT – CONTROL SHARE ACQUISITIONS

Because the Trust is organized as a Delaware statutory trust, it is subject to the control share acquisition statute (the “Control Share Statute”) contained in Subchapter III of the Delaware Statutory Trust Act (the “DSTA”), which became automatically applicable to listed closed-end funds, such as the Trust, upon its effective date of August 1, 2022 (the “Effective Date”).

The Control Share Statute provides for a series of voting power thresholds above which shares are considered control shares. The first such threshold is 10% or more, but less than 15%, of all voting power. Voting power is defined by the Control Share Statute as the power to directly or indirectly exercise or direct the exercise of the voting power of Trust shares in the election of trustees. Whether a voting power threshold is met is determined by aggregating the holdings of the acquirer as well as those of its “associates,” as defined by the Control Share Statute.

Once a threshold is reached, an acquirer has no voting rights under the DSTA or the governing documents of the Trust with respect to shares acquired in excess of that threshold (i.e., the “control shares”) unless approved by shareholders or exempted by the Board of Trustees. Approval by shareholders requires the affirmative vote of two-thirds of all votes entitled to be cast on the matter, excluding shares held by the acquirer and its associates as well as shares held by certain insiders of the Trust. The Control Share Statute provides procedures for an acquirer to request a shareholder meeting for the purpose of considering whether voting rights shall be accorded to control shares. Further approval by the Trust’s shareholders would be required with respect to additional acquisitions of control shares above the next applicable threshold level.

The Control Share Statute effectively allows non-interested shareholders to evaluate the intentions and plans of an acquiring person above each threshold level.

Annual Report | September 30, 2022 97

XAI Octagon Floating Rate &
Alternative Income Term Trust	Additional Information
	September 30, 2022 (Unaudited)

Alternatively, the Board of Trustees is permitted, but not obligated, to exempt specific acquisitions or classes of acquisitions of control shares, either in advance or retroactively. As of the date hereof, the Board of Trustees of the Fund has not exempted, and has no present intention to exempt, any acquisition of class of acquisitions.

The Control Share Statute does not retroactively apply to acquisitions of shares that occurred prior to the Effective Date. However, such shares will be aggregated with any shares acquired after the Effective Date for purposes of determining whether a voting power threshold is exceeded, resulting in the newly acquired shares constituting control shares.

The Control Share Statute requires shareholders to disclose to the Trust any control share acquisition within 10 days of such acquisition and, upon request, to provide any information that the Board of Trustees reasonably believes is necessary or desirable to determine whether a control share acquisition has occurred.

The foregoing is only a summary of certain aspects of the Control Share Statute. Shareholders should consult their own legal counsel to determine the application of the Control Share Statute with respect to their shares of the Trust and any subsequent acquisitions of shares.

QUARTERLY SCHEDULE OF PORTFOLIO INVESTMENTS INFORMATION

The Trust is required to file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. You may obtain this information on the SEC’s website at http://www.sec.gov.

AVAILABILITY OF TRUST UPDATES

The Trust regularly updates performance and certain other data and publishes press releases and other material information as necessary from time to time on its website at www.xainvestments.com/XFLT. Investors and others are advised to check the website for updated performance information and the release of other material information about the Trust. References herein to the Trust’s website are intended to allow investors public access to information regarding the Trust and do not, and are not intended to, incorporate the Trust’s website in this report.

PRIVACY PRINCIPLES OF THE TRUST

The Trust is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Trust collects, how the Trust protects that information and why, in certain cases, the Trust may share information with select other parties.

Generally, the Trust does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Trust. The Trust does not disclose any non-public personal information about its shareholders or former shareholders to anyone except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third-party administrator).

The Trust restricts access to non-public personal information about its shareholders to employees of the Adviser and its delegates and affiliates with a legitimate business need for the information. The Trust maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.

TRANSFER AGENT, CUSTODIAN AND ADMINISTRATOR

DST Systems, Inc., 430 W. 7^th Street, Kansas City, Missouri 64105, serves as the Trust’s dividend disbursing agent, agent under the Trust’s Plan, transfer agent and registrar with respect to the Trust’s Common Shares.

U.S. Bank N.A., 1555 N. River Center Drive, Milwaukee, Wisconsin 53212, serves as the Trust’s custodian. Under the custody agreement, the custodian is required to hold the Trust’s assets in compliance with the 1940 Act. For its services, the custodian receives a monthly fee based upon, among other things, the average value of the total assets of the Trust, plus certain charges for securities transactions.

SS&C ALPS Fund Services, Inc. ("ALPS") serves as the administrator of the Trust. Pursuant to an administration, bookkeeping and pricing services agreement, the administrator provides certain administrative services to the Trust. The Trust pays to ALPS a monthly fee equal to the greater of an annual minimum fee or a fee equal to a percentage of the Trust’s net assets, which percentage is subject to breakpoints at increasing levels of net assets, and reimburses ALPS for certain out-of-pocket expenses. ALPS is located at 1290 Broadway, Suite 1000, Denver, CO 80203.

98 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Additional Information
	September 30, 2022 (Unaudited)

LEGAL COUNSEL

Skadden, Arps, Slate, Meagher & Flom LLP, 155 North Wacker Drive, Chicago, Illinois 60606, serves as the Trust’s legal counsel.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Cohen & Company Ltd., 1350 Euclid Ave., Suite 800, Cleveland, OH 44115, is the Trust’s independent registered public accounting firm. Cohen & Company is expected to render an opinion annually on the financial statements and financial highlights of the Trust.

UNRESOLVED SEC STAFF COMMENTS

None.

Annual Report | September 30, 2022 99

XAI Octagon Floating Rate &
Alternative Income Term Trust	Approval of Advisory Agreements
	September 30, 2022 (Unaudited)

BOARD CONSIDERATION OF INVESTMENT ADVISORY AGREEMENT AND INVESTMENT SUB-ADVISORY AGREEMENT

At a meeting of the Board of Trustees (the “Board”), held on August 16, 2022, the Board, including those Trustees who are not “interested persons” as defined by the 1940 Act (the “Independent Trustees”), evaluated the terms of the investment management agreement between the Trust and XA Investments LLC (the “Advisory Agreement”) and the investment management agreement among the Trust, XA Investments LLC and Octagon Credit Investors, LLC (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Investment Management Agreements”) and reviewed the duties and responsibilities of the Trustees in evaluating and approving such agreements.

In considering whether to renew the Investment Management Agreements, the Board, including the Independent Trustees, reviewed the materials provided by XA Investments LLC (the “Adviser”) and Octagon Credit Investors, LLC (the “Sub-Adviser”) and other information from counsel and from the Adviser and Sub-Adviser, including: (i) copies of the Investment Management Agreements; (ii) information describing the nature, quality and extent of the services that the Adviser and Sub-Adviser provide to the Trust and the fees the Adviser and Sub-Adviser charge to the Trust; (iii) the experience and qualifications of the personnel providing such services; (iv) information concerning the Adviser’s and Sub-Adviser’s financial condition, business, operations, portfolio management personnel and compliance programs; (v) information describing the Trust’s advisory fees and operating expenses; (vi) a copy of the Adviser’s and Sub-Adviser’s current Form ADV; and (vii) a memorandum from counsel on the responsibilities of trustees in considering investment advisory arrangements under the Investment Company Act of 1940. The Board also considered presentations made by, and discussions held with, representatives of the Adviser and Sub-Adviser. The Board also received information comparing the advisory fees and expenses of the Trust to those of investment companies that were defined as competitors. The Board determined that the responses provided by the Adviser and Sub-Adviser were sufficiently responsive to permit it to evaluate the Investment Management Agreements.

During its review of this information, the Board focused on and analyzed the factors that the Board deemed relevant, including: the nature, extent and quality of the services provided to Trust by the Adviser and Sub-Adviser; the investment performance of the Trust and the Adviser and Sub- Adviser; the Trust’s expenses; the profitability to the Adviser and Sub-Adviser under the Investment Management Agreements; any “fall-out” benefits to the Adviser and the Sub-Adviser; and the effect of asset growth on the Trust’s expenses. Each member of the Board may have placed different weight on different factors, and no single factor was determinative to the decision of the Board.

XAI Investments LLC (Adviser)

i. The nature, extent, and quality of the services provided by the Adviser. In this regard, the Board reviewed the services being provided by the Adviser to the Trust including, without limitation, the nature and quality of the investment advisory services since the Trust’s inception, its review, selection and monitoring of the Sub-Adviser of the Trust, its coordination of services for the Trust by the Trust’s service providers, its compliance procedures and practices, and its distribution efforts to promote the Trust. The Board considered the Trust had on an average basis traded a premium to the Trust’s net asset value since its date of inception, while ten year taxable closed-end funds traded on average at a discount to NAV during the same period. After reviewing the foregoing information and further information in the questionnaire the Board concluded that the quality, extent, and nature of the services provided by the Adviser are satisfactory and adequate for the Trust.

ii. The investment performance of the Trust and Adviser. In this regard, the Board compared the performance of the Trust with the performance of the Trust’s benchmark index and a peer group of comparable funds created by an unaffiliated third party. The Board also considered whether the methodology used in constructing the Trust’s peer group was reasonable. The Board considered the performance of the Trust compared to the performance of funds in the Trust’s peer group over one-year, three-year and since-inception measurement periods. The Board noted that as of the quarter ended June 30, 2022, the Trust outperformed its peer group average (based on price performance) for the three-year and since-inception period, and under performed for the one year period. The Trust under-performed the peer group average (based on net asset value) for the same periods. The Board considered that the Trust’s returns based on share prices out-performed its benchmark index for the three year and since inception period, and out-performed its benchmark on a net asset value basis for the one year period. The Board noted that the Trust underperformed on the one-year period based on both share price and net asset value, and slightly underperformed its benchmark index based on net asset value since its inception. The Board considered the total assets of the competitor funds and total assets under management held by other fund advisers and their resulting ability to achieve economies of scale. The use of leverage, the resulting impact on Trust performance and the appropriate metrics to measure the impact of leverage were also considered. After consideration of the short and long-term investment performance of the Trust, the Adviser’s experience in managing the Trust, the continuity of the Adviser’s personnel and other factors, the Board concluded that the investment performance of the Trust and the Adviser was consistent with the Trust’s investment objective and policies and therefore satisfactory.

iii. The costs of the services provided and profits realized by the Adviser and its affiliates from the relationship with the Trust. In this regard, the Board considered the total expense ratio of the Trust and the management fees paid to the Adviser as well as the Sub-Adviser. The Board then considered these fees as compared to fees paid by funds in the Trust’s peer group, considering possible economies of scale achieved by peer group funds. The Board noted that the management fee was higher than the peer group average, but when compared to sub-set of the peer group that invested significantly in collateralized loan obligations, the Board also considered the quality and experience of the Adviser’s personnel, the Adviser’s business philosophies and methods of operation; the Adviser’s compliance policies and procedures; the financial condition of the Adviser; the level of commitment to the Trust by the Adviser and its principals; the costs associated with the trading strategies of the Trust; the Adviser’s prior payment of startup costs for the Trust; the costs associated with distribution efforts of the Trust; and the overall expenses of the Trust.

100 www.xainvestments.com

XAI Octagon Floating Rate &
Alternative Income Term Trust	Approval of Advisory Agreements
	September 30, 2022 (Unaudited)

The Board also considered potential benefits to the Adviser in managing the Trust. In this regard, the Board reviewed the form ADV of the Adviser, the financial condition of the Adviser and the amount of revenue and profits achieved from managing the Trust. The Board found that the profitability of the Adviser in light of the nature and quality of the services provided, amount of assets under management, costs associated with implementing and monitoring the Trust’s investment strategy and other factors was fair and reasonable.

iv. The extent to which economies of scale would be realized as the Trust grows. The Board considered whether economies of scale could be achieved as the Trust grows and whether the Adviser’s fee reflects these economies of scale in a manner that is fair and reasonable and beneficial for the Trust’s investors. Following further discussion of the Trust’s asset levels, expectations for growth and level of fees, the Board determined that the Adviser’s fee was fair and reasonable when considering the Trust’s asset levels and economies of scale.

v. Whether fee levels reflect these economies of scale for the benefit of the Trust’s investors. In this regard, the Board considered the total fees paid by the Trust to the Adviser in light of the total assets being managed, the operational expenses incurred in processing transactions, brokerage fees and other related costs and expenses. The Trustees concluded the total fees paid are fair and reasonably reflect the costs and expenses of managing a fund of similar size and with a similar investment strategy.

Octagon Credit Investors, LLC (Sub-Adviser)

i. The nature, extent, and quality of the services provided by the Sub-Adviser. In this regard, the Board reviewed the services being provided by the Sub-Adviser to the Trust including, without limitation, the nature and quality of the investment advisory services provided to the Trust. After reviewing the foregoing information and further information in the questionnaire the Board concluded that the quality, extent, and nature of the services provided by the Sub-Adviser are satisfactory and adequate for the Trust.

ii. The investment performance of the Trust and the Sub-Adviser. In this regard, the Board compared the performance of the Trust with the performance of the Trust’s benchmark index and a peer group of comparable funds created by an unaffiliated third party. The Board also considered whether the methodology used in constructing the Trust’s peer group was reasonable. The Board considered the performance of the Trust compared to the performance of funds in the Trust’s peer group over one-year, three-year and since-inception measurement periods. The Board noted that as of the quarter ended June 30, 2022, the Trust outperformed its peer group average (based on price performance) for the three-year and since-inception period, and under performed for the one year period. The Trust under-performed the peer group average (based on net asset value) for the same periods. The Board considered that the Trust’s returns based on share prices out-performed its benchmark index for the three year and since inception period, and out-performed its benchmark on a net asset value basis for the one year period. The Board noted that the Trust underperformed on the one-year period based on both share price and net asset value, and slightly underperformed its benchmark index based on net asset value since its inception. The Board considered the total assets of the competitor funds and total assets under management held by other fund advisers and their resulting ability to achieve economies of scale. The use of leverage, the resulting impact on Trust performance and the appropriate metrics to measure the impact of leverage were also considered. After consideration of the short and long-term investment performance of the Trust, the Sub-Adviser’s experience in managing the Trust, the continuity of the Sub-Adviser’s personnel and other factors, the Board concluded that the investment performance of the Trust and the Sub-Adviser was consistent with the Trust’s investment objective and policies and therefore satisfactory.

iii. The costs of the services provided and profits realized by Octagon and its affiliates from the relationship with the Trust. In this regard, the Board considered the total expense ratio of the Trust and the management fees paid to the Sub-Adviser. The Board then considered these fees as compared to fees paid by funds in the Trust’s peer group, considering possible economies of scale achieved by peer group funds and the impact of the expense limitation agreement. The Board also considered the quality and experience of the Sub-Adviser’s personnel, the Sub-Adviser’s business philosophies and methods of operation; the Sub-Adviser’s compliance policies and procedures; the financial condition of the Sub-Adviser; the level of commitment to the Trust by the Sub-Adviser and its principals; the asset levels of the Trust and the overall expenses of the Trust. The Board also considered potential benefits to the Sub-Adviser in managing the Trust. In this regard, the Board reviewed the form ADV of the Sub-Adviser, the financial condition of the Sub-Adviser and the amount of revenue and profits achieved from managing the Trust. The Board found that the profitability of the Sub-Adviser in light of the nature and quality of the services provided, amount of assets under management, costs associated with implementing and monitoring the Trust’s investment strategy and other factors was fair and reasonable.

Annual Report | September 30, 2022 101

XAI Octagon Floating Rate &
Alternative Income Term Trust	Approval of Advisory Agreements
	September 30, 2022 (Unaudited)

iv. The extent to which economies of scale would be realized as the Trust grows. The Board considered whether economies of scale could be achieved as the Trust grows and whether the Sub-Adviser’s fee reflects these economies of scale in a manner that is fair and reasonable and beneficial for the Trust’s investors. Following further discussion of the Trust’s asset levels, expectations for growth and level of fees, the Board determined that the Sub-Adviser’s fee was fair and reasonable when considering the Trust’s asset levels and economies of scale.

v. Whether fee levels reflect these economies of scale for the benefit of the Trust’s investors. In this regard, the Board considered the total fees paid by the Trust to the Sub-Adviser in light of the total assets being managed, the operational expenses incurred in processing transactions, brokerage fees and other related costs and expenses. The Trustees concluded the total fees paid are fair and reasonably reflect the costs and expenses of managing a fund of similar size and with a similar investment strategy.

Conclusion

Based on the foregoing and such other matters as were deemed relevant, the Board concluded in its reasonable business judgment that the advisory fee rate and total expense ratio are reasonable in relation to the services provided by the Adviser and Sub-Adviser to the Trust, as well as the costs incurred and benefits gained by the Adviser and Sub-Adviser in providing such services. The Board also found the advisory fees and sub-advisory fees to be reasonable in comparison to the fees charged by advisers to other comparable funds. As a result, the Board, and the Independent Trustees voting separately, concluded that the renewal of the Investment Management Agreements was in the best interests of the Trust and approved the Investment Management Agreements. No single factor was determinative to the decision of the Board.

102 www.xainvestments.com

Page Intentionally Left Blank

(b) Not applicable.

Item 2. Code of Ethics.

(a) The Registrant, as of the end of the period covered by the report, has adopted a Code of Ethics that applies to the Registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller or any persons performing similar functions on behalf of the Registrant.

(b) For purposes of this item, “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:

1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant;

3. Compliance with applicable governmental laws, rules, and regulations;

4. The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

5. Accountability for adherence to the code

(c) During the period covered by this report, no amendments were made to the provisions of the Code of Ethics referenced in 2 (a) above.

(d) During the period covered by this report, no implicit or explicit waivers to the provision of the Code of Ethics referenced in 2 (a) above were granted.

(e) Not Applicable.

(f) The Registrant's code of ethics referred to in Item 2(a) above is attached as an Ex99.13(a)(1) Code of Ethics, hereto.

Item 3. Audit Committee Financial Expert.

The Registrant’s Board of Directors has determined that the Registrant has as least one audit committee financial expert serving on its Audit Committee. The Board of Directors has designated Scott C. Jones as the Registrant’s “audit committee financial expert.” Mr. Scott C. Jones is “independent” as defined in paragraph (a)(2) of Item 3 to Form N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees: The aggregate fees billed for professional services rendered by KPMG LLP (“KPMG”) for the period of October 1, 2020 through April 12, 2021 of the fiscal year ended September 30, 2021 for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $0. The aggregate fees billed for professional services rendered by Cohen & Company for the fiscal year ended September 30, 2022 and the period from April 12, 2021 to September 30, 2021 for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $90,000 and $90,000.

(b) Audit-Related Fees: The aggregate fees billed for the period of October 1, 2020 through April 12, 2021 of the fiscal year ended September 30, 2021 and the fiscal year ended September 30, 2022 for assurance and related services rendered by KPMG that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item was $118,000 and $8,000, respectively. The aggregate fees billed for the fiscal year ended September 30, 2022 and the period from April 12, 2021 to September 30, 2021 for assurance and related services rendered by Cohen & Company that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item was $12,910 and $0.

(c) Tax Fees: The aggregate fees billed for the period of October 1, 2020 through April 12, 2021 of the fiscal year ended September 30, 2021 for professional services rendered by KPMG for tax compliance, tax advice, and tax planning was $0. The aggregate fees billed for the fiscal year ended September 30, 2022 and the period from April 12, 2021 to September 30, 2021 for professional services rendered by Cohen & Company for tax compliance, tax advice, and tax planning was $15,000 and $15,000, respectively. These fees are comprised of fees relating income tax return preparation fees, excise tax return preparation fees and review of dividend distribution calculation fees.

(d) All Other Fees: The aggregate fees billed for the period of October 1, 2020 through April 12, 2021 of the fiscal year ended September 30, 2021 for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item was $0. The aggregate fees billed for the fiscal year ended September 30, 2022 and the period from April 12, 2021 to September 30, 2021 for products and services provided by Cohen & Company, other than the services reported in paragraphs (a) through (c) of this Item was $0 and $0.

(e)(1) Audit Committee Pre-Approval Policies and Procedures: All services to be performed by the Registrant's principal auditors must be pre-approved by the Registrant's Audit Committee or by the Audit Committee’s designee pursuant to the Audit Committee’s Pre-Approval Policies and Procedures.

(e)(2) No services described in paragraphs (b) through (d) were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not applicable.

(g) The aggregate non-audit fees billed by the Registrant’s accountants for services rendered to the Registrant, and rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant for the last two fiscal years ended September 30, 2022 and September 30, 2021 was $0 and $0, respectively. For the period of October 1, 2020 through April 12, 2021 of the fiscal year ended September 30, 2021 KPMG did not bill the Registrant for products and services other than the services reported above. For the fiscal year ended September 30, 2022 and the period from April 12, 2021 September 30, 2021 Cohen & Company did not bill the Registrant for products and services other than the services reported above.

(h) Not applicable.

Item 5. Audit Committee of Listed Registrants.

The Registrant has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act and is comprised of the following members:

Scott C. Jones, Chairman
Danielle Cupps
Gregory G. Dingens
Philip G. Franklin

Item 6. Schedule of Investments.

(a) Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

(b) Not applicable

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

See attached Appendix A for a copy of the policies and procedures of the Registrant.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

(a)(1) Portfolio Managers

As of the date of this report.

Portfolio Managers Name	Title	Length of Service	Business Experience: 5 Years
Andrew Gordon	Chief Executive Officer	Since Inception	Chief Executive Officer, Co-Chief Investment Officer (1994 to 2021) and member of the Investment Committee of the Sub-Adviser.
Michael Nechamkin	Chief Investment Officer and Senior Portfolio Manager	Since Inception	Chief Investment Officer (2021 to present), Co-Chief Investment Officer (2016 to present), Senior Portfolio Manager and member of the Investment Committee of the Sub-Adviser.
Gretchen Lam, CFA	Senior Portfolio Manager	Since Inception	Senior Portfolio Manager and member of the Investment Committee of the Sub-Adviser (2013 to present).
Lauren Law, CFA	Portfolio Manager	January 2018	Portfolio Manager and member of the Investment Committee of the Sub-Adviser (2018 to present).

Andrew Gordon, Chief Executive Officer. Mr. Gordon is a member of Octagon’s Investment Committee and serves as the Firm’s Chief Executive Officer. He co-founded Octagon in 1994 and subsequently managed numerous Octagon funds before assuming his current position. He possesses over 30 years of experience in the below-investment grade leveraged loan and high yield bond asset classes, in both sell-side and buy-side capacities. Mr. Gordon is also a member of Octagon’s ESG (environmental, social, and corporate governance) Committee. Prior to co-founding Octagon, Mr. Gordon was a Managing Director at Chemical Securities, Inc., where he focused primarily on the oil and gas industries. Mr. Gordon advised on and arranged below-investment grade loans for corporate clients, while also undertaking special projects in M&A advisory and distressed credit situations. Prior to Chemical, Mr. Gordon served as Vice President in the Acquisition Finance Division of Manufacturers Hanover Trust Company. In this capacity, he structured, syndicated and managed leveraged buyout transactions. From 2010 to 2015, Mr. Gordon served on the Board of Directors of the Loan Syndications and Trading Association, Inc. ("LSTA") and on the LSTA's Executive Committee. He graduated Cum Laude with an A.B. in Economics from Duke University. Mr. Gordon holds FINRA Series 7 & 63 Registrations.

Michael Nechamkin, Chief Investment Officer & Senior Portfolio Manager. Mr. Nechamkin is a member of Octagon’s Investment Committee and the Firm's Chief Investment Officer. He serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Prior to joining Octagon as Portfolio Manager in 1999, Mr. Nechamkin was a Vice President in the High Yield Research Group at Bankers Trust. Prior to that, he served as a Convertible Securities Analyst at Mabon Securities and a Financial Consultant at Merrill Lynch. He earned a Bachelor and a Master of Talmudic Law, and holds an M.B.A. from the University of Baltimore.

Gretchen Lam, CFA, Senior Portfolio Manager. Ms. Lam is a member of Octagon’s Investment Committee and serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Ms. Lam oversees the Firm’s Structured Credit (CLO debt & equity) investment strategies. Ms. Lam is also a member of Octagon & Conning’s Global DEI Council and a member of Octagon’s ESG Committee. Prior to becoming a Portfolio Manager, Ms. Lam oversaw Octagon's investments in the software, business services, finance & insurance, paper & packaging, gaming & lodging, homebuilding and real estate industries. She was also responsible for the structured credit exposure held in Octagon’s CLO vehicles. Prior to joining Octagon in 1999, Ms. Lam attended Babson College where she graduated Summa Cum Laude with a B.S. in Investments. She received her CFA Charter in 2006.Lauren Law, CFA, Portfolio Manager. Ms. Law is a member of Octagon’s Investment Committee and serves as a Portfolio Manager across CLOs, Separately Managed Accounts and Commingled Funds. Ms. Law joined Octagon in 2004. In addition, she helps oversee the Firm’s Structured Credit (CLO debt and equity) investment strategies. Prior to becoming a Portfolio Manager, Ms. Law was an Investment Team Principal whose coverage areas included healthcare, industrials, financials, business services, and the Firm’s CLO debt and equity investments. She holds a Bachelor of Science from Babson College, where she graduated Magna Cum Laude. She received her CFA Charter in 2009.

(a)(2) As of September 30, 2022 the Portfolio Managers listed above are also responsible for the day-to-day management of the following other accounts:

Portfolio Managers Name	Registered Investment Companies		Other Pooled Investment Vehicles		Other Accounts
Andrew Gordon	0	$0	0	$0	0	$0
Michael Nechamkin	0	$0	18	$9,212,561,947	5	$2,770,342,706
Gretchen Lam, CFA	0	$0	15	$6,724,232,920	4	$840,600,030
Lauren Law, CFA	0	$0	13	$7,081,640,057	8	$1,352,049,721

(a)(3) Compensation of Portfolio Managers and Material Conflicts of Interest

Compensation of Portfolio Managers. Octagon investment professionals receive a fixed base salary and annual discretionary bonus, each determined by the Compensation Committee, which is a committee of the Board of Managers of the Sub-Adviser. The fixed base salary is reviewed periodically and is intended to reflect a base compensation that is competitive with base salaries provided by similar investment adviser firms in the industry. The discretionary bonus is determined taking into account the overall performance and profitability of the Sub-Adviser, and an individual’s contributions and achievement of objectives linked to their function, including both quantitative performance, and qualitative factors. Portions of the discretionary bonus are paid on a deferred basis over several years. In addition, certain members of senior management, including the portfolio managers, own interests in the Sub-Adviser, and therefore participate in the long-term growth and performance of the firm.

Potential Conflicts of Interest. In addition to the Trust, the Sub-Adviser manages CLOs, separate accounts and private funds, which may follow similar, complementary or competing investment objectives, policies or strategies. Side-by-side management gives rise to a variety of potential and actual conflicts of interest for Octagon and its employees and affiliates, including, as discussed below, the incentive to favor certain accounts with performance-based fees or accounts that generate multiple levels of fees (i.e., when fee earning clients invest in Octagon managed CLOs), accounts with respect to which Octagon receives or retains relatively higher fees, or accounts in which Octagon and its related persons have a pecuniary interest. Octagon and its affiliates, as well as their respective personnel, including persons who serve on Octagon’s investment committees, act as portfolio manager to various clients or are otherwise in a position to influence Octagon’s management, may invest in funds or may take interests in a fund’s general partner and thus participate in the performance fees or “carried interest” paid to the general partner by that fund. Octagon also acts as sub-adviser to its affiliate for certain mandates. Accordingly, Octagon, its affiliate, and their respective personnel, including persons involved in the management of one or more clients, may have differing pecuniary interests with respect to different clients. These persons may have an incentive to favor those clients in which they have greater pecuniary interests, including any CLOs in which Octagon or a majority-owned affiliate is required to hold retention interests pursuant to risk retention regulations.

The Sub-Adviser may have an incentive to allocate investment opportunities based on pecuniary interest. For certain accounts under management, Octagon and its related persons may: (1) be entitled to a performance fee; and (2) directly or indirectly maintain investments in one or more funds or accounts. Octagon and certain of its personnel are also eligible to receive performance-based compensation in their capacity as the investment manager, general partner or managing member of certain clients. Accordingly, Octagon and its personnel face a conflict of interest when considering how to allocate investment opportunities among accounts having different fee structures or pecuniary interests. Through its trade allocation policies and procedures and Code of Ethics, Octagon seeks to promote fair and equitable treatment of accounts, over time, based on considerations that are unrelated to pecuniary interests, which mitigate any actual or potential conflict of interest that may exist with respect to, for example, Octagon’s allocation of time, resources and investment opportunities to the clients that have performance-based compensation arrangements over those clients that: (1) do not have performance-based compensation arrangements or, if applicable, (2) are not expected to pay performance-based compensation (e.g., with respect to a CLO, when a specified internal rate of return has not been, or is not expected to be, achieved).

(a)(4) Dollar Range of Securities Owned as of September 30, 2022

Portfolio Managers	Dollar Range of the Registrant’s Securities Owned by the Portfolio Managers
Andrew Gordon	$10,001-$50,000
Michael Nechamkin	None
Gretchen Lam, CFA	None
Lauren Law, CFA	None

Item 9. Purchases of Equity Securities by Closed-End Management Company and Affiliated Purchasers.

None.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Board of Trustees of the Registrant.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There was no change in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

None.

Item 13. Exhibits.

(a)(1) Registrant’s Code of Ethics for registrant’s principal executive officer and principal financial officer, which is the subject of the disclosure required by Item 2 of Form N-CSR, is attached hereto as Exhibit 13(a)(1) Ex99.Code of Ethics.

(a)(2) The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, are attached hereto as exhibit Ex-99.Cert.

(a)(3) None.

(a)(4) None.

(b) A certification for the Registrant’s Principal Executive Officer and Principal Financial Officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as exhibit Ex-99.906Cert.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

XAI OCTAGON FLOATING RATE & ALTERNATIVE INCOME TERM TRUST

By:	(Signature and Title)	/s/ Theodore J. Brombach
		Theodore J. Brombach
Date:	December 1, 2022	President and Chief Executive Officer
		(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	(Signature and Title)	/s/ Theodore J. Brombach
		Theodore J. Brombach
Date:	December 1, 2022	President and Chief Executive Officer
		(principal executive officer)
By:	(Signature and Title)	/s/ Derek Mullins
		Derek Mullins
Date:	December 1, 2022	Treasurer and Chief Financial Officer
		(principal financial officer)