Some highlights:

The DG says job cuts and upheaval will probably go on "forever"

He has waived his bonus again

The licence fee income now exceeds £3 billion a year.

This is the last Annual Report from the Governors - next year the new BBC Trust will be in charge.

This is the BBC's own report on the publication of the Annual Report

This is the page of links to all the various parts of the Annual Report.

This is the Guardian's main report on the story.

And this is Financial Times' version:

BBC considers shifting jobs offshore
By Emiko Terazono,Media Correspondent
Published: July 8 2006 03:00

The BBC is considering shifting support jobs to offshore destinations including India to cut costs.

"Deep back office" functions such as finance and IT, which do not deal directly with licence fee payers, are expected to be transferred.

Details of the cost cuts emerged as the BBC re-ported that in the year to March its income from the licence fee had risen to £3.1bn from £2.9bn the previous year. Its commercial rivals warned that the scale of the BBC's resources was distorting the media market.

As the BBC published its annual report yesterday, it attempted to answer critics who have charged that it has not been nearly decisive enough in cutting costs and improving its efficiency.

Mark Thompson, director-general, said change and cost cuts would continue on a smaller scale "for ever". Since 2004, the BBC has reduced the number of staff by 4,000, and it is expected to cut another 2,700 from the current figure of about 27,000 by 2008.

Zarin Patel, finance director, said the corporation had delivered £106m in savings in the year to March this year. It aimed to cut £112m in the year to next March and another £128m in 2007-08. The BBC is already moving its finance functions to Cardiff. Customer information services have been moved to Belfast.

The corporation is negotiating its licence fee under a new charter which starts next year, and has asked for an annual increase of 2.3 per cent over inflation.

A report commissioned by the government to inform its decision on the licence fee, found that the BBC had delivered only "marginal" cash-releasing organisational efficiency gains.

Mr Thompson said the BBC was scheduled to announce on July 19 a re- organisation of its programming and broadcasting operations in order to be able to deliver services to any platform or medium. He said this shake-up was not aimed at further cost savings or efficiencies.

He defended spending on talent, saying the corporation was operating in a competitive marketplace. "The BBC is expected to offer the best talent and that comes at a cost," he said.

Mr Thompson said he had waived his right to a bonus last year, but had urged his colleagues to take theirs.

Last year, Mr Thompson made £619,000, while John Smith, chief executive of BBC Worldwide, the corporation's commercial arm, received a total of £444,000. Jenny Abramsky, head of radio, received £322,000 and Mark Byford, deputy director-general, made £456,000.

Michael Grade, chairman of the BBC, said the total pay packages were 20 per cent below the market median. Bonuses, he said, were now restricted to 10 per cent of basic pay as opposed to the previous 30 per cent.

Rival broadcasters questioned the level of BBC income and criticised its spending in light of its ambitious licence fee bid.

ITV said: "The BBC's annual report shows that once again licence fee income outstrips the total incomes of both ITV and C4 [Channel 4]. We support a licence fee-funded BBC but their pitch for £6bn additional funding would be deeply damaging to the commercial sector and, in turn, viewers."

It added: "The reported fees for people like Jonathan Ross and Chris Moyles demonstrate the distorting scale the BBC already has in the market. Such a high level of extra funding would make it even harder for commercial broadcasters to compete for talent, but also on production and channel costs."

The BBC is under attack from Bectu, the broadcast union; Amicus, the largest private sector union; and the National Union of Journalists, which are preparing a strike ballot over plans to change the arrangements of its final salary pension scheme.

The BBC is proposing to raise the retirement age from 60 to 65 from 2016, to close the final salary scheme to new entrants from September, and to increase contributions from pension scheme members. Consultations with unions and staff on the changes closed last week. The unions are scheduled to meet next Monday to decide on a ballot.