anxiously looking for sufficient military power to enable them to re-establish civil government. That period appears now at hand. By the occupation of that State the chief avenue of the rebels for foreign commerce and foreign aid is cut off.
In the East the position of military affairs has not undergone material change. In June the long-cherished design of the rebel leaders to transfer the seat of war from their own territory to the loyal States was undertaken by their favority commander and their principal army. But the defeat of General Lee by the forces under command of General Meade at Gettysburg destroyed their expectations and drove back the enemy to his accustomed shelter in the mountains of Virginia. The armies of General Meade and General Lee now occupy, relatively, nearly the same position as at the date of my last annual report. The numerous combats and engagements, between detachments of these armies have been attended with perhaps equal loss on both sides, and without any material advantage to either.
Western Virginia is reported by the commander of that department to be now clear of any rebel force, and the people of that newly organized State are enjoying in comparative peace, the blessing of civil government.
The military operations in the Northwest Department have routed, and, in great measure, destroyed the hostile Indians, and afford protection to the people in that region from Indian barbarities. In the Department of Missouri the rebel forces have been driven beyond the Arkansas line.
No military operations of any magnitude have taken place in the Departments of Virginia and North Carolina. A threatened siege of Norfolk and Suffolk by the rebel General Longstreet was thwarted by the vigilant energy of General Dix, and a siege of Washington, in North Carolina, by the rebel General Hill proved abortive.
The Federal force is now firmly planted in every rebel State; and there is reason to hope that under its protection the loyal people of those States will soon cast off the yoke of their leaders and seek within the Union that peace and security for life, liberty, and property which, in blind madness, were recklessly thrown away.
The success of our arms during the last year has enabled the Department to make a reduction of over $200,000,000 in the war estimates for the ensuing fiscal year.
In the operateen alluded to, prisoners of war to the number of about 13,000 have fallen into the hands of the enemy and are now held by them. From the commencement of the rebellion until the War Department, came into my charge there was no cartel or formal exchange of prisoners; but at an early period afterward a just and reasonable cartel was made between Major- General Dix and the rebel General Hill, which, until recently, was faithfully, acted upon by both parties. Exchanges under that cartel are now stopped, mainly for the following reasons:
First. At Vicksburg over 30,000 rebel prisoners fell into our hands and over 5,000 more at Port Hudson. These prisoners were parolers and suffered to return to their homes until exchanged pursuant to the terms of the cartel. But the rebel agent, in violation of the cartel, declared the Vicksburg prisoners exchanged and, without being exchanged the, Port Hudson prisoners he without just cause, and in open violation of the cartel, declared released from their parole. These prisoners were returned to their ranks and a portion of them were found fighting at Chattanooga and again captured. For this breach