No. of Recommendations: 3

You wrote, Therein lies my concerns, especially with the MBS's in EVV's portfolio. If, as many are still concerned, there's another rash of foreclosure and mortgage loan defaults, not only could EVV's NAC fall, but the discount inherent in the market price could exacerbate. Thanks.

Have you examined your rational for selling EVV?

I'm skeptical that any impairments in the MBSs could impact the NAV of the entire fund by as much as 10%. EVV's MBS component is mostly agency MBSs. Most of those are going to be of reasonably good quality.

A schedule of all of EVV's investments are available in their annual report. ( ) I don't have time to analyze it right now, but itAs of 4/1/10, MBSs are 26.4% of the port; CMBSs are 7.3%. The commercial MBSs probably have issues of their own, but they are for the most part not part of these put-back negotiations currently underway with the banks.

At the outside probably 25% of the MBS loans might be impacted - assuming a lot of sub-prime purchases have occurred due to portfolio rollover. Even if you received no recovery (usually you should get 50-75% of your money back), it would impact the portfolio's value by 6.6%. Perhaps with their additional leverage, you might get up to a 10% loss - which is what EVV is discounted to today.

That would suggest to me that the market has already priced in all this risk, so by dumping EVV today you're probably locking in those losses even if they're not real. But as an investor, I see that I could potentially profit by a future rise in the market price of EVV. Possibly not 10%, but something between 0 and 10%. The only question being, How much? That combined with their current yield of 8.7% would seem to make EVV a reasonably attractive purchase.

Can you beat it elsewhere? Or do you think EVV has too many additional risks built in? As far as I can tell, those are the only reasons to sell this holding. At the time I sold my shares of EVV, I thought I could beat its roughly 9% yield by purchasing individual securities. Today I only know of a few securities I would touch that yield as much as 8.7%. Hum. Maybe I should I should consider getting back into EVV myself.

- Joel
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