The dynamic mechanical properties of starch-filled blends of polyethylene (PE) and poly(hydroxy ester ether) (PHEE) are strongly dependent on the proper-ties and distribution of the minor component (PHEE). The effect of the minor component on the viscoelastic properties was investigated by modeling the storage modulus, G', using a step-wise homogenization process. A comparison of theoretical and experimental data indicates that the morphology changes as the total volume fraction of filler phi(t) increases. At low phi(t), the PHEE encapsulates isolated starch granules. Above phi(t) similar to 0.2, the PHEE surface coating contributes to the formation of particle clusters. Evidence of particle encapsulation was provided by a microscopic examination of fractured tensile bars. At all filler contents, the decrease in the composite's modulus at the T-g of PHEE is larger than can be accounted for if this material is simply dispersed in the matrix. When the starch granules are clustered, the decrease is also too large to be accounted for by only considering particle encapsulation. The effect of particle clustering must be included in order for the model to correctly describe the temperature dependence of the storage modulus.