##### Table of Contents



SECURITIES AND EXCHANGE
    COMMISSION
 WASHINGTON, D.C.
    20549
  FORM 10-Q
  þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from:
    
    to   Commission File Number 001-33761
  PZENA INVESTMENT MANAGEMENT,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

20-8999751(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)120 West 45th Street,
    New York, New York(Address of principal
    executive offices)

10036(Zip Code)   (212)
    355-1600 (Registrants
    telephone number including area code)
  Not Applicable
 (Former name, former address,
    and former fiscal year; if changed since last report)
    o þ
  Rule 12b-2
 o o þ
  Rule 12b-2
 o þ




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##### 



PZENA
    INVESTMENT MANAGEMENT, INC.FORM 10-Q
    TABLE OF CONTENTS
  
  PagePART I  FINANCIAL INFORMATIONItem 1.

Consolidated Financial Statements of Pzena Investment
    Management, LLC and Subsidiaries


2Consolidated Statements of Financial Condition at
    December 31, 2006 and September 30, 2007 (unaudited)


2Consolidated Statements of Operations (unaudited)
    for the Three and Nine Months Ended September 30, 2006 and
    2007


3Consolidated Statements of Cash Flows (unaudited)
    for the Three and Nine Months Ended September 30, 2006 and
    2007.


4Consolidated Statements of Changes in
    Members Equity (unaudited) for the Nine Months Ended
    September 30, 2006..


5Consolidated Statements of Changes in
    Members Equity (unaudited) for the Nine Months Ended
    September 30, 2007


5Notes to Consolidated Financial Statements
    (unaudited)


6Financial Statements of Pzena Investment
    Management, Inc.


21Statements of Financial Condition at May 10,
    2007 and September 30, 2007 (unaudited)


21Statement of Operations (unaudited) for the
    Period May 10, 2007 (capitalization) through
    September 30, 2007


22Statement of Cash Flows (unaudited) for the
    Period May 10, 2007 (capitalization) through
    September 30, 2007


23Statement of Changes in Stockholders Equity
    (unaudited) for the Period May 10, 2007 (capitalization)
    through September 30, 2007


24Notes to Financial Statements (unaudited)


25Item 2.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations of Pzena
    Investment Management, LLC and Subsidiaries


26Item 3.

Quantitative and Qualitative Disclosures About
    Market Risk


38Item 4.

Controls and Procedures


39Item 4T.

Controls and Procedures


40PART II  OTHER INFORMATIONItem 1.

Legal Proceedings


40Item 1A.

Risk Factors


41Item 2.

Unregistered Sales of Equity Securities and Use
    of Proceeds


52Item 3.

Defaults Upon Senior Securities


52Item 4.

Submission of Matters to a Vote of Security
    Holders


52Item 5.

Other Information


52Item 6.

Exhibits


53SIGNATURES


54EX-3.1: AMENDED AND RESTATED CERTIFICATE OF INCORPORATIONEX-3.2: AMENDED AND RESTATED BYLAWSEX-4.3: RESALE AND REGISTRATION RIGHTS AGREEMENTEX-4.4: CLASS B STOCKHOLDERS' AGREEMENTEX-10.1: AMENDED AND RESTATED OPERATING AGREEMENTEX-10.2: TAX RECEIVABLE AGREEMENTEX-10.3: PZENA INVESTMENT MANAGEMENT, LLC AMENDED AND RESTATED 2006 EQUITY INCENTIVE PLANEX-10.4: PZENA INVESTMENT MANAGEMENT, LLC AMENDED AND RESTATED BONUS PLANEX-10.5: PZENA INVESTMENT MANAGEMENT, INC. 2007 EQUITY INCENTIVE PLANEX-10.8: EXECUTIVE EMPLOYMENT AGREEMENT: PZENAEX-10.9: EXECUTIVE EMPLOYMENT AGREEMENT: GOETZEX-10.10: AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT: KRISHNAEX-10.11: AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT: LIPSEYEX-10.12: INDEMNIFICATION AGREEMENT: PZENAEX-10.13: INDEMNIFICATION AGREEMENT: GALBRAITHEX-10.14: INDEMNIFICATION AGREEMENT: GREENBLATTEX-10.15: INDEMNIFICATION AGREEMENT: MEYEROWICHEX-10.16: INDEMNIFICATION AGREEMENT: ULLMANEX-21.1: LIST OF SUBSIDIARIESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION   i




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##### Table of Contents



EXPLANATORY
    NOTE
  Form 10-Q
       ii




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##### Table of Contents



CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
    Form 10-Q,
    
    our anticipated future results of operations and operating cash
    flows;
    our business strategies and investment policies;
    our financing plans and the availability of short-term borrowing;
    our competitive position and the effects of competition on our
    business;
    potential growth opportunities available to us;
    the recruitment and retention of our employees;
    our expected levels of compensation for our employees;
    our potential operating performance, achievements, efficiency
    and cost reduction efforts;
    our expected tax rate;
    changes in interest rates;
    our expectation with respect to the economy, capital markets,
    the market for asset management services and other industry
    trends;
    the benefits to our business resulting from the effects of the
    reorganization we consummated on October 30, 2007; and
    the impact of future legislation and regulation, and changes in
    existing legislation and regulation, on our business.  Form S-1 No. 333-143660)
 iii




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION
  Item 1.
    Financial
    Statements  Pzena
    Investment Management, LLC and Subsidiaries
  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (in thousands)
  December 31,


September 30,2006


2007(unaudited)ASSETSCash and Cash Equivalents

$
30,920


$
30,091Restricted Cash


2,014



2,074Due from Broker


882



30Advisory Fees Receivable


25,216



26,430Investments In Marketable Securities, at Fair Value


23,247



30,224Receivable From Related Parties


602



349Other Receivables


1,016



1,179Investments In Affiliates


3,613



3,610Prepaid Expenses and Other Assets


360



2,604Property and Equipment, Net of Accumulated Depreciation of
    $1,044 and $1,302, Respectively


1,876



3,144TOTAL ASSETS

$
89,746


$
99,735LIABILITIES AND MEMBERS EQUITYLiabilities:Accounts Payable and Accrued Expenses

$
4,082


$
19,190Securities Sold Short, at Fair Value


876



944Due to Broker


2,774



34Compensatory Units Subject to Mandatory Redemption


263,980



Long Term Debt






60,000Other Liabilities


1,048



1,198Subtotal


272,760



81,366Capital Units Subject to Mandatory Redemption


533,553



TOTAL LIABILITIES


806,313



81,366Commitments and ContingenciesMinority and Non-controlling Interests


13,399



17,617Excess of Liabilities over Assets


(729,966
)


Members Equity:Members Capital (64,037,910 units issued and
    outstanding at September 30, 2007)






765,299Retained Deficit






(764,547
)TOTAL MEMBERS EQUITY


(729,966
)


752TOTAL LIABILITIES AND MEMBERS EQUITY

$
89,746


$
99,735    2




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, unaudited)
  For the Three Months Ended September 30,


For the Nine Months Ended September 30,2006


2007


2006


2007REVENUE

$
29,388


$
40,217


$
81,198


$
112,355EXPENSESCompensation and Benefits Expense


18,490



8,807



56,868



121,213General and Administrative Expenses


1,723



2,958



5,291



7,587TOTAL OPERATING EXPENSES


20,213



11,765



62,159



128,800Operating Income/(Loss)


9,175



28,452



19,039



(16,445
)Interest Income/(Expense), Net


136



(409
)


451



156Dividend Income, Net


183



187



413



458Realized and Unrealized Gain/(Loss), Net on Marketable
    Securities and Securities Sold Short


1,455



(1,218
)


2,250



(263
)Equity in Earnings/(Loss) of Affiliates


553



(148
)


374



(3
)Other


(57
)


(33
)


(196
)


(8
)Total Other Income/(Loss)


2,270



(1,621
)


3,292



340INCOME/(LOSS) BEFORE INCOME TAXES AND MINORITY AND
    NON-CONTROLLING INTERESTS


11,445



26,831



22,331



(16,105
)Provision for Income Taxes


1,058



1,269



3,072



3,876Minority and Non-Controlling Interests


720



(711
)


1,323



(74
)Income/(Loss) Before Interest on Mandatorily Redeemable Units


9,667



26,273



17,936



(19,907
)Less: Interest on Mandatorily Redeemable Units


11,314







46,751



16,575NET INCOME/(LOSS)

$
(1,647
)

$
26,273


$
(28,815
)

$
(36,482
)    3




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
    thousands, unaudited)
  For the Three Months Ended September 30,


For the Nine Months Ended September 30,2006


2007


2006


2007CASH FLOWS FROM OPERATING ACTIVITIESNet Income/(Loss)

$
(1,647
)

$
26,273


$
(28,815
)

$
(36,482
)Adjustments to Reconcile Net Income/(Loss) to Cash Provided by
    Operating Activities:Depreciation


76



109



212



267Non-Cash Compensation


6,396







12,990



82,887Non-Cash Interest on Mandatorily Redeemable Units


6,218







13,868



(2,420
)Realized and Unrealized (Gain)/Loss, Net on Marketable
    Securities and Securities Sold Short


(1,455
)


1,219



(2,250
)


264Minority and
    Non-Controlling
    Interests


720



(711
)


1,323



(74
)Equity in (Earnings)/Loss of Affiliates and Investment
    Partnerships


(553
)


148



(374
)


3Deferred Income Taxes


108



(48
)


213



(42
)Changes in Operating Assets and Liabilities:Advisory Fees Receivable


(2,721
)


(377
)


(3,971
)


(1,214
)Due From Broker


(421
)


114



519



852Restricted Cash


116



(23
)


95



(60
)Prepaid Expenses and Other Assets


(56
)


(1,086
)


1,201



(2,238
)Due to Broker


153



(42
)


153



(2,740
)Accrued Expenses and Other Liabilities


2,995



6,082



13,338



14,332Purchases of Marketable Securities and Securities Sold Short


(4,858
)


(10,704
)


(12,318
)


(20,209
)Proceeds From Sale of Marketable Securities and Securities Sold
    Short


3,254



3,608



10,467



13,051Net Cash Provided by Operating Activities


8,325



24,562



6,651



46,177CASH FLOWS FROM INVESTING ACTIVITIESInvestments in Affiliates










(5,625
)


Investments in Investment Partnerships










5,460



Receivable from Related Parties


66



7



171



83Purchases of Property and Equipment


(73
)


(81
)


(164
)


(1,535
)Net Cash Used in Investing Activities


(7
)


(74
)


(158
)


(1,452
)CASH FLOWS FROM FINANCING ACTIVITIESContributions From Members














3,609Distributions to Members






(68,546
)






(113,455
)Debt Proceeds






60,000







60,000Contributions From Affiliates


1,101



9,750



2,368



11,971Distributions to Affiliates






(5,612
)


(1,036
)


(7,679
)Net Cash Provided By/(Used in) Financing Activities


1,101



(4,408
)


1,332



(45,554
)NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

$
9,419


$
20,080


$
7,825


$
(829
)CASH AND CASH EQUIVALENTS  Beginning of Period

$
3,817


$
10,011


$
4,969


$
30,920Effect of Initial Consolidation of Affiliates










442Cash and Cash Equivalents  Beginning of Period
    (Adjusted)


3,817



10,011



5,411



30,920Net Increase/(Decrease) in Cash and Cash Equivalents


9,419



20,080



7,825



(829
)CASH AND CASH EQUIVALENTS  End of Period

$
13,236


$
30,091


$
13,236


$
30,091Supplementary Cash Flow Information:Interest Paid

$
5,111


$
61


$
32,899


$
19,056Income Taxes Paid

$
620


$
1,388


$
2,060


$
4,038    4




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
    CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY
    FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2007
    (in thousands, except for unit amounts)
    (unaudited)
  Excess ofCapital


Members


Retained


LiabilitiesUnits


Capital


Deficit


Over Assets


TotalBalance at December 31, 2005





$



$



$
(19,669
)

$
(19,669
)Net Income Before Interest on Mandatorily Redeemable Units














17,936



17,936Interest on Mandatorily Redeemable Units














(46,751
)


(46,751
)Balance at September 30, 2006





$



$



$
(48,484
)

$
(48,484
)   Excess ofCapital


Members


Retained


LiabilitiesUnits


Capital


Deficit


Over Assets


TotalBalance at December 31, 2006





$



$



$
(729,966
)

$
(729,966
)Net Income Prior to Amendment of Operating Agreement on
    March 31, 2007














(88,075
)


(88,075
)Amortization of Deferred Compensation Prior to Amendment of
    Operating Agreement on March 31, 2007














1,901



1,901Reclassification of Liabilities to Capital Units


63,778,720



875,096



(816,140
)


816,140



875,096Net Income Subsequent to Amendment of Operating Agreement on
    March 31, 2007










51,593







51,593Amortization of Deferred Compensation Subsequent to Amendment of
    Operating Agreement on March 31, 2007






49











49Unit forfeiture


(7,500
)














Option Exercise


266,690



3,609











3,609Distributions to Members






(113,455
)










(113,455
)Balance at September 30, 2007


64,037,910


$
765,299


$
(764,547
)

$



$
752    5




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to Consolidated Financial Statements (unaudited)
  Note 1 
    Organization      Ownership atEntity

Type of Entity (Date of Formation)

September 30, 2007Pzena Large Cap Value Fund

Massachusetts Trust (11/1/02)


99.6
%Pzena Large Cap Value Fund II

Massachusetts Trust (8/1/2006)


99.9
%Pzena International Value Service

Delaware Limited Liability Company (12/22/2003)


0.0
%Pzena Global Value Service

Delaware Limited Liability Company (12/22/2003)


0.0
%Pzena Emerging Markets Value Service

Delaware Limited Liability Company (12/28/2006)


89.9
%Pzena Mega Cap Value Fund

Massachusetts Trust (2/23/2007)


99.9
%       Note 2 
    Significant
    Accounting Policies  Basis
    of Presentation:
    04-5, (EITF 04-5),
 6




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
                Managements
    Use of Estimates:
    Fair
    Values of Financial Instruments:
   7




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  Revenue
    Recognition:
  agreed-upon
  Unit-based
    Compensation:
        Interest
    on Mandatorily Redeemable Units:
   8




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
        Compensatory
    Units Subject to Mandatory Redemption:
        Capital
    Units Subject to Mandatory Redemption:
        Cash
    and Cash Equivalents and Restricted Cash:
   9




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
      Due
    From Broker:
    Due To
    Broker:
    Investments
    in Securities:
    Securities
    Valuation:
      Concentrations
    of Credit Risk:
     10




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  Property
    and Equipment:
    Business
    Segments:
    Income
    Taxes:
      Foreign
    Currency:
        New
    Accounting Pronouncements:
   11




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
      No. 07-1, (SOP 07-1). SOP 07-1 SOP 07-1 SOP 07-1
    Note 3 
    Property
    and Equipment    December 31,


September 30,2006


2007(in thousands)Computer Hardware

$
682


$
789Computer Software


141



144Furniture and Fixtures


775



1,156Office Equipment


189



243Leasehold Improvements


1,133



2,114Total


2,920



4,446Less: Accumulated Depreciation and Amortization


(1,044
)


(1,302
)Total

$
1,876


$
3,144     Note 4 
    Related
    Party Transactions   12




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  start-up
      Note 5 
    Investments
    in Affiliates    PAI Hedged Value Fund, LLCDecember 31,


September 30,2006


2007(in thousands)Investments, at Fair Value

$
12,277


$
13,106Total Liabilities


(12
)


(18
)Net Assets

$
12,265


$
13,088Equity Held by the Company

$
3,613


$
3,610Ownership Percentage


29%



28%   PAI Hedged Value Fund, LLCThe Three Months Ended September 30,2006


2007(in thousands)Net Investment Income

$
31


$
10Net Realized and Unrealized Income (Loss)


991



(547
)Net Income (Loss)

$
1,022


$
(537
)Companys Equity in Earnings/(Loss)

$
553


$
(148
)   13




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  PAI Hedged Value Fund, LLCThe Nine Months Ended September 30,2006


2007(in thousands)Net Investment Income

$
20


$
1Net Realized and Unrealized Income (Loss)


673



(49
)Net Income (Loss)

$
693


$
(48
)Companys Equity in Earnings/(Loss)

$
374


$
(3
)   Note 6 
    Commitments
    and Contingencies          Note 7 
    Retirement
    Plan    Note 8 
    Compensation   14




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
      For the Three MonthsEndedSeptember 30,2006


2007(in thousands)Cash Compensation and Benefits

$
8,802


$
8,807Distributions on Compensatory Units


3,292



Change in Redemption Value of Compensatory Units


6,396



Other Non-Cash Compensation






Total Compensation and Benefits Expense

$
18,490


$
8,807   For the Nine MonthsEndedSeptember 30,2006


2007(in thousands)Cash Compensation and Benefits

$
26,020


$
26,239Distributions on Compensatory Units


17,858



12,087Change in Redemption Value of Compensatory Units


12,990



15,969Acceleration of Vesting of Compensatory Units






64,968Other Non-Cash Compensation






1,950Total Compensation and Benefits Expense

$
56,868


$
121,213   Note 9 
    Long Term
    Debt and Credit Facility     15




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  Note 10 
    Income
    Taxes    The Three MonthsEndedSeptember 30,2006


2007(in thousands)Current

$
950


$
1,317Deferred


108



(48
)Total

$
1,058


$
1,269   The Nine MonthsEndedSeptember 30,2006


2007(in thousands)Current

$
2,859


$
3,918Deferred


213



(42
)Total

$
3,072


$
3,876       Note 11 
    Investments
    in Marketable Securities    UnrealizedCost


Gain/(Loss)


Fair Value(in thousands)Equities

$
20,828


$
2,419


$
23,247   UnrealizedProceeds


(Gain)/Loss


Fair Value(in thousands)Equity Securities Sold Short

$
681


$
195


$
876     UnrealizedCost


Gain/(Loss)


Fair Value(in thousands)Equities

$
29,186


$
1,038


$
30,224   16




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  UnrealizedProceeds


(Gain)/Loss


Fair Value(in thousands)Equity Securities Sold Short

$
941


$
3


$
944   Note 12 
    Members
    Equity Interests           17




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
      As ofDecember 31,2006(in thousands)Members Capital (39,891,000 units issued and outstanding at
    December 31, 2006)

$
18,383Undistributed Loss Attributable to Capital Units


(214,796
)Excess of Redemption Amount Over Capital and Undistributed
    Loss


729,966Total

$
533,553     For the Three MonthsEnded September 30,2006


2007(in thousands)Distributions on Compensatory Units

$
3,292


$
Change in Redemption Value of Compensatory Units


6,396



Acceleration of Vesting of Compensatory Units






Total Unit-Based Compensation Expense

$
9,688


$
   For the Nine Months Ended September 30,2006


2007(in thousands)Distributions on Compensatory Units

$
17,858


$
12,087Change in Redemption Value of Compensatory Units


12,990



15,969Acceleration of Vesting of Compensatory Units






64,968Total Unit-Based Compensation Expense

$
30,848


$
93,024     Weighted-average Time Until Exercise:


7 yearsVolatility:


30%Risk Free Rate:


5.22%Dividend Yield:


4.87%    18




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
    WeightedAverageOptions


ExerciseOutstanding


PriceBalance at January 1, 2007





$
Options Granted


645,000



13.53Options Cancelled


(20,000
)


(13.53
)Options Exercised


(266,690
)


(13.53
)Balance at September 30, 2007


358,310



13.53           600-for-1 unit 5-for-1 unit
  Note 13 
    Subsequent
    Events  (FTB 85-5).
 19




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##### Table of Contents



Pzena
    Investment Management, LLC and Subsidiaries
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
       20




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##### Table of Contents



Pzena
    Investment Management, Inc.
    STATEMENTS OF FINANCIAL CONDITION
  May 10,2007


September 30,(capitalization)


2007(unaudited)ASSETSCash

$
100


$
100TOTAL ASSETS

$
100


$
100STOCKHOLDERS EQUITYCommon Stock ($0.01 par value, 1,000 shares
    authorized, 6 shares issued and outstanding)

$
0


$
0Additional Paid-in Capital


100



100Retained Earnings






TOTAL STOCKHOLDERS EQUITY

$
100


$
100    21




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##### Table of Contents



Pzena
    Investment Management, Inc.
  STATEMENT OF OPERATION
 (unaudited)
  For the PeriodFor the Three Months

May 10, 2007 (capitalization)Ended September 30, 2007

through September 30, 2007REVENUE

$



$
EXPENSES






NET INCOME

$



$
Basic and Diluted Net Income Per Share

$



$
Weighted Average Shares Used in Basic and Diluted Net Income Per
    Share


6



6    22




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##### Table of Contents



Pzena
    Investment Management, Inc.
  STATEMENT OF CASH FLOWS
 (unaudited)
  For the PeriodFor the Three Months

May 10, 2007 (capitalization)Ended September 30, 2007

through September 30, 2007CASH FLOWS FROM OPERATING ACTIVITIESNet Income

$



$
Adjustments to Reconcile Net Income to Cash Flows Provided by
    Operating Activities






Changes in Operating Assets and Liabilities






Net Cash Provided by Operating Activities






CASH FLOWS FROM INVESTING ACTIVITIESInvesting Activities






Net Cash Provided by Investing Activities






CASH FLOWS FROM FINANCING ACTIVITIESFinancing Activities






Net Cash Provided by Financing Activities






NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

$



$
CASH AND CASH EQUIVALENTS  Beginning of Period

$
100


$
100Net Increase/(Decrease) in Cash and Cash Equivalents






CASH AND CASH EQUIVALENTS  End of Period

$
100


$
100Supplementary Cash Flow Information:Interest Paid

$



$
Income Taxes Paid

$



$
    23




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##### Table of Contents



Pzena
    Investment Management, Inc.
    STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
    FOR THE PERIOD FROM MAY 10, 2007 (CAPITALIZATION)
    THROUGH SEPTEMBER 30, 2007
    (unaudited)
  AdditionalShares


Common


Paid-in


RetainedOutstanding


Stock


Capital


Earnings


TotalBalance at May 10, 2007


6


$
0


$
100


$



$
100Net Income


















Balance at September 30, 2007


6


$
0


$
100






$
100    24




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##### Table of Contents



Notes
    to Financial Statements of Pzena Investment Management, Inc.
    (unaudited)
  1.
    Organization
    and Purpose      2.
    Subsequent
    Events  100-for-6
  Bulletin No. 85-5, 85-5).
  sub-investment
 25




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations of Pzena Investment Management, LLC and
    Subsidiaries  Overview
      Revenue
      
    our ability to educate our target clients about our classic
    value investment strategies and provide them with exceptional
    client service;
    the relative investment performance of our investment
    strategies, as compared to competing products and market indices;
    competitive conditions in the investment management and broader
    financial services sectors;
    investor sentiment and confidence; and
    our decision to close strategies when we deem it to be in the
    best interests of our clients.  agreed-upon
 26




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##### Table of Contents



agreed-upon
        
    changes in AUM due to appreciation or depreciation of our
    investment portfolios, and the levels of the contribution and
    withdrawal of assets by new and existing clients;
    distribution of AUM among our investment strategies, which have
    different fee schedules;
    distribution of AUM between separately-managed accounts and
    sub-advised funds, for which we generally earn lower overall
    advisory fees; and
    the level of our performance with respect to accounts on which
    we are paid incentive fees.  Expenses
    
    variations in the level of total compensation expense due to,
    among other things, bonuses, awards of equity to our employees
    and members of our operating company, changes in our employee
    count and mix, and competitive factors; and
    expenses, such as rent, professional service fees and
    data-related costs, incurred, as necessary, to run our business.  Compensation
    and Benefits Expense
   27




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##### Table of Contents



For the Three Months Ended September 30,


For The Nine Months Ended September 30,2006


2007


2006


2007(in thousands)


(in thousands)(unaudited)


(unaudited)Cash Compensation and Benefits

$
8,802


$
8,807


$
26,020


$
26,239Distributions on Compensatory Units


3,292







17,858



12,087Change in Redemption Value of Compensatory Units


6,396







12,990



15,969Acceleration of Vesting of Compensatory Units














64,968Other Non-Cash Compensation














1,950Total Compensation and Benefits Expense

$
18,490


$
8,807


$
56,868


$
121,213        28




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##### Table of Contents



General
    and Administrative Expenses
      Other
    Income
    Minority
    and Non-Controlling Interests
    Provision
    for Income Tax
    Interest
    on Mandatorily Redeemable Units
     29




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##### Table of Contents



Operating
    Results
  Revenues
    Separately-


Sub-Managed


AdvisedRevenue

Accounts(1)


Accounts


Total(in millions)(unaudited)For the Three Months Ended:September 30, 2006

$
20.2


$
9.2


$
29.4September 30, 2007


26.6



13.6



40.2For the Nine Months Ended:September 30, 2006

$
57.2


$
24.0


$
81.2September 30, 2007


75.6



36.8



112.4     Separately-


Sub-Managed


AdvisedAssets Under Management

Accounts(1)


Accounts


Total(in billions)(unaudited)As of December 31, 2006

$
14.6


$
12.8


$
27.3Net Inflows


1.5



0.2



1.7Appreciation


(0.1
)


0.0



(0.1
)As of September 30, 2007

$
16.0


$
13.0


$
28.9     (1)
    
    During the periods presented, all
    performance-based advisory fees were earned on our
    separately-managed accounts. 30




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##### Table of Contents



Investment Strategy

AUM(in billions)(unaudited)Large Cap Value

$
17.3Value Service


5.8Global Value


2.9Small Cap Value


1.1Mid Cap Value


0.6International Value


0.6All Cap Value


0.4Other


0.2Total

$
28.9   Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
  non-U.S. investment non-U.S. investment
    Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
   31




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##### Table of Contents



non-U.S. investment non-U.S. investment
  Operating
    Expenses
    For the Three Months Ended September 30,


For the Nine Months Ended September2006


2007


2006


2007(in thousands)


(in thousands)(unaudited)


(unaudited)Cash Compensation and Benefits

$
8,802


$
8,807


$
26,020


$
26,239Distributions on Compensatory Units


3,292







17,858



12,087Change in Redemption Value of Compensatory Units


6,396







12,990



15,969Acceleration of Vesting of Compensatory Units














64,968Other Non-Cash Compensation














1,950Total Compensation and Benefits Expense

$
18,490


$
8,807


$
56,868


$
121,213   Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
       32




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##### Table of Contents



Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
        Other
    Income (Loss)
  Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
    Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
    Provision
    for Income Taxes
  Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
   33




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##### Table of Contents



Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
    Minority
    and Non-Controlling Interests
  Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
    Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
    Interest
    on Mandatorily Redeemable Units
  Three
    Months Ended September 30, 2007 versus Three Months Ended
    September 30, 2006
    Nine
    Months Ended September 30, 2007 versus Nine Months Ended
    September 30, 2006
    Liquidity
    and Capital Resources
     34




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##### Table of Contents



Cash
    Flows
   35




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##### Table of Contents



Critical
    Accounting Policies and Estimates
      Unit-based
    Compensation
   36




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##### Table of Contents



Consolidation
      Income
    Taxes
       37




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##### Table of Contents



Recently
    Issued Accounting Pronouncements
      No. 07-1, SOP 07-1. SOP 07-1 SOP 07-1 SOP 07-1
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Market
    Risk
      Interest
    Rate Risk
   38




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##### Table of Contents



Item 4.
    Controls
    and Procedures  Rule 13a-15 Rule 13a-15(e)
  Form 10-Q
  Form S-1 (No. 333-1436660), Form 10-Q,
    
    We have increased the staffing in our accounting and finance
    department in order to enhance its technical expertise,
    oversight ability, and review and analytical procedures. We
    appointed Wayne A. Palladino as our Chief Financial Officer, who
    has 12 years of public company reporting experience, in May
    2007. In the third quarter of 2007, we also hired a Director of
    Internal Controls and Compliance with over eight years of
    relevant experience at a major accounting firm and a major
    diversified financial institution combined. We are continuing to
    strengthen the staffing in our accounting and finance department.
    We engaged a consulting firm to assist us in strengthening our
    period-end internal controls over financial reporting, including
    the design of additional reviews for our accounting department
    to utilize in preparing the information presented in this
    Quarterly Report on Form
    10-Q.
    We engaged a major public accounting firm to advise us on
    complex and non-routine accounting transactions.
    In the third quarter, we also enhanced monitoring controls in
    our accounting and finance department, including additional
    reviews by finance staff, implementation of review and approval
    procedures for complex and non-routine transactions, and
    independent review by our Director of Internal Controls and
    Compliance. 39




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##### Table of Contents




    In the third quarter, we also updated our policies and
    procedures regarding accounting for stock-based compensation in
    order to ensure that they are consistently accounted for in
    accordance with U.S. generally accepted accounting principles on
    a going forward basis.
    We have established procedures to evaluate whether investment
    partnerships should be consolidated in our financial statements.    Item 4T.
    Controls
    and Procedures   40




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##### Table of Contents



PART II.
    OTHER
    INFORMATION  Item 1.
    Legal
    Proceedings  Form 10-Q,
   41




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##### Table of Contents



Item 1A.
    Risk
    Factors  We face a variety of significant and diverse risks, many of
    which are inherent in our business. Described below are certain
    risks that we currently believe could materially affect us.
    Other risks and uncertainties that we do not presently consider
    to be material or of which we are not presently aware may become
    important factors that affect us in the future. The occurrence
    of any of the risks discussed below could materially and
    adversely affect our business, prospects, financial condition,
    results of operations or cash flow.
  Risks
    Related to Our Business
  We
    depend on Richard S. Pzena, John P. Goetz, A. Rama Krishna and
    William L. Lipsey and the loss of the services of any of them
    could have a material adverse effect on us.
    If our
    investment strategies perform poorly, we could lose clients or
    suffer a decline in asset under management which would impair
    our earnings.
    
    our existing clients might withdraw their funds from our
    investment strategies, which would cause the level of our
    advisory fees to decline;
    the level of the performance-based fees paid by certain of our
    clients, which provides us with a percentage of returns if our
    investment strategies outperform certain agreed upon benchmarks,
    would decline;
    third-party financial intermediaries, advisers or consultants
    may rate our investment products poorly, which may lead our
    existing clients to withdraw funds from our investment
    strategies or to the reduction of asset inflows from these third
    parties or their clients; or
    the mutual funds and other investment funds that we
    sub-advise
    may decide not to renew or to terminate the agreements pursuant
    to which we
    sub-advise
    them and we may not be able to replace these relationships. 42




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##### Table of Contents



Our
    sub-investment
    advisory relationships with mutual funds advised by John Hancock
    Advisers represent a significant source of our revenues, and the
    termination of these relationships would impair our revenues and
    earnings.
  sub-investment sub-investment and/or
  Because
    our clients can reduce the amount of assets we manage for them,
    or terminate our agreements with them, on short notice, we may
    experience unexpected declines in revenue and
    profitability.
  sub-investment sub-investment sub-investment sub-investment sub-investment
  Difficult
    market conditions can adversely affect our business by reducing
    the market value of the assets we manage or causing our clients
    to withdraw funds.
    
    causing the value of our AUM to decline, which would result in
    lower advisory fees, or
    causing some of our clients to withdraw funds from our
    investment strategies in favor of investments they perceive as
    offering greater opportunity or lower risk, which also would
    result in lower advisory fees.   43




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##### Table of Contents



Our
    ability to retain our senior investment professionals and
    attract additional qualified investment professionals is
    critical to our success.
    The
    substantial growth of our business in the past five years may be
    difficult to sustain as it may place significant demands on our
    resources and employees and may increase our
    expenses.
      The
    investment management business is intensely
    competitive.
    
    investment performance;
    investor perception of an investment managers drive, focus
    and alignment of interest with them;
    quality of service provided to, and duration of relationships
    with, clients;
    business reputation; and
    level of fees charged for services.    Reductions
    in business sourced through
    third-party
    distribution channels, or their poor reviews of us or our
    products, could materially reduce our revenue and ability to
    attract new clients.
  sub-investment high-net-worth
 44




---



##### Table of Contents



third-party sub-investment
  A
    change of control of us could result in termination of our
    sub-investment
    advisory and investment advisory agreements.
  sub-investment sub-advise sub-investment sub-advise.
  Our
    failure to comply with guidelines set by our clients could
    result in damage awards against us and a loss of AUM, either of
    which would cause our earnings to decline or affect our ability
    to remain in business.
    Extensive
    regulation of our business limits our activities and exposes us
    to the potential for significant penalties, including fines or
    limitations on our ability to conduct our
    business.
  sub-investment
 45




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##### Table of Contents



sub-investment
  Operational
    risks may disrupt our business, result in losses or limit our
    growth.
  back-up back-up
    The
    investment management industry faces substantial litigation
    risks which could materially adversely affect our business,
    financial condition or results of operations or cause
    significant reputational harm to us.
   46




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##### Table of Contents



In May
    2007, our management and our independent auditors identified
    material weaknesses in our internal control over financial
    reporting that, if not properly remediated, could result in a
    material misstatement of our financial statements and our
    managements inability to report that our internal controls
    are effective for 2008 and thereafter, as required by the
    Sarbanes-Oxley Act of 2002, either of which could cause
    investors to lose confidence in our reported financial
    information or our Class A common stock to lose
    value.
  Form S-1 (No. 333-1436660), Form 10-Q,
    
    We appointed Wayne A. Palladino, who has twelve years of public
    company reporting experience, as our chief financial officer.
    We engaged a major public accounting firm to advise us on the
    accounting for complex and non-routine transactions.
    We engaged an external compliance consulting firm to advise us
    on improving our internal controls and systems in general, and
    in order to become compliant with Section 404 of the
    Sarbanes-Oxley Act of 2002.     47




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##### Table of Contents



Fulfilling
    our public company financial reporting and other regulatory
    obligations will be expensive and time consuming.
    Form 10-K Form 10-K
  The
    historical consolidated financial information included in this
    report is not necessarily indicative of our future financial
    results after the reorganization consummated on October 30,
    2007 and as a public company.
      An
    increase in our borrowing costs may adversely affect our
    earnings and liquidity.
     48




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##### Table of Contents



Risks
    Related to Our Investment Strategies
  Our results of operations depend on the performance of our
    investment strategies. Poor performance of our investment
    strategies will reduce or minimize the value of our assets under
    management on which our advisory fees are based. As advisory
    fees comprise all of our operating revenues, poor performance of
    our investment strategies will have a material adverse impact on
    our results of operations. In addition, poor performance will
    make it difficult for us to retain or attract clients and to
    grow our business. The performance of our strategies is subject
    to some or all of the following risks.
  Our
    classic value investments in concentrated portfolios subjects
    the performance of our investment strategies to the risk that
    the companies in which we invest may not achieve the level of
    earnings recovery that we initially expect, or at
    all.
    Our
    investment strategies may not obtain attractive returns in the
    short term or during certain market periods.
    Our
    investment approach may underperform other investment
    approaches, which may result in significant withdrawals of
    client assets or client departures or a reduction in our
    AUM.
   49




---



##### Table of Contents



Our
    investment process requires us to conduct extensive fundamental
    research on any company before investing in it, which may result
    in missed investment opportunities and reduce the performance of
    our investment strategies.
    Our
    Global Value and International Value investment strategies
    consist primarily of investments in the securities of issuers
    located outside of the United States, which may involve foreign
    currency exchange, political, social and economic uncertainties
    and risks.
  non-U.S. currencies U.S.-dollar
    The
    historical returns of our existing investment strategies may not
    be indicative of their future results or of our investment
    strategies under incubation.
   50




---



##### Table of Contents



Risks
    Related to Our Structure
  Our
    only material asset after completion of the reorganization and
    our initial public offering on October 30, 2007 is our
    interest in Pzena Investment Management, LLC, and we are
    accordingly dependent upon distributions from Pzena Investment
    Management, LLC to pay taxes and other expenses.
    We are
    required to pay holders of Class B units of Pzena
    Investment Management, LLC most of the tax benefit of any
    depreciation or amortization deductions we may claim as a result
    of the tax basis step up we receive in connection with the
    reorganization and future exchanges of Class B
    units.
        If we
    are deemed an investment company under the Investment Company
    Act, our business would be subject to applicable restrictions
    under that Act, which could make it impracticable for us to
    continue our business as contemplated.
   51




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##### Table of Contents



Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information  (a)
    On December 5, 2007, we published updated performance data
    for our seven largest investment strategies, Large Cap Value,
    Value Service, Global Value, Small Cap Value, Mid Cap Value, All
    Cap Value and International Value, from their inception through
    October 31, 2007, and for the five-year, three-year and
    one-year periods ended October 31, 2007, on our corporate
    website at www.pzena.com. We intend to publish updated
    performance data for our largest investment strategies on our
    website on a monthly basis.  (b)
    Not applicable. 52




---



##### Table of Contents



Item 6.
    Exhibits  Exhibit No.

Description of Exhibit3
.1

Amended and Restated Certificate of Incorporation of Pzena
    Investment Management, Inc., effective as of October 30,
    20073
.2

Amended and Restated Bylaws of Pzena Investment Management,
    Inc., effective as of October 30, 20074
.1

Certificate of Pzena Investment Management, Inc. Class A
    Common Stock*4
.2

Rights of Class B Members of Pzena Investment Management,
    LLC to exchange Class B Units of Pzena Investment
    Management, LLC for Class A Common Stock of Pzena
    Investment Management, Inc. (Exhibit B to the Amended and
    Restated Operating Agreement of Pzena Investment Management, LLC)4
.3

Resale and Registration Rights Agreement, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and the Holders named on the signature pages thereto4
.4

Class B Stockholders Agreement, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and the Class B Stockholders named on the signature
    pages thereto10
.1

Amended and Restated Operating Agreement of Pzena Investment
    Management, LLC, dated as of October 30, 2007, by and among
    Pzena Investment Management, Inc. and the Class B Members
    named on the signature pages thereto10
.2

Tax Receivable Agreement, dated as of October 30, 2007, by
    and among Pzena Investment Management, Inc., Pzena Investment
    Management, LLC and the Continuing Members and Exiting Members
    named on the signature pages thereto10
.3

Pzena Investment Management, LLC Amended and Restated 2006
    Equity Incentive Plan10
.4

Pzena Investment Management, LLC Amended and Restated Bonus Plan10
.5

Pzena Investment Management, Inc. 2007 Equity Incentive Plan10
.6

Credit Agreement, dated as of July 23, 2007 among Pzena
    Investment Management, LLC, as the Borrower, Bank of America,
    N.A., as Administrative Agent and as a Lender and L/C Issuer*10
.7

Lease, dated as of February 4, 2003, between Magnolia
    Associates, Ltd. and Pzena Investment Management, LLC and the
    amendments thereto dated as of March 31, 2005 and
    October 31, 2006*10
.8

Executive Employment Agreement for Richard S. Pzena, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc., Pzena Investment Management, LLC and Richard S. Pzena10
.9

Executive Employment Agreement for John P. Goetz, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc., Pzena Investment Management, LLC and John P. Goetz10
.10

Amended and Restated Executive Employment Agreement for A. Rama
    Krishna, dated as of October 30, 2007, by and among Pzena
    Investment Management, Inc., Pzena Investment Management, LLC
    and A. Rama Krishna10
.11

Amended and Restated Executive Employment Agreement for William
    L. Lipsey, dated as of October 30, 2007, by and among Pzena
    Investment Management, Inc., Pzena Investment Management, LLC
    and William L. Lipsey10
.12

Indemnification Agreement for Richard S. Pzena, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and Richard S. Pzena10
.13

Indemnification Agreement for Steven M. Galbraith, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and Steven M. Galbraith10
.14

Indemnification Agreement for Joel M. Greenblatt, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and Joel M. Greenblatt10
.15

Indemnification Agreement for Richard P. Meyerowich, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and Richard P. Meyerowich10
.16

Indemnification Agreement for Myron E. Ullman, III, dated as of
    October 30, 2007, by and among Pzena Investment Management,
    Inc. and Myron E. Ullman, III21
.1

List of Subsidiaries of Pzena Investment Management, Inc.31
.1

Certification of Chief Executive Officer pursuant to Exchange
    Act Rule
    13a-1431
.2

Certification of Chief Financial Officer pursuant to Exchange
    Act Rule
    13a-1432
.1

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 200299
.1

Letter of J.H. Cohn LLP to the Securities and Exchange
    Commission re: Pzena Investment Management, LLCs change in
    independent accountants*    *
    
    Previously filed as an exhibit to the Registration Statement on
    Form S-1
    (No. 333-143660)
    of Pzena Investment Management, Inc, which was originally filed
    on June 11, 2007. 53




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##### Table of Contents



SIGNATURES
       By:
    /s/  Richard
    S. Pzena   Title:
    Chief Executive Officer    By:
    /s/  Wayne
    A. Palladino   Title:
    Chief Financial Officer