Third. General Sully's statements concerning the present system of annuities to Indians and the manner of paying them in use by the Indian Department are worthy of careful attention, as confirming the views I have hitherto laid before the Department on this subject. General Sully found the country between Fort Rice and the Yellowstone too difficult ever to be traversed by trains, in fact nearly impracticable. He accordingly established a post at the mouth of the Yellowstone and one at the old trading post of Fort Berthold. These posts, in connection with Fort Rice, will render secure the navigation of the Missouri River and the overland line of travel by the valley of that river.

Further details will be given in my annual report, as also my purposes for the protection of the region between the Platte and the Upper Missouri and Yellowstone. It will probably be necessary to establish a considerable post in the Black Hills, and one of Powder River. Of these matters I will communicate more fully hereafter.

I am, general, respectfully, your obedient servant,

JNO. POPE,

Major-General, Commanding.

Major General H. W. HALLECK,

Chief of Staff of the Army, Washington, D. C.

HEADQUARTERS DEPARTMENT OF THE NORTHWEST,
Milwaukee, Wis., November 3, 1864.

GENERAL: I have the honor to submit the following report of operations in this department during the past year:

The two great Indian nations which occupy this military department are the Chippewas, who inhabit the region between Lake Superior and Rainy Lake River on the east and the Red River of the North on the west, and the powerful Sioux or Dakota Nation, which, divided into several strong and warlike tribes, claims and roams over the vast region from the western frontier of Minnesota on the east to the Rocky Mountains on the west, and from the frontier of Iowa and the line of the Platte River on the south to the British possessions on the north. There are some small fragments of tribes on the Upper Missouri who belong to neither nation, but they are few in number, insignificant in strength or influence, and have always been at peace with the whites. With the Chippewas there have been no difficulties which have led to hostilities, although there have been and continue to be the constant misunderstanding, dissatisfaction and controversy which naturally arise under our defective Indian system between the Indians on the one side and Indian agents and traders on the other. So far these difficulties have not culminated in actual hostilities, but unless the Indian system be remodeled they are likely to do so at any moment. The war up to this time has been entirely confined to the Sioux Nation. It will be remembered that the campaign of last year terminated, so far as field operations were concerned, with the defeat of the Sioux by General Sully near the James River on the 3rd of September, 1863. The high latitude of the theater of war in this department, the immense region of uninhabited country covered by military operations, and the vast distances from the frontier to be traversed before the enemy can be reached, of necessity very much shorten the season during which it is possible to carry on actual field operations.

After reaching the Indian country not more than three months are left in which it is practicable to keep troops in the field. The oper-