In this study, the poly(methyl methacrylate/ polystyrene (PMMA/PS) core-shell composite latex was synthesized by the method of soapless seeded emulsion polymerization. The morphology of the PMMA/PS composite latex was core-shell structure, with PMMA as the core and PS as the shell. The core-shell morphology of the composite polymer latex was found to be thermally unstable. Under the effect of thermal annealing, the PS shell region first dispersed into the PMMA core region, and later separated out to the outside of the PMMA core region. This was explained on the basis of lowing interfacial tension between the PMMA and PS phases owing to the interpenetration layer. The interpenetration layer, which was located at the interface of the core and shell region, contained graft copolymer and entangled polymer chains. Both the graft copolymer and entangled polymer chains had the ability to lower the interfacial tension between the PMMA and PS phases. Also, the effect of thermal annealing on the morphology of commercial polymer/composite latex polymer blends was examined. The result showed that the core-shell composite latex had the ability to enhance the compatibility of the components of polymer blends. The compatibilizing ability of the core-shell composite latex was better than that of a random copolymer. Moreover, the effect of the amount of core-shell composite latex on the morphology of the polymer blend was investigated. The polymer blends, which contained composite latex above 50% wt, showed the morphology of a double sea-island structure. In addition, the composite latex was completely dissolved in solvent to destroy the core-shell structure and release the entangled polymer chains, and then dried to form the entangled free composite polymer. The entangled free composite polymer had the ability to enhance the compatibility of the components of the polymer blend as usual. The weight ratio 3/7 commercial polymer/entangled free composite polymer blend showed the morphology of the phase inversion structure. (C) 2003 Wiley Periodicals, Inc.