Tennessee River, February 10, 1862.

SIR: Soon after the surrender of Fort Henry, on the 6th instant, I proceeded, in obedience to your orders, up the Tennessee River, with the Tyler, Lieutenant-Commander Gwin; Lexington, Lieutenant-Commander Shirk, and this vessel, forming a division of the flotilla, and arrived after dark at the railroad crossing, 25 miles above the fort, having destroyed on the way a small amount of camp equipage abandoned by the fleeing rebels. The draw of the bridge was found closed and the machinery for turning it disabled. About 1½ miles above were several rebel transport steamers escaping upstream. A party was landed, and in one hour I had the satisfaction to see the draw open. The Tyler being the slowest of the gunboats, Lieutenant-Commander Gwin landed a force to destroy a portion of the railroad track and to secure such military stores as might be found, while I directed Lieutenant-Commander Shirk to follow me with all speed in chase of the fleeing boats. In five hours this boat succeeded in forcing the rebels to abandon and burn three of these boats, loaded with military stores. The first one fired (Samuel Orr) had on board a quantity of submarine batteries, which very soon exploded. The second one was freighted with powder, cannon shot, grape, balls, &c. Fearing an explosion from the fired boats---there were two together---I had stopped at a distance of 1,000 yards, but even there our skylights were shattered by the concussion, the light upper deck was raised bodily, doors were forced open, and locks and fastenings everywhere broken. The whole river for half a mile around about was completely "beaten up" by the falling fragments and the shower of shot, grape, balls, &c. The house of a reported Union man was blown to pieces, and it was suspected there was design in landing the rebels in front of the doomed house.

The Lexington having fallen astern, and being without a pilot on board, I concluded to wait for both of the boats to come up. Joined by them, we proceeded up the river. Lieutenant-Commander Gwin had destroyed some of the trestle work of the end of the bridge, burning with them a lot of camp equipage. I.N. Brown, formerly a lieutenant in the Navy, now signing himself "Lieutenant, C. S. N.," had fled with such precipitation as to leave his papers behind. These, Lieutenant. Commander Gwin brought, and I send them to you, as they give an official history of the rebel floating preparations on the Mississippi, Cumberland, and Tennessee. Lieutenant Brown had charge of the construction of gunboats.

At night on the 7th we arrived at a landing in Hardin County, Tennessee, known as Cerro Gordo, where we found the steamer Eastport being converted into a gunboat. Armed boat crews were immediately sent on board and search made for means of destruction that might have been devised. She had been scuttled and the suction pipes broken. These leaks were soon stopped. A number of rifle shots were fired at our vessels, but a couple of shells dispersed the rebels. On examination, I found that there were large quantities of timber and lumber prepared for fitting up the Eastport; that the vessel itself---some 280 feet long---was in excellent condition, and already half finished. Considerable of the plating designed for her was lying on the bank, and everything at hand to complete her. I therefore directed Lieutenant-Commander Gwin to remain with the Tyler, to guard the prize, and to lead the lumber, &c., while the Lexington and Conestoga should proceed still higher up.

Soon after daylight on the 8th we passed Eastport, Miss., and at Chickasaw, farther up, near the State line, seized two steamers, the Sallie Wood and Muscle, the former laid up, the latter freighted with iron destined for Richmond and for rebel use. We then proceeded on up the river, entering the State of Alabama, and ascending to Florence, at the foot of the Muscle Shoals. On coming in sight of the town three steamers were discovered, which were immediately set on fire by the rebels. Some shots were fired from the opposite side of the river below. A force was landed and considerable quantities of supplies, marked "Fort Henry," were secured from the burning wrecks. Some had been landed and stored. These I seized, putting such as we could bring away on board our vessels and destroying the remainder. No flats or other craft could be found. I found also more of the iron plating intended for the Eastport.

A deputation of citizens of Florence waited upon me, first desiring that they might be made able to quiet the fears: of their wives and daughters with assurances from me that they should not be molested, and secondly praying that I would not destroy their railroad bridge. As for the first, I told them that we were neither ruffians nor savages, and that we were there to protect them from violence and to enforce the law; and with reference to the second that, if the bridge were away, we could ascend no higher, and that it could possess, so far as I saw, no military importance, as it simply connected Florence itself with the railroad on the south side of the river. We had seized three of their steamers, one the half-finished gunboat, and had forced the rebels to burn six others loaded with supplies, and their loss, with that of the freight, is a heavy blow to the enemy. Two boats are still known to be on the river, and are doubtless hidden in some of the creeks, where we shall be able to find them when there is time for the search.

We returned on the night of the 8th to where the Eastport lay. The crew of the Tyler had already gotten on board of the prize an immense amount of lumber, &c. The crews of the three boats set to work to finish the job immediately, and we have brought away probably 250,000 feet of the best quality of ship and building timber, all the iron machinery, spikes, plating, nails, &c., belonging to the rebel gunboat, and caused the mill to be destroyed where the lumber had been sawed.

Lieutenant-Commander Gwin, in our absence, had enlisted some 25 Tennesseeans, who gave information of the encampment of Colonel Crews' rebel regiment at Savannah, Tenn. A portion of the 600 or 700 men were known to be "pressed" men, and all were badly armed. After consultation with Lieutenant-Commanders Gwin and Shirk, I determined to make a land attack upon the encampment. Lieutenant-Commander Shirk, with 30 riflemen, came on board the Conestoga. Leaving his vessel to guard the Eastport, and accompanied by the Tyler, we proceeded up to that place, prepared to land 130 riflemen and a 12-pounder rifled howitzer. Lieutenant-Commander Gwin took command of this force when landed, but had the mortification to find the encampment deserted. The rebels had fled at 1 o'clock at night, leaving considerable quantities of arms, clothing, shoes, camp utensils, provisions, implements, &c., all of which we secured or destroyed, and their winter quarters of log huts were burned. I seized also a large mail-bag, and send you the letters giving military information. The gunboats were then dropped down to a point where arms gathered under the rebel press law had been stored, and an armed party, under Second Master Gowdy, of the Tyler, succeeded in seizing about 70 rifles and fowling-pieces.

Returning to Cerro Gordo, we took the Eastport, Sallie Wood, and Muscle in tow, and came down the river to the railroad crossing. The Muscle sprang a leak, and, all efforts failing to prevent her sinking, we were forced to abandon her, and with her a considerable quantity of fine lumber. We are having trouble in getting through the draw of the bridge here.

I now come to the most interesting portion of the report, one which has already become lengthy, but I trust you will find some excuse for this in the fact that it embraces a history of labors and movements day and night from the 6th to the 10th of the month, all of which details I deem it proper to give you. We have met with the most gratifying proofs of loyalty everywhere across Tennessee, and in the portions of Mississippi and Alabama we visited most affecting instances greeted us almost hourly. Men, women, and children several times gathered in crowds of hundreds, shouted their welcome, and hailed their national flag with an enthusiasm there was no mistaking. It was genuine and heartfelt. These people braved everything to go to the river bank where a sight of their flag might once more be enjoyed, and they have experienced, as they related, every possible form of persecution. Tears flowed freely down the cheeks of men as well as of women, and there were those who had fought under the Stars and Stripes at Monterey who in this manner testified to their joy. This display of feeling and sense of gladness at our success and the hopes it created in the breasts of so many people in the heart of the Confederacy astonished us not a little, and I assure you, sir, I would not have failed to witness it for any consideration. I think it has given us all a higher sense of the sacred character of our present duties. I was assured at Savannah that of the several hundred troops there more than one half, had we gone to the attack in time, would have hailed us as deliverers and gladly enlisted with the national force. In Tennessee the people generally in their enthusiasm braved secessionists and spoke their views freely, but in Mississippi and Alabama what was said was guarded. "If we dared express ourselves freely, you would hear such a shout greeting your coming as you never heard." "We know there are many Unionists among us, but a reign of terror makes us afraid of our shadows." We were told, too, " Bring us a small organized force, with arms and ammunition for us, and we can maintain our position and put down rebellion in our midst." There were, it is true, whole communities who on our approach fled to the woods, but these were where there was less of the loyal element, and where the fleeing steamers in advance had spread tales of our coming with fire-brands, burning, destroying, ravishing, and plundering.

The crews of these vessels have had a very laborious time, but have evinced a spirit in the work highly creditable to them. Lieutenant-Commanders Gwin and Shirk have been untiring, and I owe to them and to their officers many obligations for our entire success.

I am, respectfully, your obedient servant,

                           S. L. PHELPS,

 Lieutenant-Commander, U.S. Navy.

Flag-Officer A. H. FOOTE,
                           U.S. Navy, Commanding Naval Forces Western Waters