Poly(butylene terephthalate) (PBT) and acrylate rubber (ACM) were melt-blended in a Brabender Plasticorder at 220 degrees C and 40 rpm rotor speed. The blends were dynamically vulcanized by the addition of hexamethylenediamine carbamate (HMDC) during the melt-blending operation in the Brabender. Dynamic mechanical thermal analysis (DMTA) of the blends suggests a two-phase morphology of the blends with two separate T-g's for both components. The blends were also compatibilized by the addition of a dibutyl tin dilaurate (DBTDL) catalyst, which enhanced the extent of the transesterification reaction between the two polymers. The transreaction results in softer blends with higher elongation properties. The above blends also show very good oil and heat resistance at elevated temperatures.