Thermal annealing has often been used to reduce residual stress and improve mechanical properties and performance of hard coatings. In this work, nanocomposite TiSiN coatings were engineered onto steel substrates by reactive unbalanced magnetron sputtering. Following deposition, thermal annealing was performed at temperatures up to 900 degrees C. A marked decrease in residual stress was observed in the coatings with the increase of thermal annealing temperature. To ascertain the role of residual stress in the response of the coatings to contact damage, nanoindentation was used to probe the damage resistance of the coatings and Rockwell-C test used to evaluate their adhesion strength, as a function of thermal annealing temperature. A combination of high damage resistance and good adhesion strength was observed for the coating annealed at an intermediate temperature of 600 degrees C. (C) 2011 Elsevier B.V. All rights reserved.