A novel amphiphilic grafted copolymer, poly(vinylalcohol)-graft-poly(vinylnaphthalene), was synthesized and studied spectroscopically. The unusual photophysical properties of its aqueous solutions were observed for the first time and are attributed to the aggregation of the naphthalene chromophores in the bulk of polymer pseudomicelles. The enormous red shift of the fluorescence spectra is interpreted in terms of the confinement effect. The interpretation is supported by model calculations, taking into account the mixing of Frenkel excitons and charge-transfer states of chromophore clusters in densely packed polymer domains. Gradual funneling of the excitation energy between aggregates of different sizes is discussed in the context of the measured fluorescence depolarization spectra.