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 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: March 31, 2025

TABLE OF CONTENTS

XAI Octagon Floating Rate & Alternative Income Trust

SHAREHOLDER LETTER

March 31, 2025 (Unaudited)

Dear Shareholder:

We thank you for your investment in the XAI Octagon Floating Rate & Alternative Income Trust (the “Trust”). This report covers the six months ended March 31, 2025 (the “Period”). During the Period, we observed sustained and moderately elevated levels of inflation. We also observed a 0.50% decrease in base interest rates by the U.S. Federal Reserve (the “Fed”). The Consumer Price Index started the Period at 2.4% and ended the Period flat at 2.4%.¹ Despite continued economic uncertainty surrounding the path of interest rates and inflation, the U.S. economy remained resilient, as evidenced by strong employment and positive Gross Domestic Product (“GDP”) growth.

During the Period, the U.S. added approximately 1.4 million jobs,² as measured by nonfarm payroll figures, while the March 2025 unemployment rate stood at a healthy 4.2%.³ Fourth quarter 2024 real GDP increased 2.4% quarter-over-quarter, while the advanced estimate of first quarter 2025 real GDP decreased 0.3% quarter-over-quarter as of May 7, 2025.⁴ The outcome of the Fed’s monetary policy, its impact on the U.S. economy, and the future path of inflation and employment, should drive subsequent monetary policy action and the level of base interest rates in the U.S. economy. Rate changes continue to be an important consideration with respect to the Trust, as it invests primarily in floating-rate securities including loans, collateralized loan obligation (“CLO”) debt tranches and CLO equity.

Amidst the backdrop of an elevated interest rate environment, the Morningstar LSTA US Leveraged Loan Index (the “Morningstar LLI”) returned 8.70% in 2024— followed by a 0.45% quarterly return in Q1 2025.⁵ Broadly, the strong performance in the loan market in 2024 was driven by elevated reference rates for the majority of the year, a positive economic outlook providing support for credit fundamentals, strong corporate earnings results, and favorable market technicals. The trailing 12-month default rate for the Morningstar LLI increased slightly to 0.82% as of March 31, 2025, from 0.80% as of September 30, 2024.⁶

For the Period, the S&P 500 Index, the Bloomberg US Corporate High Yield Bond Index, and the Trust’s benchmark, the Morningstar LSTA US Leveraged Loan 100 Index, generated total returns of -1.07%, 1.17%, and 2.93%, respectively.⁷

The Trust’s net asset value (“NAV”) decreased during the Period by -8.14% from $6.63 per common share to $6.09 per common share as of March 31, 2025, resulting in a NAV total return (including the reinvestment of distributions) of -1.62%.

During the Period, the Trust declared monthly distributions totaling an aggregated $0.48 per common share. The monthly distribution of $0.077 per common share declared on March 1, 2025, represented an annualized distribution rate of 15.63% based on the Trust’s closing market price of $5.91 per common share on March 31, 2025.

The market price per common share of $5.91 on March 31, 2025, represented a -2.96% discount to the Trust’s NAV of $6.09 per common share. During the Period, the Trust’s common shares traded on average at a 0.69% premium to NAV. From the Trust’s initial public offering on September 27, 2017, through March 31, 2025, the Trust’s common shares have traded on average at a 3.19% premium to NAV.

We continue to seek operational scale by increasing the Trust's common assets. During the Period, the Trust issued an additional 1,848,836 common shares pursuant to an at-the-market (“ATM”) offering program, resulting in $12,634,695 of net proceeds to the Trust. It is important to note that all ATM share sales are executed at a premium to the Trust’s NAV, meaning they are accretive to the Trust’s shareholders. Additionally, $30,000,000 of the Trust’s 6.95% Series I and Series II 2029 Convertible Preferred Shares were converted to common shares in five separate conversions, resulting in the issuance of an additional 4,510,656 common shares.

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

President

XA Investments LLC

May 15, 2025

XAI Octagon Floating Rate & Alternative Income Trust

QUESTIONS & ANSWERS

March 31, 2025 (Unaudited)

XA Investments LLC (“XAI”) serves as the investment adviser to the XAI Octagon Floating Rate & Alternative Income Trust (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.

Lauren B. Law, Senior Portfolio Manager at Octagon and a member of Octagon’s Investment Committee serves as lead portfolio manager of the Trust. Ms. Law 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: Gretchen M. Lam (Chief Executive Officer), Michael B. Nechamkin (Chief Investment Officer and Senior Portfolio Manager), Sean M. Gleason (Portfolio Manager), and Maegan Gallagher (Head of Trading and Capital Markets, Head of Strategic Initiatives).

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. The Trust invests 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. 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 typically use Term Standard Overnight Financing Rate (“SOFR”) as a reference interest rate.

CLOs are a type of structured credit vehicle that typically invests 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 SOFR. 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 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.

Describe the market conditions for leveraged loans during the six months ended March 31, 2025, and Octagon’s outlook.

US leveraged loans returned 2.76% during the six months ended March 31, 2025 (the “Period”), as measured by the Morningstar LSTA US Leveraged Loan Index (the “Morningstar LLI”).¹ Against a favorable fundamental backdrop and amid exceptionally high investor demand, loans produced a 2.27% return in the fourth quarter of 2024, ¹ capping a year of strong performance for the asset class. For the full year 2024, loans posted an 8.95% total return (inclusive of 9.37% of interest return and -0.42% of market value return)—the second highest annual return in eight years,¹ outpacing fixed rate assets including high yield bonds (8.20% 2024 annual return), investment grade bonds (2.76% annual return) and 10-year US Treasury bonds (-1.69% annual return). ²

Heavy CLO supply and retail investor demand alike provided strong technical support for the loan market over the Period. New CLO issuance totaled $59.5 billion in the fourth quarter of 2024, amid record-level loan refinancing activity and continued tightening in CLO liability spreads.³ At $202 billion, full-year 2024 CLO formation exceeded the prior annual record set in 2021 ($187 billion).³ Meanwhile, retail investor demand for loans resumed in 2024 following a sustained period of outflows that began when the US Federal Reserve began raising interest rates in May 2022. Retail loan funds recorded $21.4 billion of net inflows in 2024 (driven largely by loan ETFs), compared to -$17.3 billion of outflows in 2023.⁴ In the context of a higher-for-longer interest rate environment, persistent investor demand, continued loan price appreciation, and a lack of true new issue loan supply (backing mergers, acquisitions and leveraged buyout transactions) drove unprecedented primary activity and spread compression in 2024. For the full year, gross institutional loan volume totaled a record $1.36 trillion.³ Loan repricings and refinancings accounted for a combined 82% of total 2024 supply, as borrowers took advantage of accommodating market conditions to reduce interest expense or extend maturities (or both). Including re-syndicated repricings, nearly $800 billion of institutional term loans were repriced in 2024 (which equates to approximately 60% of all outstanding loans at the start of the year), in turn lowering the borrowing spread by 0.28% (on average). ³

XAI Octagon Floating Rate & Alternative Income Trust

QUESTIONS & ANSWERS

March 31, 2025 (Continued) (Unaudited)

The momentum continued into 2025. Amid record monthly retail loan fund inflows in January, the average bid price for the Morningstar LLI rose to a three-year high and the share of loans trading at par or higher reached 84%, propelling another loan repricing wave during the month. ⁵ Secondary loan prices began to soften in mid-February 2025 as weaker economic data releases, mounting tariff concerns, and a more muted outlook for first quarter earnings introduced market volatility. Loans traded down further in March, as declining consumer confidence and tariff announcements triggered a sharp equity market sell-off. Following monthly returns of 0.69% and 0.11% in January and February, respectively, the Morningstar LLI returned -0.31% in March 2025—the first monthly loss for the asset class since October 2023.¹ All told, loans returned 0.48% in the first quarter of 2025, with the quarter’s gain driven entirely by interest income. ⁵ Loan prices declined sharply in response to President Trump’s Liberation Day tariff announcements on April 2, 2025, though by month-end loans had largely retraced the losses incurred over the first two weeks of April. We actively managed the Trust’s loan portfolio throughout the first quarter and in April 2025 as market conditions shifted and volatility intensified. We focused our trading activity on rotating out of higher rated loans (rated BB) that we considered to be fully valued, and also executed several risk reduction trades.

While retail fund flows reversed course in late February, demand from CLOs (the largest buyers of US leveraged loans) remained steadfast through the end of the first quarter. Gross CLO supply totaled $153 billion in the first quarter of 2025. ⁵ Loan repricing activity waned in February and March 2025 as the share of loans priced above par declined. For comparison, less than $9 billion of loans were repriced in March 2025, versus $39 billion and $138 billion in February and January 2025, respectively. Several deals underwritten at the end of 2024/early 2025 priced in March 2025, propelling M&A-related loan issuance to over $20 billion (representing a 40% month-over-month increase), bringing first quarter 2025 total loan issuance to $52 billion (a three-year high).⁵ The increase in loan supply and decline in visible demand shifted the balance toward investors, resulting in improved investment economics for new loans issued in March 2025. Further, new net supply boosted the size of the US leveraged loan market (as measured by the Morningstar LLI) to a record $1.47 trillion as of March 31, 2025.⁵

Entering 2025, we anticipated flat-to-slightly elevated loan default rates (including debt restricting activity, or “LMEs”) and we have not meaningfully revised our outlook in the wake of the Trump administration’s tariff announcements in early April 2025. The trailing 12-month (“LTM”) conventional default rate (capturing bankruptcies, missed debt payments, etc., excluding LMEs) for the Morningstar LLI was 0.82% as of March 31, 2025 (calculated on a par amount basis), roughly in line with the 0.80% LTM default rate at the start of the Period (as of September 30, 2024). ⁶ Inclusive of conventional/payment defaults and distressed exchanges, the trailing 12-month dual-track default rate for the Morningstar LLI (calculated on an issuer count basis) was 4.31% as of March 31, 2025, which compares to 4.21% as of September 30, 2024. ⁶ We do not anticipate a meaningful increase in defaults for the remainder of 2025, however, we recognize that the loan market may see modestly higher LME volume as borrowers proactively engage with lenders to address unsustainable capital structures and constrained liquidity in response to macroeconomic pressures.

While 4Q 2024 and 1Q 2025 corporate earnings results reported thus far generally reflect a continued growth trajectory, forward guidance indicates an uncertain outlook. The Trump Administration’s recent negotiations with trade partners have deescalated the threat of a trade war; though we currently expect a modest slowdown in earnings growth as the economic consequences of the remaining high tariffs and disrupted business plans materialize over the remainder of 2025, we believe the impacts should be more muted than in a recessionary scenario. Tariff-related pressures are likely to drive increased performance dispersion across sectors and individual borrowers, underscoring the importance of credit selection and active risk management. We will continue to actively scrutinize policy changes that may impact the broader economy or the borrowers in the Trust’s portfolio on a sector-specific or idiosyncratic level. Looking ahead, we expect bouts of market volatility as investors assess the risks and impacts of further tariff negotiations, reactionary fiscal and monetary effects, and other/new policy changes. We believe the Trust is well positioned to capitalize on periods of volatility in risk assets that may present attractive buying opportunities.

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

CLO debt tranches generated healthy returns in the six months ending March 31, 2025 (the “Period”), ranging from 2.69% for AAA rated tranches to 9.96% for B-rated debt, as measured by the J.P. Morgan Collateralized Loan Obligation Index (“CLOIE”).⁷ Performance was especially strong in 4Q 2024, led by mezzanine CLO debt as steady investor demand and expectations of a higher-for-longer rate environment drove outperformance of higher-coupon tranches. CLO debt tranches continued to perform well into January—again led by more junior segments of the capital structure—before broader economic uncertainty spurred volatility across financial markets in the latter half of 1Q 2025. Investment grade CLO tranches held in relatively well amidst volatility in February and March; for the first quarter, returns were broadly in line across AAA, AA, A, and BBB rated tranches with slight underperformance from BB rated debt and outperformance from the small B rated segment of the market. CLO equity faced multiple headwinds in the Period, as loan market spread compression pressured equity distributions, while equity NAVs declined in tandem with loan prices during the late-quarter sell-off.

Record-setting CLO gross issuance of $165B ($59B of net of resets/refinancings) in 4Q 2024 capped the highest volume year in US CLO market history, with $510B of gross issuance comprised of $202B of new issue, $223B of resets, and $84B of refinancings in 2024.⁸ Gross supply stayed apace in 1Q 2025 as another $153B of CLOs were issued in the quarter ($49B of new issue, $64B of resets, $41B of refinancings).⁸ By contrast, net new supply was muted in the Period as CLOs beyond their reinvestment period amortized outstanding tranches and net growth of AAA debt outstanding was negative in the Period.⁹ Elevated reset & refinancing volumes for much of the Period, fueled by robust demand for CLO securities, drove meaningful interest rate spread compression across the CLO market before spreads drifted wider amidst broader volatility in March; top-tier managers priced AAA CLO tranches at a historically tight level of SOFR plus 1.27% on average in 4Q 2024, and AAA tranches tightened further to an average of SOFR plus 1.14% in 1Q 2025.^10,11 The weighted average cost of liabilities across the capital stack for broadly-syndicated loan (“BSL”) (i.e., large, publicly offered loans) CLOs priced in 1Q 2025 reached SOFR plus 1.54%, approximately 0.50% lower than in 1Q 2024.¹⁰ Refinancings and resets of CLOs held by the Trust are generally accretive to the Trust; not only do CLO refinancings and resets help to offset the impact of loan repricings and spread compression, CLO resets can also provide an opportunity to improve collateral portfolio quality (in some instances, before pricing a reset, a CLO manager will sell higher priced CCC loans in an effort to reduce portfolio risk, as capital injections from CLO equity holders provide cash to rebuild par loss). Furthermore, CLO resets extend the weighted average reinvestment period of the underlying CLO equity positions in the Trust’s portfolio.

XAI Octagon Floating Rate & Alternative Income Trust

QUESTIONS & ANSWERS

March 31, 2025 (Continued) (Unaudited)

Volatility in late March and early April slowed the pace of CLO issuance and paused reset and refinancing activity as spreads widened and led some market strategists to revise their fiscal year 2025 forecasts. For example, in early April, J.P. Morgan revised their fiscal year 2025 new CLO issuance projection downward from $180B to $150B, and their projection for year-end CLO AAA spread levels to SOFR plus 1.50% from SOFR plus 1.20%.¹² Markets have firmed in recent weeks, however, as loan prices have stabilized and interest rate spreads have begun to tighten in May 2025. Indicative of the ever-changing economic sentiment, J.P. Morgan re-revised their forecast for year-end 2025 CLO AAA spread levels to SOFR plus 1.40% in May 2025.¹³ While we expect market participants to proceed cautiously given the uncertain outlook, the recent stabilization in loan prices and CLO liabilities may encourage a rebound in supply and we believe that demand for CLO debt and equity remains generally healthy.

The rapid growth of CLO exchange-traded funds (“ETFs”) persisted in the Period and demand from retail channels continues to supplement demand from traditional institutional CLO buyers (i.e., US and Japanese banks, insurance companies, etc.). Aggregate assets under management of CLO ETFs reached $30B as of March 31, 2025, nearly double its measure at September 30, 2024 ($16B).¹¹ Investor appetite for high quality floating-rate investments generated $13B of inflows to AAA-A CLO debt-focused ETFs in the Period and $1B of inflows to mezzanine CLO debt focused ETFs.¹¹ Robust flows were dampened slightly by macro volatility- driven redemptions from mezzanine CLO debt ETFs in March (-$435mm); outflows continued into April, with -$1B redeemed from AAA-A CLO ETFs and -$536mm from mezzanine CLO debt ETFs.¹¹ Importantly, secondary market liquidity held steady amidst March volatility, with 45% of the quarter’s $16B in US CLO bid request volume occurring in March.¹¹ We expect secondary CLO trading volumes to remain elevated given increased market volatility, particularly at the top of the capital structure as CLO ETFs manage flows. Given the experience during March and April, we continue to view the ETF wrapper as a sub-optimal structure for mezzanine CLO debt and equity.

CLO fundamentals remained relatively stable in the period despite persistent ratings agency downgrade activity and emergent volatility within collateral portfolios. Among reinvesting US BSL CLOs, the median S&P CCC allocation declined from 5.4% as of September 30, 2024 to 4.5% as of March 31, 2025, reflecting managers’ efforts to reduce outsized risk allocations via reset transactions, as referenced above.¹¹ The median junior overcollateralization test cushion improved marginally from 4.6% to 4.7% over the same period.¹¹ Tail risks exist throughout the loan market at both the macro level (policy risk, geopolitical conflict) and on a borrower-by-borrower basis, evidenced by the steady volume of liability management transactions in the loan market. We believe that collateral managers should be acutely focused on managing downside risk in the current environment and should endeavor to capitalize upon volatility-driven opportunities to improve CLO metrics.

Sustained spread compression in the loan market continued to act as a headwind for CLO equity distributions in the Period. The median equity distribution for reinvesting CLOs steadily declined from 4.0% in July 2024 to 3.7% in October 2024 and 3.4% in January 2025.¹⁴ A preliminary analysis published by Bank of America estimates a median equity distribution of 3.2% in April 2025 for reinvesting deals.¹⁵ Tighter loan interest rate spreads remain a drag on CLO equity distributions, though the heightened reset/refinancing activity of CLO liabilities has served to offset a portion of collateral portfolios’ reduced coupon income. While declining rates may weigh on quarterly equity payments, improved credit fundamentals and tighter CLO liability costs should support optionality value for CLO equity. We hold a generally favorable view of CLO equity and CLO debt tranches, which we believe will continue to offer high yields given widening spreads and will provide a positive convexity opportunity in the near-term.

How did the Trust perform for the period?

During the Period, the Trust’s total return based on market price was -6.77% and total return based on net asset value (“NAV”) was -1.69%. NAV return is net 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 March 31, 2025, the Trust’s market price of $5.91 represented a discount of 2.96% to its NAV of $6.09. The market value of the Trust’s common 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?

During the Period, the Trust paid its monthly distribution of $0.085 per share on October 1, November 1, and December 2. The Trust paid a distribution of $0.077 on December 30, February 3, and March 3. The Trust’s distribution of $0.077 per share declared on March 3, 2025 represented an annualized distribution rate of 15.63% based on the Trust’s closing market price of $5.91 per common share on March 31, 2025. The Trust’s distribution rate is not constant, and the amount of distributions, when and if 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 over the Period?

The Trust generated positive returns across its performing loan, CLO debt, and performing high yield bond portfolio segments during the Period. Performing loans represented the largest contributor to performance, with a net gain of $0.15 per share for the Period, followed by the Trust’s CLO debt investments, which produced a net gain of $0.06 per share. The Trust’s CLO equity segment experienced a net loss of approximately ($0.04) per share for the period; the Trust’s CLO equity positions collected quarterly distribution payments totaling $36,613,907, or $0.50 per share, during the Period, which were offset by market value losses of $21,241,888, or ($0.29) per share. It bears noting that CLO equity pricing can be volatile.

Relevant indices for the markets in which the Trust invests include the Trust’s benchmark, the Morningstar LSTA US Leveraged Loan 100 Index, which returned 2.93% for the Period, the Bloomberg US Corporate High Yield Index, which returned 1.17% for the Period, and the J.P. Morgan BB/B CLO Debt Index, which returned 5.37% for the Period. There is no representative benchmark index for CLO equity in the marketplace.

XAI Octagon Floating Rate & Alternative Income Trust

QUESTIONS & ANSWERS

March 31, 2025 (Continued) (Unaudited)

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

During the Period, the Trust issued 1,848,836 common shares pursuant to an at-the-market (“ATM”) offering program resulting in $12,634,695 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 increasing 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 per common share. 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 objective.

The Trust issues common shares pursuant to the ATM program only if the common shares are trading at a sufficient premium such that the issuance price, less the placement fee, exceeds the Trust’s NAV per common share. For the Period, the Trust’s common shares traded at an average 0.69% premium to NAV and had an average daily trading volume of 642,821 common shares. ATM program daily issuance totals depend on the common shares’ average daily trading volume and market price’s relative premium or discount to NAV.

In addition to the ATM program, $30,000,000 of the Trust’s 6.95% Series 2029 Series I and Series II Convertible Preferred Shares were converted to common shares in five separate conversions resulting in the issuance of an additional 1,848,836 common shares.

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. Given the average cost of leverage during the Period of 6.22%, the leverage employed 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 preferred shares outstanding. As of March 31, 2025, the amount of outstanding borrowings under the facility was $227,000,000, which represented approximately 29.96% of the Trust’s Managed Assets (including the proceeds from borrowing). As of March 31, 2025, the purchasers of the 6.95% Series 2029 Convertible Preferred Shares and 6.95% Series II 2029 Convertible Preferred Shares represented an aggregate liquidation preference of $35,000,000. The Trust also had 6.50% Series 2026 Preferred Shares outstanding with a total liquidation preference of $39,900,000. Total leverage was $296,900,000 as of March 31, 2025, representing 39.18% of the Trust’s Managed Assets.

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. 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 its 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 is actively managed and 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. Past performance is not a predictor of future market performance. It is not possible to invest directly in an index.

The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded.

The 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 LLI is 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 PitchBook Leveraged Commentary & Data (“PitchBook LCD”), a Morningstar Company. Loan facilities included in the Morningstar LLI must have a one year (at inception) minimum term, an initial minimum spread of LIBOR/SOFR +1.25%, and a minimum size of $50mm (initially funded). 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. Please note, the performance information presented herein for the Morningstar LLI reflects restated returns for the period June 25, 2022 – February 27, 2023, pursuant to a recent notification issued by PitchBook LCD that a technical error had occurred in the calculation of accrued interest for certain securities dating back to June 25, 2022. Consequently, previous communications reflected overstated returns.

The Morningstar LSTA US Leveraged Loan 100 Index (the “Morningstar 100”) 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%. Loan facilities included in the Morningstar 100 must have a one year (at inception) minimum term, an initial minimum spread of LIBOR/SOFR + 1.25%, and a minimum size of $50mm (initially funded). 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. Please note, the performance information presented herein for the Morningstar 100 reflects restated returns for the period June 25, 2022 – February 27, 2023, pursuant to a recent notification issued by PitchBook LCD that a technical error had occurred in the calculation of accrued interest for certain securities dating back to June 25, 2022. Consequently, previous communications reflected overstated returns.

XAI Octagon Floating Rate & Alternative Income Trust

QUESTIONS & ANSWERS

March 31, 2025 (Continued) (Unaudited)

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

There is no guarantee the Trust’s investment objective will be achieved. Exchange-listed closed-end fund shares may frequently trade at a discount or premium to their NAV. 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 quality debt securities may be 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 updated 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.

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.

Paralel Distributors LLC is the distributor for the at-the-market offering of the fund. Paralel is not affiliated with XA Investments LLC or Octagon Credit Investors LLC.

XAI Octagon Floating Rate & Alternative Income Trust

TRUST PORTFOLIO INFORMATION

March 31, 2025 (Unaudited)

Growth of a $10,000 Investment (as of March 31, 2025)

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 March 31, 2025)

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.

XAI Octagon Floating Rate & Alternative Income Trust

TRUST PORTFOLIO INFORMATION

March 31, 2025 (Continued) (Unaudited)

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

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)

See Notes to Financial Statements.

XAI Octagon Floating Rate & Alternative Income Trust

SCHEDULE OF INVESTMENTS

March 31, 2025 (Continued) (Unaudited)