The ferromagnetic shape memory alloys (FSMA) are relatively the brand new smart materials group. The most interesting issue connected with FSMA is magnetic shape memory, which gives a possibility to achieve relatively high strain (over 8%) caused by magnetic field. In this paper the effect of annealing on the microstructure and martensitic transition on Ni-Mn-Co-In ferromagnetic shape memory alloy has been studied. The alloy was prepared by melting of 99,98% pure Ni, 99,98% pure Mn, 99,98% pure Co, 99,99% pure In. The chemical composition, its homogeneity and the alloy microstructure were characterized using scanning electron microscopy (SEM) and transmission electron microscopy (TEM). The phase composition was also studied by X-ray analysis. The transformation course and characteristic temperatures were determined by the use of differential scanning calorimetry (DSC) and magnetic balance techniques. The results show that Tc of the annealed sample was found to decrease with increasing the annealing temperature. The Ms and Af increases with increasing annealing temperatures and showed best results in 1173K. The studied alloy exhibits a martensitic transformation from a L21 austenite to a martensite phase with a 7-layer (14M) and 5-layer (10M) modulated structure. The lattice constants of the L21 (a0) structure determined by TEM and X-ray analysis in this alloy were a0=0,4866. The TEM observation exhibit that the studied alloy in initial state has bigger accumulations of 10M and 14M structures as opposed from the annealed state.