XFLT XAI Octagon Floating Rate & Alternative Income Trust

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Trustees of

XAI Octagon Floating Rate & Alternative Income Term Trust

 

In planning and performing our audit of the financial statements of XAI Octagon Floating Rate & Alternative Income Term Trust (the “Fund”) as of and for the year ended September 30, 2023, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), we considered the Fund’s internal control over financial reporting, including controls over safeguarding securities, as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-CEN, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

 

The management of the Fund is responsible for establishing and maintaining effective internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. A fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP). A fund’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the fund; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the fund are being made only in accordance with authorizations of management and trustees of the fund; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a fund’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Fund’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Our consideration of the Fund’s internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily disclose all deficiencies in internal control that might be material weaknesses under standards established by the PCAOB. However, we noted no deficiencies in the Fund’s internal control over financial reporting and its operation, including controls over safeguarding securities, that we consider to be a material weakness as defined above as of September 30, 2023.

 

This report is intended solely for the information and use of management and the Board of Trustees of the Fund and the Securities and Exchange Commission and is not intended to be and should not be used by anyone other than these specified parties.

 

 

COHEN & COMPANY, LTD.

Cleveland, Ohio

November 27, 2023

 

 

 

 

XAI Octagon Floating Rate & Alternative Income Term Trust (NYSE: XFLT) (the “Trust”) entered into an Amendment dated February 23, 2032 (the “Amendment”) between the Trust, Eagle Point Credit Management LLC and the purchasers named therein (the “Purchasers”) to the Purchase Agreement between the Trust and the Purchasers dated June 28, 2022 (the “Convertible Preferred Shares Purchase Agreement”), in connection with the issuance and sale of 400,000 shares of the Trust’s 6.00% Series 2029 Convertible Preferred Shares, liquidation preference of $25.00 (the “Convertible Preferred Shares”).

 

The Amendment extended the date by which the Trust may sell to the Purchasers the all of the Convertible Preferred Shares from June 30, 2023 to December 31, 2023. The Amendment also amended the amount the Trust would pay to the Purchasers in the event the Trust does not elect to sell to the Purchasers all of the Convertible Preferred Shares from an amount equal to $0.50 per unissued Convertible Preferred Share to an amount equal to $0.75 per unissued Convertible Preferred Share. The Amendment updated the limitation on sale of common shares such that the Purchasers have agreed not to sell in any day, the greater of (i) 20% of the average daily trading volume of the Common Shares over the twenty (20) Trading Days immediate preceding such day and (ii) 20% of the current Trading Day’s trading volume of the Common Shares.

 

The foregoing description of the Convertible Preferred Shares does not purport to be complete and is qualified in its entirety by reference to the full text of the Statement of Preferences of Convertible Preferred Shares.

 

 

---