Colonel Hicks proceeded to Charleston with his party and several prisoners where he met a similar party from General Pillow's command and exchanged three of the prisoners for three men belonging to Captain Burrel's cavalry company, attached to my command, who had been captured by the enemy in skirmishes heretofore.

I inclose herewith a copy of the agreement and report of exchange signed by the officers making it.

Very respectfully, your obedient servant,

W. H. L. WALLACE,

Colonel, Commanding at Bird's Point.

[Inclosure Numbers 1.]

HEADQUARTERS ARMY OF LIBERATION,
New Madrid, August 31, 1861.

Colonel WALLACE,

Commanding U. S. Forces at Cairo and Bird's Point.

COLONEL: Your dispatch of the 30th instant in reply to my proposition for the excharge of prisoners is respectfully acknowledged.

Lieutenant Tufts and myself have agreed to the following terms for the exhcange viz: Man for man of privates and officer for officer of equal rank. Each party to be satisfied that those proposed as prisoners are rally prisoners of war taken in arms. The place for the exchange is Charleston, Mo. The 3rd of September the time.

A board of officers shall determine the character of those offered as prisoners make the exhange. This board shall consist of a colonel, major and captain of cavalry or infantry from each army, to be associated with a member of General Pillow's staff and one from the staff of Colonel Wallace. Each party to bear a flag of truce. The prisoners to be accompanied by an armd escort of thirty mounted men each. The mounted escort and prisoners to be conducted within 100 paces of each other and there await the orders of the colonel of each party. The escort, prisoners and whole of each separate detachmet to be commanded respectively by the colonel on duty. When the exchange is effected as far as the parties respectively have prisoners the balance of prisoners unexchanged will be marched back as prisoners to the encampment from whence they proceeded.

Brigadier General Gid. J. Pillow proposes that he will procure the exchange of an equal number of prisoners of the same grade and randk now held by the Confederate Government at Richmond, Va., for such other prisoners as may still procure and cause to be delivered to Colonel Wallace the evidence of that fact in an order from the Secretary of War of the Confederate Government giving the names and commands to which they belong and the places of residence of those released. Colonel of Wallace is respectfully asked if under his plede of General Pillow he will release those he may still hold after exchange?

General Pillow also proposed that each party shall release all captured citizens who may have res obnoxious by their sentiments or opinions to either party. Unless citizens are found in arms there would be no end to captured citizens for opinion's sake, and to adopt a different rule of action is utterly incosistent with the principlies of tolerantion of opinion which our common country has allowed until the occurence of our national roubles colminated in the present unhappy war. Colonel Wallance will plae indicate his willingness to