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The dependence of permeability and grain size on annealing temperature was investigated, and a corresponding model was proposed. A surprising phenomenon wherein the grain size first decreases and then increases with increasing annealing temperature was analysed and explained by using this model. Moreover, it was also found that excellent soft magnetic properties were obtained when annealed at temperature near 0·6 times that of the melting point. Theoretical analysis results are in excellent agreement with experiments.