My negotiations was had with Lieutenant Colonel N. G. Watts, C. S. Army, accredited as a general agent of exchange for the Confederate Government. An agreement was concluded between us for the exchange of the prisoners of the C. S. Navy and Marine Corps captured by you form the fleet of Admiral Buchanan and the marines captured in Fort Gaines for the officer and men of the U. S. Navy now prisoners in Texas. I have also received from Colonel Watts and forwarded to the assistant agent of exchange for the Trans-Mississippi Department, C. S. Army, an order directing him to deliver our prisoners in accordance with this agreement.

I deem it important also to call attention to the fact that by the terms of the agreement between Colonel Watts and myself it may become necessary, in order to procure the release of all our naval prisoners in Texas, to include in the exchange Admiral Buchanan and the superior officers of the C. S. Navy not sent to New Orleans with the other prisoners.

I suppose it to be your desire to exchange for all the prisoners of your command in Texas, and it would, of course, have been impossible for me to negotiate an agreement which should in terms except those officers of the enemy's fleet most valuable to the enemy.

The agreement, therefor, provides for the exchange of officer for officer and enlisted man for enlisted man, according to their several ranks and grades, so far as the prisoners held on each side will enable such exchange per capita to be made, prisoners remaining on each side, for whom none of corresponding rank are held by the other, to be exchanged according to the scale of equivalents established by the general cartel of 1862.

If, therefore (as I am inclined to believe), the naval and marine prisoners whom we hold in this city are sufficient to furnish an equivalent for all the naval prisoners whom the enemy hold in Texas it will not be necessary to include in the exchange any of the prisoners retained at Pensacola, otherwise at may become necessary to include some or all of them.

Trusting that the agreement thus explained may meet your entire approval,

I am, admiral, very respectfully, your obedient servant,

CHAS. C. DWIGHT,

Colonel and Agent of Exchange, Mil, Div. of West Mississippi.

Campbell Wallace, relative to exchange of Colonel W. W. Wallace, of Knoxville, Tenn.

[Indorsement.]

SEPTEMBER 6, 1864.

Returned to General Bragg.

By authority of the War Department an arrangement is about being made or has been made by which all East Tennesseeans in captivity on both sides are to be released. This will include all the parties named in this paper. Mr. Wallace is mistaken in supposing that Seth Lea had no recruiting commission. I have the best authority for saying he had, and that is the admission of Lea himself to me.

[R. OULD,

Agent of Exchange.]