How can I shortern my command line prompt's current directory?

I am using Ubuntu and I am tired of this long prompts in bash when I am working with some deep directory hierarchy. So, I would like to tweak my PS1 to shorten the working directory part the following way:

Currently I have:

pajton@dragon:~/workspace/projects/project1/folder1/test$

and would like to have:

pajton@dragon:~/workspace/.../folder1/test$

The truncating would occur if len($PWD) passes given threshold. I want to always keep the first path component and at least one last path component. Then as space permits, add more components taking from the right.

This is what I have currently. It works, but: 1) doesn't keep first path component, 2) doesn't respect cutting path at boundaries:

pwd_length=14
pwd_symbol="..."
newPWD="${PWD/#$HOME/~}"

if [ $(echo -n $newPWD | wc -c | tr -d " ") -gt $pwd_length ]
then
   newPWD="...$(echo -n $PWD | sed -e "s/.*\(.\{$pwd_length\}\)/\1/")"
else
   newPWD="$(echo -n $PWD)"
fi

And the result:

pajton@dragon:...sth/folder1/sample$ 

Thanks in advance!