THE NAYY. KEPOST OP SECRETARY WEUES, Hai't Department, Dec. s, 1861. Sis : Xa «obni!ttag the animal report of the transac tions of Ibis Department and of tbe navy, with those of tbe several bnreane for tbe year, It affords mo ptoiaare to ass-ore you that the condition of affairs is satisfactory, and that the discipline and efficiency of tbs service con tinner to be faJthfnUy maintained. Altar many years of peace and comparative inactivity, tbe officers and sailors of onr navy wore suddenly called to tbe performance of extraordinary and exacting dunes, and during nearer fgnr years of exhausting civil war JbeThave manifested their attachment to the Union.and tbetr fidelitj totbc national flax by riaidiy enforcing a inaantic Woohade of our coatt. dv vieiuntly pwrolhng the great national • livers of the interior, and by a succession, of wean and colStwie© elneS«on?t achievements which have not only added^fffourn&v* l renown but greatly promoted -our national integrity and strength. ■When the change of. Administration took place m March#lS6l, the war had already been virtually began— Sefork and arsenals, and custom houseß. aad mints. Sad navy yards, and national property within the rebel States had been seised without resistance. The retiring Administration manifested its inability to assert the national authority, and its disinclination to vindicate the national supremacy, anu closed its term, and that or the Thirty* sixth Conarees, without ■ any preparatory measures for the tremendous convulsion which was even tbes shaking the Union to its centre and threaten ing our existence as a nation. .... Ci six weeks after I had eatered upon the administra tion of this Department, a blockade, extending over more than three thom and five hundred miles ol our coast, was ordered; and jot this stupendous work, pro nounced to bo impracticable by the highest for&Jgoatt tboriliss, we bad a feeble navy, reduced to the .lowest peace establishment, composed largriyofsatiing ves sels, moat of which were dismantled .ofr dispersed Abroad. Of the limited number of seamen j by law. oniv about two hundred were all UxSInSW& and recsivmjship, Manyof the officers became demorflized and deserted. In this en feebled condition, without men, or ships, or resources placed at 1U disposal, the Department was called upon to establish and enforce the most extensive blockade that was ever undertaken to be efieotaaily maintained by any nation. , , . _ *To make available evtrynaval vessel* to ieM,U our foreign gquadronMo increase our force by bttildmgnew vessels, and by procuring for naval purposes, from the mere l ant service, ovary steamer which could bemade a fighting vessel, to enlarge as cnee the capacity of the navy yards, to put in requisition the foundries and workshops of the country for supplies of ordnance and ■team machinery, to augment the number of seamen, and to supply the deficiency of officers by selecting ex perienced and able shipmasters and others from the commercial marine, were among the Important and re sponsible duties which were precipitated upon the De partment at that exciting and interesting period. , The measures prompsly and energetically adopted caused an immense navy to spring into existence-not *o carry on a maritime war, for the rebels had no navy to stimulate onr sailors to glorious deeds.nor commerce to reward their activity; batmen, and boast, naval expeditious were organized at the earliest possible period to assert and restore the naiioualan thority at important'pointa within the insurrectionary ration. The first of these expeditions was organized and sailed from Ss mpton Roads in August, under the command of Rear Admiral sfcringhftex, and resulted in the capture of fiatteras, and waa the first re*conquest of a strong position winch was effected on our coast. TyfiwasfcCowedafew tresis later bythe victory of Bear Admiml DuPont at, Fort Royalv winch secured a comnodiousharbor for •he ships ofthe South Atlantic fiquadrott.f 'DhAAehieyeinents on the lower Mississippi, where EeduAdmiral F&i .agut dashed open xtne gates of the passage to New Orleans* and restored to the union iherbmnftrci&i metropolis of ite South, pllsheume following spring. Those three important expediiicus, comprising, in each ease, a larger fleet than had ever been fitted out on this continent, and two of them seldom euTpaesad in naval annals, were planned, organized, and carried into execution, in the first year of the war, in addition to an immense block ade. which was at the B&iua time so vigilantly and rigorously enforced that the rebels even then felt and complained of its exhausting severity. Other harbors and places have from time to time been seized and oc cupied—the last being the bay of Mobile, and the fortifi cations at its entiance, effected by the same distin guished officer who had thrown open the lower Missis sippi to uninterrupted navigation two years before. Bor have the prowess and skill of our navy in this un happy contest, involving the integrity of the Union and onr national supremacy, been felt upon the seaboard alone. On our fnlan d waters, at Fort Henry, at Done!- son, at Shiloh, at Island Ho. 10, at Memphis, at Arkan sas Poet, at Yicfcsburs, at Port Hudson, and at almost every important place on tbe Mississippi, the Cumber land, the Tennessee, and other rivers or the Southwest, the navy has been active in re-establishing the na tional authority, A fleet of more than one hundred vessel? has bean put afloat on those waters, and moat of them are now patrolling, thoae rivers in the national pause, It has been the policy of this Department, rigidly ad hered to under all circumstances, and from which it has not allowed Use f to be diverted, never to permit the efficiency of the blockade to be impaired during these domestic troubles. Hence no large squadrons have been maintained on foreign stations, uruiaersand men of-war have been, sent out or ordered to important points to protect American interests, and capture or de stroy the few predatory rovers which from time to time have ventured abroad to depredate on our commerce. THE DI.OCKADB, The blockade of a coastline oftkree thousand fire hundred and forty-nine miles in length, greater in ex tent than the whole coast of Europe from Cape Trafal gar to Cape North, is an undertaking without precedent in history. During onr lait war with Great Britain, When that Power had eight hundred naval vessels in commission, not a single port of the United States was thoroughly dosed. The most serious attempts of the great maritime Powers have consisted in endeavors to Interdict trade at a few of the principal ports of a belli gerent. Immediately after closing the ports of the States in rebellion, and givingthat act the character of a blockade* the efforts of this Department were directed towards securing several harbors at comparatively equidistant points, aa bases of operations for the several jsquadrons, where our naval vessels could receive their supplies, and maintain themselves at their stations ana on their cruising ground, without return ing to northern ports for repairs and refit ments. To have done this would not only have en dangered the efficiency, but in some instances might have involved an abandonment of the blockade. To this end there were set on foot various coast expeditions, Which have resulted in our taking possession of or dossing all the ports excepting "Wilmington. From various causes, Cape Fear river is more difficult to blockade than any port on the coast of the United States. The two main entrances are forty miles apart, and these., two are subdivided into several others, each of which Affords an entrance to vessels. The water shoals gradu ally and regularly to the shore*line, and numerous iso* lated batteries are erected along the coast, so that a Blockade* runner of light draught is not under the ne cessity of making directly for tbe entrance, but can. by the lead, iun close under the land protected by the bat teries, and psss in over the bar at leisure. When coming out, a steamer will se.eot her own time, thus securing every advantage, and she can pass either up°tor down the coast before making an ofliing, or she may proceed straight out to sea, trusting for her escape to the night and favoring darkness and mists, and the fact that she is under full speed, whilst the steamers blockading jnußi have low steam. Almost every vessel employed in violating the block ade has been constructed in England with great skill, regard-ess of cost, and with sole reference to engaging in this illicit trade, the profits of which are almost as remunerative as those attending the slave trade, a kin dred traffic, that all Christendom discountenances, and the most powerful maritime nations have combined in measure bus a fraction brtfif blockade. The cupidity of English merchants, aided by iheir vast resources, together with the advantages derived from those triangular depots of blockade-run ners and of rebel supplies—the ports of Halifax, Ber muda, and Nassau—poriß which will always he in sym pathy with the enemies ol this country—has induced them to engage in this trade. The illicit traffic with the rebels, who are making war upon our Government, belongs to that code of commercial morals which projuptidthe smuggling of opium into China, and the rule of those who engage in it is to trade, tegallv or Illegally. If it be illegal, it is the business of the Chi nese and Americans, not of Englishmen, to prevent it. Many who have failed to make themselves acquainted With the facts connected with rite Wilmington blockade have been free and severe in their censures of the man ner in which it has been conducted. The intelligent officers of the naval aud merchant service, who have labored with untiring Zealand assiduity, and watched with eleeplesß vigilance through weary months of win ter and summer, aud in all weathers, stimulated by the hope of benefiting their country and receiving its thanks, as well as by every inducement to fame and pecuniary reward, if do not concur in the •opinion that the port oi' Wilmington, can be entirely closed by blockade. Convinced, as this Department always has been, that it is necessary to lake nvesession of the entrances, so as to permit out armed vessels of light draught to go in aide, no opportunity has been omitted to impress the necessity or joint naval and military operations for that purpose. The navy has been at all times ready to per form Us part in tuch an expedition; but the army has not yet beeu ahe to unite in a conjoint movement. Heither branch of the service eaaexpem to be success ful in an attack upon this position independent of the •other. Were there deep water at Wilmington, as at Hew Orleans, Mobile, and Port Royal, either of those operations could have been repeated at that point, hut by reason of the shoalnexs of the water, an exclusively naval epezation cannot be relied upon to be successful. WESTIA7 GULP SQUADRQX. An object earnestly cherished by the navy, but which had been delayed for army co-operation, was the pos session of the bay of Mobile. In anticipation that tfrig would receive early attention, Bear Admiral Farragut rejoined his squadron in January,but the operation was , still farther postponed for military demonstrations in-' Texas and on Bed river. .Commodore Belli who had been left in charge, ac tively cooperated with the army In its movements for the occupation of cei tain points in Texas, The possession and occupation of Brownsville, briefly mentioned in my la%t report, was followed by a like movement at Brazos, .Aransas* and Gabolio passes, in all of which the laval forces detailed by Commodore Beil, and placed under command of Commander J, H. strong, afforded all required assistance. Prior to the occupation of the left bank of the Rio Grande, the month of that river had been made the rendezvous of vessels of various nationalities engaged In violating, indirectly, the blockade; the demoralized condition of Mexico, and the mutual rights o! the two countries on the river and at its entrance, affording un usual facilities to the illicit traders. Commander Strong reported some sixty vessels anchored in the Mexican waters of the Bio Grande, carrying on an extensive trade, chiefly in cotton, with the rebels through Mata xneros, which had thus suddenly become a great com mercial mart. This traffic, which had been prosecuted With success, in consequence of our inability, under treaty stipulations, to completely blockade tne Bio Grande, was effectually stopped by the occupation of Brownsville, which was followed by the President** proclamation of February 18,1864, relaxing, condition ally* the blockade of that port. But this possession of the several porta of Texas was deration. After & few months 1 occupation the lailitaiy forces were withdrawn,and the duty* of guard ing that extensive coast was thus again devolved ex clusively upon the navy. Under orders of August 18th. to Rear Admiral Farragot, the blockade was resumed t>n the 9th of September, at d has been since maintained. The bay of Mobile, guarded & t its entrance by two im posing fortifications, constructed by the Federal Go vernment in former years, was difficult to blockade, and was one of the principal ports for illicit trade with the rebels* It had been the steady purpose of this de partment to get possession of that bay as soon as opera tions on the Mississippi would permit the detachment of a sufficient co operating military force for the expedi tion. But repeated co-operative movements having flue purpose in view were commenced, and then aban- Spned for army operations elsewhere. In the mean-. the rebels, availing themselves of this delay and of the advantages of this position, proceeded to the col lection and construction of a formidable navy, with a yiew of raising the blockade. The information received was of such a character that the Department deemed it important that Rear Admiral Farragat should resume Ms command, which he did, and on the 18th of January arrived off Mobile. It was no part of the plans or intentions of that officer or of the Department to await thel.offenalve movements of the yebel commander. To attack, not to defend, was his policy; and it was with some impatience that he await ed the means to justify him In putting that policy into successful operation. Knowing the disadvantage of at tacking iron-cased vessels with wooden ones, and that, *2?A. la r 1 * aud underthe guns of heavy fortresses JtitiKNU a co-operating Una force, he deferred the nece seary elements of success could jeacn nim. But in the meantime he stood evsr ready ■■jfSjLy®** ol ® strength with the iron-clad should it venture to come out Thus he constantly threatened an attack on Mobile, thereby B * neral movements elsewhere. 2P*2E?SX?^i W f 1 8 S* eor i* ia the early part of August, and two iron* ciads from James river, and two from the Missiseippi haying reached him. Bear Admiral f«r5 fc tlie of the fitiTof August, got his fleet under way and entered Mobile bay, passing between Forts Morgan and Gaines. Bi lenoing their guns to he PMsed. he encountered the re bel iquadron, which by 10 o’clock was dispersed, rap tured, or destroyed. This engagement. f a many re spects one of the most remarkable on record,and which added new lustre even to the renown of Bear Admiral Farragut,.was not without serious losson the part of his fleet. The most serious of these was the destruc tion of the iron dad Tecumseh, one of his most formi dable vessels, by a torpedo, early in the action,and the loss of her gallant commander, T. A. M. Graven, and jpearly all of her brave officers and crew. It was from «he Tecumseh that the first shot was fired at Fort Mor- SEHI ®*b total casualties, not Including those of the 2*2®SS?h t were fifty-twokilied, and one hundred and *vyenty wounded. XfaffiXJS? ca Pti»re of Having surrendered, ha cannot relieve himsilf of bis obligations as & prisoner of war until ho shall be regu larly exchanged. He, and cadi of his surviving officers and *rew, whether received upon the Keartaiße or the Deerhound, are. and will be, held to be prisoners of war and amenable to the laws which govern civilized communities. A predatory rover may sot the Jaws of nations, as well as thoaeof Mb osm country, atdeflance, but in doing so he mnft abide the eoaaeqacneo&r - The Florida originaUr sailed from England’ander the name of Oreio, and under that name she roach* ing Kassau, brought before the court through-fho efforts of the American consul, who was satisfied that she was in the rebel interest and intended as a rob&i-cruiser. The neutral authorities decided in favor of the vessel, Which, was pernutttd to proceed. Leaving Tfassau she •MSy* ?reen Cay, where she recPiveTonfboard the ftnrmment sent out for her from England! ran into Mobile,-changed her name to Florida, aharnhs since, fleeing from all naval vessels, carried on predatory war on American commerce, eapturteg: and destroyingxun armed merchantmen, without ever sending la a vessel for adjudication. In February last, availing herself ©f a dark night, she escaped from Brest* eluding the Kearearge, which was off that port. In Tune she visited the neutralport of St. George’s, and remained there nine day e, re ceiving jul the coal and euppliea necessary for a long piratical cruise. Leaving St/Georgeteonthe 27th of that month, she remained outside, bhfr in sight, for three or four days, boarding.all vessel* that approached the island, cm the 10th of : July she captured»the Elec tric hpark, near our coast; While several vessels were craietnrfor her, eecsped. and was next, heard from at Toneriffe, August. Subsequently, entering the bay of San Salvador, Brazil, sbe ; encoun- the steamer Wachusefct, commanded by Com mander Collins* to Whom she'surrendered*, and by whom she was brought in a leaky and dilapidated' con dition to Hampton Beads. Here, White.ut anchor, an army transport came in collision with the shattered vessel, which sunk a few days after near the wreck oL theuumbeiland. ~~ ...•*»!. , The Georgia, another Engltsb-bullt navaTvesiel which ernised under the rebel flag, -MMlred to Cher bourg in February, and thence proceededtethe Mersey, where she changed owners. Her Armament was re moved from her, and she left Liverpool for Lisboa. On the 16th of Angust Commodore T. T. Craven* *of the Niagara. fell in with her in latitude 39 deg. £6 min? north, longitude 9 deg. 3D min. west, sailing under the English flag. CommodoreSCraven took possession of the vessels® a lawful prize, and potting a prize crew on board of bsr, he sent her to the United States. / The Tallahassee, an English- built blockade-runner from Liverpool, which port she left in the early part of the spring under the name of the Atlanta, wae-engaged in. violating the blockade, rtxaning between Bermuda and Wilmington. lam not aware that any valid trans fer of ownership of this vessel has overtaken place, bat am inouced to believe she is now* 1 while depreda ting on our commerce, registered a? a British vessel in the custom house at Liverpool Whatever may be the fact in that particular, this English-built neutral ves sel, which had been previously engaged in. the unneu tral employment of carrying supplies to the rebels who are waging war upouour Government, came out of Wil mington early in August armed, officered, and manned for predatory warfare, anebunder the command of J. T. Wood* formerly of our navy, commenced the piratical work of destroying peaceful merchant ships; robbing them of money andother valuables, asdjetainiugas tro phies of his heroism the stolen chronometers/ Informa tion of the operations of this vessel reac&edth* Depart ment on the 12th of August,-and orders vntye immedi ately sent for all the available vessels withixrconvenient distance to start at once iu pursuit. Several vesselspro ceeded to sea that evening, and within forty-eight hours sixteen vessels from New York, Boston, Philadelphia, Newport* and Hampton. Beads were in search of her. But she reached Halifax in safety. Instead' of remain ing there nine days, getting supplies, as did the Florida at Bermuda, the authorities would permithor to receive only a limited quantity of coals.and she was therefore but a short time in that port. The Fontoosuc arrived in pursuit of her a few hours after her departure. She was, at last accounts; in Wilmington. THE NAVAI FORCE. The subjoined statements present a general exhibit of the navy, including vessels under construction on the Ist of December, 1864* with a comparative statement of the navy in December, ISB3 and 1864. • r a tabular statement is appended of the number of naval v« ssels, of every class, that have been constructed, or are iu the course of construction, since March*, 1861: GENERAL EXHIBIT OF THE SAVY, INCLUDING VESSELS UK DEB CONSTRUCTION, DECEMBER, 1864. :le*oripaoa. 113 Screwsteamersespecialy.constrtefe- ' x .*. ed for naval purposes.. i 1,438 10y,231 62 Paddle-wheel steamers especially * • constructed for naval purposes.. 6M 61,878 71 Iron-clad vessels...*... ■ 276 80,693 149 Screw steamers purchasedjcaptut- . . ed, &c.; fitted for naval pur- , , - „ p05e5...'60,380 174 Fad£ le*wheel steamers purchased. captured, &c. , fitted for nava\ . • 921 79,“52 m Sailng vessels of aH - 4,1 Sait water during peace. Heady access to timber ig also important, for these es be always available on the !u - exposure to an enemy by coast 3L«? f ,P o:rta *ion..The vicinity of a large city where fiflSoimS 8 * 1 !? can be obtained w ithonf difficulty, and. ice faculties of markets and tenements are abundant, ««^ Blder p A foundation of gravel would, a« wPfifposes of machinery, be preferablO-to stone. m “ Bt fteo be secured. For such a depot and establishment, where costly machine ry and- material would accumulate during year® of location are moat manifest These favorable conditions are to be obtained nowhere etoe so completely as on tbe Delaware river: and the position of League Island, witbin the limits iof the city of Philadelphia, presents probably a stronger combination of the points that are necessary than any other location. It to to beregretted that competition for supposed local benefit® ehouid interfere with, retard, and perhaps en tirely defm the Government intis efforts to secure *o important a national establishment. If In such a con lUct for sectional favor the country should lore forever the best situation for such a navy yard and establish ment, the result would be always deplored. The De partment has studiously avoided the controversy which has arisen in consequence of the efforts to secure a navy yard at New London, which is foreign te the question or enlarging or substituting a more commodious es tablishment at Philadelphia. A multiplicity of small yards, simiU r in character, crowded into one section of the country, was not the object or purpose of the De partmeat lathe suggestions and recommendations which It has from time to time urged upon Congress. There are already three navy yards east of the Hudson, and should CoEkress deem it advisable to add another to that section or elsewhere, it to to be hoped that each de termination will not interfere with or prevent the Go vernment from harißg a proper establishment for the construction of iron vessels, iron armor, and iron work of every description for naval purposes in the immedi ate vicinity of the iron and coal region of the more cen tral portions of the Union* Such an establishment as the Department has advised oh tbe Da!aware would not add to the number of yards,-but woold be a mere substitution, without one dollar’s expense to the Go vernment for land, of the more commodious and exten sive grounds and water front of League Island, in place of the present limited and restricted sice at Philadel phia* which is wholly inadequate and insufficient for the purposes of a yard for even wooden ships. Among the reasons whichimpelme agatu to introduce this subject and earnestly press it upon the immediate attention of Congress, to the fact that the great Penn- Bjdvania Central Bail road has moved with a view of obtaining a portion of the least valuable part of League island for a depot. The objections urged against that position for a navy yard, with its workshops* have no weight with this company, which requires shoos and heavy work, and knows its own interest. Unless, therefore* this free gift of over six hundred acres of land, with a water front of twenty three feet depth ex tending for more than two miles, within the limits of Philadelphia, should be accepted daring the present session of Congress, it will probably pass info private hands, and the most desirable and available position in this country for such a yard will be diverted to other purposes, and lost forever to the Government As a measure of ordinary prudence it is most earnestly re commended that tbe offer of League Island be without delay accepted. When plans for its improvement shall be submitted, and an appropriation asked, with a view of transferring the works at the present yard to the new location, Congress can then exerciße Its discretion in determining the amount of expenditure proper for this purpose. By an set of Congress, approved June SO, 1864, the Secretary of the Navy was * and empower ed to appoint a commission, consisting of one naval offi cer, one officer of the engineer corps,' and one civilian, to select the most approved site for a navy yard or na val station on the Mississippi river, or upon one of its tributaries, and to report to the next session of Con gress.” In pursuance of the authority conferred ou me.by this act, a commission has been constituted.and is now engaged in making the required examinations. Hear Admiral Charles H. Davis, who has had experi ence as commanding officer of the Mississippi squadron, was appointed senior member of the commission The Secretary of War having been requested to name a-suit ableofficeTOf the engineer corps to be associated on this commission, and having named and detailed Lieu tenant Colonel A. H. Bowman for the purpose, that officer was appointed. George W. Blunt, a civilian of nautical and ability, of the city of New York* is the third gentleman of the commission. KAYAL RAKE. There is in the naval branch of the public service no rank corresponding with that of lieutenant general. Congress has established the grade of rear admiral. Which corresponds with that of major general, and it would be an act of recognition eminently deserved, and which would he fully appreciated by gallant men of the navy, were Congress to authorize the appoint ment of a vice admiral. Such honors and preferments stimulate heroes. Among eminent commanders in our naval service, of whom the nation may wellbe proud, we have one who, all will acknowledge, merits by his 'achievements as high rank as that of any naval officer in any country. On the occasion of the'recent brilliant victory in the bay of Mobile, more glorious, perhaps, in some of its incidents, even, than the memorable conflict that gave us the possession and ultimately restored the free navi gation of the Mississippi, it was, beyond question, the spontaneous sentiment of the country, that the veteran hero who had. illustrated out naval annals by these grand successes was worthy of the highest honors* and should be promoted to the highest naval rank. In recomnwnaiag, therefore, that the office of vice ad miral should be created,; and the appointment con ferred on Bear Admiral David G. Farragut, I but re spond , as I believe, to the voice and wishes of the na val service and of the whole country. . The attention of Congress, through the Naval Com mittee, has heretofore been called to the fact that the number of officers on- the active list In the grades of different rates required by law to be commandecLbir omcez&of these grades. A small increase was recom mended, as well as an alteration in the law relative to : filling vacauciesinthe grade of admiral in time of peace. My totter on this subject, with the accompanying draft or a mil, making provision also for the incorporation into the regular service of a few volunteer officers who, ttero&TS this report. ENLISTMENT, The enactments of the last session of Congress in re- Sard to enlistments have been in their operation beue cial to the naval service, and in-a great degree have corrected the unfortunate legislation of the preceding session,, Not only the full complement of men required has entered the service, hut a surplus of many thou sands of landsmen have offered who could not be re ceived. Butthe want of seamen is still felt. • Large numbers of that valuable class were induced to enter the army when high bounties were given to the soldiers and withheld from the sailors. Many thousand trained seamen, under those extraordinary inducements, en-. Dated in the army before the legislation for the two -branches of the public service was equalized. Although the law now authorizes their transfer to the navy, a very considerable portion of them still remain in the army, where landsmen would he of equal service. Sea men are experts, and cannot be procured by draft, or secured for an emergency like the present, any more than engineers or accomplished gunnery officers. Stimulated by patriotic impulse, men may volunteer to serve their country in any capacity, but they cannot be made available as seamen without training and ex perience at sea. - The organization of a man-of-war is very different from that of a merchant vessel A first* rate sailor wiH coon make himself at home on board of any ship; but the division of duties—the system of natty officers—the exercise at quarters and in boats—the discipline, the observances, and the thorough and complete system of a man-of- war, are unknown out of naval ships. There are no means by which to teach landsmen to become sailors except on shipboard, and there is difficulty in in tracing native Americans to enter either the naval or merchant service. In other countries the field of ad venture is restricted; here the avenues are* many, besides ocean life. lam not aware that any State but Massachusetts has a nautical school; Encouragement is given to the young in ©very other calling; but the naval §nd merchant service, in time of peace, depend almost entirely upon the foreigners and the homeless for manners to sail their ships. These men, who hard ly touch the shores without finding themselves the vic tims of land- sharks, and who scarcely receive a thought In the vast and generous sanitary operations, put in motion by Wealth and beneficent patriotism, have en riched qut country by their labors in commercial em ployments; and fn danger; privation, and hardship, nave adhered with unwavering fidelity to the flag— never disappointing us, and never giving us defeat. With a view of doing some measure of justice to this meritorious hut too much neglected class, and as a pre liminary step towards their elevation and usefulness, the Sabine has been fitted up for the purpose of a school . dup tar boys. This is, in fact, a revival, with some modifications,- of the apprentice system, which, while it was continued, worked beneficially for the sailor and the country. Some measures are requisite to elevate the condition and the character of this class now, when the sailor Is neither flogged nor taught to become a drunkard—two important steps in the right-direction towards making him a man to be trusted on shore as well as afloat Commencing as apprentices on the school-ship, it would be well to open to the sailor boy the way to pro motion by giving him an opportunity,if he shell deserve it, of entering the Naval Academy. From among the apprentices on the school-ship a selection of one-half or the midshipmen annually appointed might be made with great advantage to the service and the! country. training on tis aptitude for the profession, and in transferring them to the academy there will not be the manifold errors which attend so large a portion of those who are appointed tm. der the preient Bystem. Were each Congressional dis trust authorized to place two or more apprentices on tha school-ship, and the annual selection of midshipmen, or one-half of the midshipmen, directed to he madefrom these apprentices, its effect would he most henafleient of, tie sailor, as well as the schools and the service. It wooli popularize i'OJ navy, and open to thoso who may have emitted the highest positions and boners of the service. 1 NAVAJi ACADEMY. Congress having, by the act approved May 3b ISfSI, directed that ‘ * the United States Naval Academy shall he relumed to, and established at, the Naval Academy grounds in Annapolis, in the State of Maryland, before the commencement of the academic year eighteen hun dred and sixtyv five, ’ * it will be necessary that prepa rations should be commenced for putting the buudings and grounds in i order ae early in the ensuingrspring as toe War Department can, leave them. The school and the service will be benefitted by having the institution permanently established, and when this is effected it will be eu abled to pursue its career under clrcumßtancss more favorable to the efficient training of the midship *?&?• . * The able superintendent,Commodore GeorgeS.Blake, has preserved his connection with toe school during its unsettled state, and its management, under many dis has been creditable to Mm and his asao- CADET ENGINEERS, Prelhnlnary measures have been taken to carry Into effect the law of the last session of Congress authorizing the education at the Naval Academy ol cadet engineers, to be selected from youths not over eighteen years of age, who shall have been engaged at least two years in the fabrication of steam machinery. A,circular has been issued and printed in toe papers of the great ma nufacturing cities, inviting applications in conformity to toe law. \ ■ Before this plan shall be put In operation, it is re spectfully submitted, in view of the radical changes which have been wrought by steam as a motive power for naval vessels, whether steam-engineering should not be made to constitute hereafter a necessary part of toe education of all midshipmen, so that In our future «very Uae officer will be a steam-engineer, and qualified to have complete command and direction of hla ship. every vessel of-war must be a steam-vessel. Those designed for oceau service will he funished with sails in order to economize fuel while ciuiring; toe present and future navy.wili therefore combine sails and steam as motive fpower*. aud sea manship and steam-enclne driving will each bonecet sary to make toe finished professional officer. The officers to sail and. nayigate a ship and toe officers to run toeeteam- engine are about equal in number. The Department is not aware that any line officer, Whatever attentionm&y have been given by him to the theoretic study ©f steam, is yet capable of taking charge of an. engine, nor are steam-engine drivers capa ble?/ taking charge of a man-of-war, navigatingher, fighting her guns, and preserving her vesselb were propelled exclusively by sails, there were buttwo officers, excepting in flag-ships, the'surgeon and paymaster, who were not line-officers. Bat under the present naval system a new and additional corps ie introduced, as many steam-engineers being required for a vessel as there areline*officers; and, while cruis ing under sail, or lying in port, or performing any duty when toe engine is at rest, one-half of the officers are, by existing regulations, idle and incapable of yar ticipatinffin duties that are often laborious and oppres sive on the officers of the line, comparatively speaking. The engineers Would willingly share these duties were they acquainted with them. But half the officers of a steamship cannot keep watch, cannot navigate heivcan- * not exercise the great guns or small arms* nor,, except as volunteers under a line-officer, take part in any ex pedition against the enemy. On the other hand, the other half of toe officers axe incapable of managing the steam motive power, or of taking chart© of the> engine room in an emergency, nor can toe commander of a vessel, though carefully taught every duty of a sailor and drill-officer, understand, tof his own -knowledge, whether the engineers and firemen are competent or The remedy for all this is very simple, provided the principle were once recognized and adopted of making our o fficers engine drivers as w ell as Bailors. It woald not be expedient to interfere with the .present status of line officers or engineers-the cbange would be too radi cal; but we should begin by teaching each midshipman to be able to discharge the duties of line officers and steam-engneerp. To combine the - two in one proto*. Sion, Bothatofficereio educatedtoan take their \rS alternately in the engine room and on deck. * • [ ‘Objection mt to Siato that toe duties wredi^iiaUar, and that driving is & specialty. The du des are r ot mow dissimtiartnan Mamaush*pattd gun nery. “When seamanship was the only education frtvert to an officer, it was not believed he oouM ever team .to teach sailors to drill, and a eerreantofjaarittes per formed the duty which is now so admirably aiacuarged by the graduates of the Naval Academy. When gunnery became a specialty, it was inconsiderately anaaawise ly proposed to have a corps of ordnance officers engrafted upon the naval service, a Beparate organization, which should draw to itself the knowledge so necessary to € avh, and therefore proper to be distributed amongst all the officers. ' M t Fortunately, our .naval officers are taught seaman ship, gunnery, and the Infantry drill, service thereby saved from distinct organizations jut these re spects, which would Inevitably hava Unpaired its effi ciency. It only remains to commence* at this time, and as preparatory to the future of the navy, to teach the midshipmen steam -engineering, as applied to making the engine. This would be incUmmdent ©f the art of designing and constructing, which is purely especial ly, wad nowise necessary in the management anddi rectioE of the ship. M And to this specialty, ae a highly scientific body 01 officers, would the present corps of engineer be always reqnlred.aa inspectors and con structors of machinery* the adoption of the sug gestions here made we shall, indue time, have a ho* IfSVppoLtments or expense- tonmereble other advantages com mend the Plan as worthy oftn&l, and it is presented for favorable The work ewi be commenced and carried forward a £ demy without any additional appropriation, ami the authority of Congress is invoked in behalf ot the sug gestion here submitted. PHIZES AND PENSIONS. The number of vessels captured by the sauadwns since the last annual report, and reported to the DepMj ment prior to November 1, is 5 24, classified asfollows, schooners, 106; steamers, 83; sloops, 40; brigs, S; barks*- S: small boats, 66, The total number of captures since the commencement of the rebellionis 1/879, vs*: schoon ers, 652; steamers, 267; sloops, 171; brigs, 83; barks, 29; ships, 16 5 yachts and small boats, 117. . ■ The gross proceeds arising from the sale of condemned prize property amounts to $14,888,260.51; expenses, 5L2&7,153.96; leaving for distribution, one half to the captors and one half to the United States as a naval pension fund, $13,190,8*1. 46. . # Annexed to this report is a table giving the names of vessels captured* date of capture, name of ssuturing vessel, &c. Also, a list of cases already adjudicated, showing the gross proceeds of sale, theexpense of con demnation* and the net amount for distribution. ~ m Ajointresolutionof Congress, approved ohthe Ist of July last, authorized the Secretary of the Navy to in vest so much of the naval pension fond as was not re quired for the immediate payment of the registered securitise of the united States. Under the authority conferred upon me I have invested five mil lion dollar?, as provided in the resolution, and on the Ist of January next there will be the further sum of SSMXO.OCO, which can be invested without interfering with the prompt payment of pensions. This amount will yield an annual income of $429,009, sufficient for the payment of the entire pension roll, ft affords me no little gratification to be able to state, that our brave offi cers and seamen, besides realizing handsome sums for. themselves,bave created a f and,the income from which wiU. doubtless, be ample for the payment of the autho rized pension to those who have been wounded, and to the widows and orphans of those who have been killed in the service, or died from disease contracted in the line of duty, without calling upon the national trea- St ?he pension roll on the Ist of November, 1864, was as follows; 769 invalids, with pensions amounting to • **; *550,40110 810,widows and orphans, amounting t0.*... 139.268 00 I,6o9persons, receiving a total amount 0f.*,., 189,659 10 In this connection I ask attention to the suggestions of the chief of the Bureau of Medicine and Surgery relative to naval pensions. The act of Congress approved July 11,1562, reiulating pensions, makes no provision for the new' grades of the navy-rear admiral, commodore, lieutenant commander, &c, —authorized by act of Con gress on the 16th of July of the same year. The act ahould be so revised as to include these grades, and it is suggested that a bette r adaptation of the a mount of pen sion tothe responsibility of the officer might be advan tageously made. The highest pay now authorized is thirty dollars per month, the family of a captain receiv ing no more than the family of a master commanding, and is a reduction of twenty dollars per month from the amount formerly paid. The act of Congress approved on the. 4th of July last provides that a person iu the “military service 0 who shall-losa both feet shall re ceive a pension of $29 per month, and those who shall lose both hands $25 permonth. Aa law is construed not to include persons in the naval service, those who hare suffered a similar loss in the navy continue to re • ceive but eight or ten dollars per month—an inequality Which it is believed was not intended. 1 suggest such changes in the law as will place the sailor upon the same footing as the soldier. FBIZE LAW. The seventh section of the act in relation to aban doned and captured property, approved July % 1351, revertes the law of prize as it stood prior to the present rebellion, and also as adjudged and applied since the commencement of the rebellion by the courts in their exercise of prize jurisdiction. It reverses also for'the future the public policy of the country upon the subject’, as manifested in the legislation of Congress both before the rebellion and since its commencement up tothe date of this act. This abrupt reversal of settled law and of public policy In regard to * ‘ property seized or taken upon any inland waters of the United States, by the naval forces thereof,*’ was not, I apprehend, wall considered, and does not appear to nave undergone discussion in either branch of Congress. Whether the words ‘‘ no property seized or taken upon any inland waters of the United States, by the naval forces thereof, ’ ’ comprehend not only cargoes, but vessels, may be quesvioned: but it can hardly be supposed that Congress intended to deny that naval vessels captured in naval conflict, as at New Orleans, or Memphis, or in Mobile bay, are the legiti mate Buhject of prize. The same is true also of trans ports, armed or unarmed, conveying the troops or mu nitions of an enemy, which may be captured. It sef ids Improbable that to deprive such captures of the character of prize could have baea deliberately intended. Uo the words “any inland waters of the United States” embrace the Cheep peaks and Delaware bays, the Bay of Mobile, and Bake Foachartrain? By the terms of this section, the naval officer seizing or taking property has the option either to send it into the courts or to turn it over under the act of March 12, 1863, to the Treasury agent. No one hut the naval seizer has this option. AIL other persons mast turn over their seizures to the Treasury agent. It is difficult to perceive the purpose for which this distinction is made. The property-seized is either liable to capture and condem nation as prize, or it is hot. If it be so liable, he is bound to send it to the prize court. Why, then, should he have authority to turn it over to the Treasury agent ? and if It be not so liable, why should the naval seizer alone be relieved from the obligation of sending it to the Treasury agent? If it be the object of the section to take away the cha racter of prize of war from all property which mav be captpred by naval forces on the inland waters of the United States, it is .respectfully submitted whether its repeal is not demanded by the highest considerations of public policy. The inland waters of the UnitedtStatea ccsstUute cruising stations of va>t extent, and are so situated as to be or supreme importance in the prosecu tion of this, or, indeed, of any maritime war. These waters offer the readiest naval access to vast amounts of commercial property belonging to those who are now waging war against the Government. The properly, both public and private, frond upon these waters and along their shores belonging to the enemy is. under the public law of war, liable to capture by naval bellige i Tents, and, when so captured, to condemnation as prize of war. By the exercise of this right, a naval force can iezch and capture property which should be taken from an enemy- and which is yet left uo touch ed by our statutes. Upon the inland waters within the insurrectionary region, j&r affording access to or egress from it, our na« operations. Why should the law inter reiie»ini'&o-p*iroi_. that part of the my of one of its primary belligerent rights? It Certainly could not have been intended to cripple the power of the navy, to cripple the enemy, or by law to hedge round and protect from capture and condemnation an enemy’s property. The service on inland waters is not less difficult, perilous, and harass ing than that on the sea. that there should be this dia-. crimination against it, nor has it been less useful country. Under the operation of this act no more of the pro ceeds of any capture go into the treasury than under the law of war, because the sixth section authorizes the allowance of a moiety to “ informers, collectors of the customs, and other person?,” as an incentive to “ vigilance in protecting the public interest.” In taking this moiety Jrom the officers and crews who make the captures, and conferring it on the informer or custom- house officer, the treasury and country are not benefited. Thr right to make capture or prize of war, in all places and upon all property, subject to the law of war, is one of the encouragements which maritime nations have extended to their navies in all time, and cure has been no exception until this enactment. The exercise 01 this right, in cutting off the resources of an enemy, is one of the chief methods by which nations seek to bring war to a close. There is no reason why is this war‘against the rebel lion an an cient and rightful proceeding should be aban doned, and a rule adopted' that must operate to our na tional Injury in all wars. I can see no reason upon which to conclude that in fighting down this rebellion we should reverse all previous usage and law, either as against the rebels themselves, or their abettors, or the property upon which they rely for their resources, or why, indeed, we should relinquish any one belligerent right. On the contrary. It will be well to preserve to our navy upon all the waters where it can float or fight all its rights of war unimpaired. With these views the expediency of a repeal of the 7th section of the act alluded to is recommended, and the substitution in its place of some proviaionof like effect to that which is found in the last section of the act upon the same subject approved March 12, 1583, CONTRACTS. .The present contract system is open to many and se rious objections. "Whatever may have teen its merits when established* the condition of the coun try anaof trade has so changed as to render essential modifications necessary, if not the abrogation of the system Itself. The instability of prices, and a rising marketduring the progress of the war, have inadefl difficulty and, in someinatances, almost impossible to procure offers for contracts to furnish yearly supplies for the navy from honest and reliable contractors at a rate 'which does not contemplate the highest market price of gold, as well as long delay in the time of pay ment. Any change for the better in the condition of the country or the market will be a gain to the contractor who has an annual contract, and a corresponding loss to the Government. A ipropppal made the present year for the annual supply of flax canvas, which is mostly imported, illus trates this point. The bids were received when ex change wasat nearly the highest rate it has attained, and from an honorable and reliable contractor who has for years supplied the Government faithfully. The ag- IgegJwoffer was, for payment in currency, or for payment in gold, or its equivalent, R t the time each bill was paid, $586,923. There was no alternative under the. law other than to accept the-cur rency bid, and as the rate of exchange has fallen, there J»as Been a corresponding: incroass of profits to tne con tractor. _ In this case.and others ol like character, tie true in terest of the Government would undoubtedly be pro moted -were tie Department permitted to assume the litk, and omit making annual contracts, relyine anon purchases as wanted, under the direction of the Depart ment, at the current market price. The Government Is seldom henefitted By a rise m pricas; for while: the laws compel its agents to purane a definite course of action, the contractor general* finds little diScnliy in evading penajties, and a losing contract is therefore abandoned. It is worthy of serious consideration whether, for the present at least, it. would not be for the true interest of the Government to relinquish the system of annual con tracts altogether, and authorize purchases to be made by agents prprobitv, whose fidelity and integriiy have been tested through years of faithful service, and who have a life• long commission as well as a character to lose as a penalty for malfeasance. *' Another source of embarrassment in procuring naval supplies has been the delay and uncertainty of pay ment Unless a definite time for payment is fixed, and bills are promptly met, or unless interest be allowed during the delay of payment, the Government will in evitably become a large sufferer. Many of; the best merchants in our principal cities, who have heretofore sought dealings with the Government, now decline ac cepting an order on any term*. _ „ . t , lthae never been the policy of this Department do ad vance money to its agents, and they cannot for this reason make each payments. Beqnisitions are drawn on the Secretary of the Treasury only for matured bibs, and every day s delay in the .payment,of a’fulfilled contract is a wrong and a loss to the holder, and of ulti mate serious injury to the Government As a conse quence, the Government is driven to other, and often less honest dealers, and is compelled to pay for subse quent purchases higher rates. Government, Instead of being shunned and distrusted for neglecting to make prompt pajment for value received, should, for its prompt pa* meats, be a favored Purchaser in any mar ket-enabled to deal with the manufacturer, or pro ducer at first prices, instead of with second and third hands. *, v If supplies are procured when wanted and as wanted, at the market price, either in open purchase, by an honest agent, or upon bids received for immediate de- - livery, withpromptpayment, immensesums would be saved to the Department and the Government. 1 I have heretofore referred toAs.e 'defects and abuses practiced under the existing laws of awarding annual contracts for naval supplies to the loweßt bidder. Whatever may be the character or reputation of the udder for fair and honest dealing, no discretion is given to any officer of the Government in the premises, nor can any officer decline the contract though it may be obviouß the bidder cannot furnish good articles at the prices which he proposes. - 1 Contracts are made under the operation of existing laws, uhleh eanndt be honestly fulfilled; and under the practice that has prevailed, the whole system has become tainted with demoralization and fraud, by which the honest ana fair dealer is too often driven lrom the market. Articles inferior in quality and defi cient in quantity are delivered and passed. Bribery and other improper practices are resorted to, to indace persons in the employment of the Government to aid in these frauds. Malfeasance on the part of officials in connection with the purchase and delivery of supplies was alleged to exist, snd with the purpose of investigating and bring ing such fraudulent practices to light, application was made to the War Department, which detailed ah officer to prosecute these inquiries. The result is that many and great frauds have been discovered. Proceedings have accordingly been instituted, and are now in pro gress against some of the parties implicated before mili tary tribunals under the statute, and against others in the civil courts. XSCRBASn OP SALARIES. In comequence of the greatly increased prices that" preveil, many who are in the clerical employment of the Government, at a compensation established prior to the a remuneration wholly insuffi cient. The state of the currency, with other causes, has so affected prices that these men are receiving rela iivelybnfcabout one-half the pay of former years, and the effect has been such as to compel many of the best clerfcß in this Department to leave the .Government ferries. This is a public injury, especially in a crisis like the present. The place of an experienced and ac complished clerk is at no time easily supplied; but when such place is vacated for the reason ihafcitis not remunerative* or that the pay is, below corresponding positions in private establishments, the difficulty is in creased. It Is, therefore, suggested that the salaries of the clerical force, or a portion of the clerical force, be increased until the close of the war, or until the cur rency shall return to a specie standard. This recommendation is made with some reluctance, and only under ft sense ofrits absolute necessity at this time. * - . - MASTER’S MATES. Whwithorftto of pay for mates was esta blished it was thought to correspond with that of other grades--but the changes in. currency and values which have since taken place rendertt difficult to retain in ser vice a sufficient number of this highly serviceable and