HEADQUARTERS DEPARTMENT OF THE SOUTH,
Hilton Head, S. C., December 26, 1864.

Major General H. W. HALLECK, U. S. Army,

Chief of Staff, Armies of the United States, Washington, D. C.:

GENERAL: I have the honor to inform you that everything in this department and at Savannah is progressing favorably. General Sherman is clearing his army of incumbrances, and getting ready for another move, which, with his present army, actuated by its sanguine spirit, will be resistless by any force that the rebels can collect this side of Richmond. I am now having the guns at Fort McAllister dismounted and brought, with the carriages, &c., to Hilton Head; those in Forts Beaulieu and Rosedew, and perhaps one or two other batteries, will likewise be removed. General Sherman proposes to leave the city in my charge, with a division of his troops for present emergencies. As soon as possible I am to arrange the different works necessary to be held to secure Savannah, so as to be able to hold the city with my present force, with one or perhaps two brigades, the remainder of the division to rejoin his columns as soon as arrangements to that effect can be completed. At the request of General Sherman I have notified the Treasury agent that he can take possession of the cotton and forward it to New York. The negroes are being removed - those that are not able-bodied - as also women and children, to Beaufort, to be put on the plantations in that district. Of the able-bodied men, all, except a few hundred absolutely necessary in the quartermaster's department, will be sent, agreeably to General Grant's order, to City Point. I do not, however, except this transfer of able-bodied men can be made before General Sherman's army leaves, inasmuch as they are all now actively employed in loading and unloading steamers, and in other necessary work in Savannah.

The people of Savannah are, in a measure, destitute, and will have to be supported, to a certain extent, until such time as the ordinary course of labor and of supplies is resumed in the city. General Sherman has made excellent arrangements by which the mayor, receiving captured rice and other rebel stores, can so distribute them as to meet all the immediate demands of the destitute. In a very short time the supplies which I can allow to enter the city by the inland route will meet the wants of the people. Such products as they have may also be exported by the same route without any new change in the Treasury regulations. Having this supply and trade under my own control I can restrict it to proper and safe limits.

As far as can be judged the people feel a sense of relief in having their city occupied by the Union troops and being freed from rebel rule. As an evidence of this it is known that the mayor and council protested against General Hardee's attempting to defend the city. Most of the citizens remain, and show no alarm, but, on the contrary, the utmost confidence in General Sherman and his troops. Several general officers left their wives in the city, Mrs. General G. W. Smith and Mrs. General Robert H. Anderson among the number. Yesterday the different churches were opened and filled with people as usual. Ladies walk the streets without alarm.

As to the enemy and his movements, it is reported by deserters that the few regiments of old troops, only five or six in number, have gone toward Charleston or Wilmington. All the militia, which constituted the main body of General Hardee's force, have gone back into Georgia, and, it is reported, to concentrate at Augusta. The Georgia troops,

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