<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                      OF
                      THE SECURITIES EXCHANGE ACT OF 1934

   For the 52 weeks ended January 27, 2001  Commission file number 1-4947-1

                       J. C. Penney Funding Corporation
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                DELAWARE                               51-0101524
        ------------------------                ------------------------
        (State of incorporation)                (I.R.S. Employer ID No.)

    6501 LEGACY DRIVE, PLANO, TEXAS                     75024-3698
---------------------------------------                 ----------
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code:       (972) 431-1000
---------------------------------------------------       --------------
Securities registered pursuant to Section 12(b) of the Act:         None
-----------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:         None
----------------------------------------------------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X  No __
                                              ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant:  None
                                           ----

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:  500,000 shares of
Common Stock of $100 par value, as of April 19, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

    Portions of Registrant's 2000 Annual Report ("2000 Annual Report") are
incorporated into Parts I, II, and IV.  Portions of J. C. Penney Company, Inc.'s
2000 Annual Report to Stockholders ("JCPenney's 2000 Annual Report") are
incorporated into Part I.

     THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>

                                    PART I

1.   Business.
     --------

     J. C. Penney Funding Corporation ("Funding"), which was incorporated in
Delaware in 1964, is a wholly-owned subsidiary of J. C. Penney Company, Inc.
("JCPenney"), also incorporated in Delaware. Funding's executive offices are
located in JCPenney's offices in Plano, Texas. Its business consists of
financing a portion of JCPenney's operations through loans to JCPenney.

     JCPenney, a company founded by James Cash Penney in 1902 and incorporated
in 1924, is a major retailer operating approximately 1,100 domestic and
international JCPenney department stores in all 50 states, Puerto Rico, and
Mexico. In addition, the Company operates 49 department stores in Brazil under
the Renner name. The major portion of JCPenney's business consists of providing
merchandise and services to consumers through department stores that include
catalog departments. JCPenney stores and catalog markets predominantly family
apparel, jewelry, shoes, accessories, and home furnishings. In addition,
JCPenney, through its subsidiary, Eckerd Corporation, operates a chain of
approximately 2,640 drugstores located throughout the Southeast, Sunbelt and
Northeast regions of the United States.

     On March 7, 2001, JCPenney signed a definitive agreement with a U.S.
subsidiary of AEGON N.V. for the sale of JCPenney's J. C. Penney Direct
Marketing Services, Inc. ("DMS") subsidiary, consisting of the stock of its
insurance subsidiaries and related businesses. At closing JCPenney will receive
approximately $1.3 billion plus settlements from intercompany accounts.
Concurrent with the closing, JCPenney will enter into a 15-year marketing and
licensing arrangement with the AEGON N.V. subsidiary, pursuant to which JCPenney
or its agent will receive cash payments with a present value up to $300 million.

     JCPenney's total revenues for the 52 weeks ended January 27, 2001 were
$31.8 billion and net loss was $705 million. Pursuant to the terms of financing
agreements between Funding and JCPenney, payments from JCPenney to Funding are
set to produce earnings sufficient to cover Funding's fixed charges, principally
interest on borrowings, at a coverage ratio mutually agreed upon between Funding
and JCPenney. (See "Loan Agreement" below.) The earnings to fixed charges
coverage ratio has historically been, and in fiscal 2000 was, at least 1.5 to 1.

     Operations of Funding.  To assist in financing the operations of JCPenney
     ---------------------
as described under "Business" above,

                                       2
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Funding from time to time sells its short-term notes (commercial paper) to
investors through dealer-placed programs. The short-term notes are guaranteed on
a subordinated basis by JCPenney. Funding has, from time to time, issued long-
term debt in public and private markets in the United States and abroad. Funding
also has in place arrangements for short-term bank borrowings. Short-term debt
in fiscal 2000 averaged $193 million compared to $2,475 million in fiscal 1999
and $1,938 million in fiscal 1998. Short-term debt rates averaged 6.7 percent in
fiscal 2000, compared to 5.5 percent in both fiscal 1999 and 1998. Interest
expense decreased in fiscal 2000 compared to fiscal 1999 due to lower borrowing
levels.

     Credit Operations of JCPenney.  On December 6, 1999, JCPenney sold its
     -----------------------------
revolving credit card balances and credit operations to General Electric Capital
Corporation and certain of its affiliates, including substantially all of the
assets relating to JCPenney's consumer and commercial private label credit card
business. For additional information regarding the sale of the credit card
operations of JCPenney, see "Sale of Receivables and Acquisitions" (page 21),
which appears in the section of JCPenney's 2000 Annual Report entitled "Notes to
the Consolidated financial Statements."

     Loan Agreement.  Funding and JCPenney are parties to a Loan Agreement,
     --------------
dated as of January 28, 1986, as amended ("Loan Agreement"), which provides for
unsecured loans to be made from time to time by Funding to JCPenney for the
general business purposes of JCPenney, subject to the terms and conditions of
the Loan Agreement. The loans may be either senior loans or subordinated loans,
at the election of JCPenney, provided that, without the consent of the Board of
Directors of Funding, the principal amount of loans outstanding at any time
under the Loan Agreement may not exceed specified limits. Currently such limits
may not exceed $8 billion in the aggregate for all loans and $1 billion in the
aggregate for all subordinated loans. The terms of each loan under the Loan
Agreement shall be as agreed upon at the time of such loan by Funding and
JCPenney, provided that Funding may require upon demand that any loan be paid,
and JCPenney may prepay without premium any loan, in whole or in part at any
time. Under the terms of the Loan Agreement, JCPenney and Funding agree from
time to time upon a mutually-acceptable earnings coverage of Funding's interest
and other fixed charges. If at the end of each fiscal quarter during which a
loan is outstanding, the earnings coverage of Funding's interest and other fixed
charges is less than the agreed upon ratio, JCPenney will pay to Funding an
additional amount sufficient to provide for such coverage to be not less than
the agreed upon ratio. In the event that JCPenney and Funding have not agreed
upon a

                                       3
<PAGE>

mutually acceptable ratio for any fiscal quarter, the applicable quarterly
payment with respect to such period will include an amount equal to the excess,
if any, of one and one-half percent of the daily average of the aggregate
principal amount outstanding on all loans during such period, over the aggregate
amount of interest accrued on all such loans during such period.

     Committed Bank Credit Facility.  A committed bank credit facility is
     ------------------------------
available to Funding and JCPenney as of January 27, 2001 in the amount of $1.5
billion. This facility, as amended and restated, supports commercial paper
borrowing arrangements and consists of a $1.5 billion, five-year revolver. (See
page 3 of Funding's 2000 Annual Report which is incorporated herein by
reference.)

     Employment.  Funding has had no employees since April 30, 1992.
     ----------

     Forward-Looking Statements.
     --------------------------

     This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, which reflect Funding's current views of future
events and financial performance, involve known and unknown risks and
uncertainties that may cause Funding's actual results to be materially different
from planned or expected results. Those risks and uncertainties include, but are
not limited to, competition, consumer demand, seasonality, economic conditions,
and government activity, with respect to both JC Penney and Funding. Investors
should take such risks into account when making investment decisions.

2.   Properties.
     ----------

     Funding owns no physical properties.

3.   Legal Proceedings.
     -----------------

     Funding has no material legal proceedings pending against it.


                                    PART II
                                    -------

5.   Market for Registrant's Common Equity
     and Related Stockholder Matters.
     --------------------------------

     JCPenney owns all of Funding's outstanding common stock.  Funding's common
stock is not traded, and no dividends have been,

                                       4
<PAGE>

or are currently intended to be, declared by Funding on its common stock.

7A.  Quantitative and Qualitative Disclosures About Market Risk.
     ----------------------------------------------------------

     As of January 27, 2001 Funding has no investments. If it had short term
investments they would be in short term financial instruments with original
maturities of three months or less. Such investments are subject to interest
rate risk and may have a small decline in value if interest rates increase.
Since the financial instruments are of short duration, a change of 100 basis
points in interest rates would not have a material effect on Funding's financial
condition.

     As of January 27, 2001 Funding had no long-term debt.  Funding was a
potential borrower under a five-year revolving credit facility with JCPenney.
To the extent that fluctuating rate loans were used, borrowings under the
facility would be affected by interest rate changes.  As of January 27, 2001 no
borrowings had been made under this facility.  Funding does not believe that a
change of 100 basis points in interest rates would have a material effect on
Funding's financial condition.

8.   Financial Statements and Supplementary Data.
     -------------------------------------------

     The Balance Sheets of Funding as of January 27, 2001 and January 29, 2000,
and the related statements of income, reinvested earnings, and cash flows for
each of the years in the three-year period ended January 27, 2001, appearing on
pages 4 through 6 of Funding's 2000 Annual Report, together with the related
notes and the Independent Auditors' Report of KPMG LLP, independent certified
public accountants, appearing on page 7 of Funding's 2000 Annual Report, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on page 3 thereof, the section of Funding's 2000 Annual
Report entitled "Five Year Financial Summary" appearing on page 8 thereof, and
the unaudited quarterly financial highlights ("Quarterly Data") appearing on
page 9 thereof, are incorporated herein by reference in response to Item  8 of
Form 10-K.

9.   Changes in and Disagreements With Accountants
     on Accounting and Financial Disclosure.
     ---------------------------------------------

     None.


                                    PART IV
                                    -------


14.  Exhibits, Financial Statement Schedules, and
     Reports on Form 8-K.
     --------------------

     (a) 1.  All Financial Statements.

           See Item 8 of this Form 10-K for financial statements incorporated by
           reference to Funding's 2000 Annual Report.

     (a) 2.  Financial Statement Schedules.

           All schedules have been omitted as they are inapplicable or not
           required under the rules, or the information has been submitted in
           the financial statements or in the notes to the financial statements
           incorporated by reference to Funding's 2000 Annual Report.

                                       5
<PAGE>

     (a) 3.  Exhibits.

           See separate Exhibit Index on pages G-1 through G-5.

     (b)   Reports on Form 8-K filed during the fourth quarter of fiscal 2000.

           None.

                                       6
<PAGE>

                                   SIGNATURES
                                   ----------


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                              J. C. PENNEY FUNDING CORPORATION
                              --------------------------------
                                         (Registrant)



                              By:   /s/ M. P. Dastugue
                                  ---------------------------
                                  M. P. Dastugue
                                  Chairman of the Board



Dated: April 24, 2001

                                       7
<PAGE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


  Signatures                    Title                   Date
  ----------                    -----                   ----


/s/ M. P. Dastugue       Chairman of the Board     April 24, 2001
------------------
M. P. Dastugue           (principal executive
                         officer); Director


/s/ M. D. Porter*        President                 April 24, 2001
-----------------
M. D. Porter             (principal financial
                         officer)

/s/ W. J. Alcorn*        Vice President and        April 24, 2001
-----------------
W. J. Alcorn             Controller (principal
                         accounting officer)







                                       8
<PAGE>

                                 EXHIBIT INDEX

     Exhibit
     -------

3. (i) Articles of Incorporation
       -------------------------

   (a)  Certificate of Incorporation of Funding, effective April 13, 1964
        (incorporated by reference to Exhibit 3(a) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 29, 1994*).

   (b)  Certificate of Amendment of Certificate of Incorporation, effective
        January 1, 1969 (incorporated by reference to Exhibit 3(b) to Funding's
        Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).

   (c)  Certificate of Amendment of Certificate of Incorporation, effective
        August 11, 1987 (incorporated by reference to Exhibit 3(c) to Funding's
        Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).

   (d)  Certificate of Amendment of Certificate of Incorporation, effective
        April 10, 1988 (incorporated by reference to Exhibit 3(d) to Funding's
        Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).

   (ii) Bylaws
        ------

   (a)  Bylaws of Funding, as amended to May 19, 1995 (incorporated by reference
        to Exhibit 3(ii) to Funding's Quarterly Report on Form 10-Q for the 13
        and 39 weeks ended October 26, 1996*).

4. Instruments defining the rights of security holders, including indentures
   -------------------------------------------------------------------------

   (a)  Issuing and Paying Agency Agreement dated as of March 16, 1992, between
        J. C. Penney Funding Corporation and Morgan Guaranty Trust Company of
        New York (incorporated by reference to Exhibit 4(a) to Funding's Current
        Report on Form 8-K, Date of Report - April 3, 1992*).

   (b)  Issuing and Paying Agency Agreement dated as of February 3, 1997,
        between J. C. Penney Funding Corporation and The Chase Manhattan Bank
        (incorporated by reference to Exhibit 4(b) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 25, 1997*).

                                      G-1
<PAGE>

   (c)  Guaranty dated as of February 17, 1997, executed by J. C. Penney
        Company, Inc.(incorporated by reference to Exhibit 4(c) to Funding's
        Annual Report on Form 10-K for the 52 weeks ended January 25, 1997*).

   (d)  Amended and Restated 364-Day Revolving Credit Agreement dated as of
        December 3, 1996, among J. C. Penney Company, Inc., J. C. Penney Funding
        Corporation, the Lenders party thereto, Morgan Guaranty Trust Company of
        New York, as Agent for the Lenders, and Bank of America Illinois,
        Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A., Credit
        Suisse, and NationsBank of Texas, N.A., as Co-Agents for the Lenders
        (incorporated by reference to Exhibit 4(d) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 25, 1997*).

   (e)  Amended and Restated Five-Year Revolving Credit Agreement dated as of
        December 3, 1996, among J. C. Penney Company, Inc., J. C. Penney Funding
        Corporation, the Lenders party thereto, Morgan Guaranty Trust Company of
        New York, as Agent for the Lenders, and Bank of America Illinois,
        Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A., Credit
        Suisse, and NationsBank of Texas, N.A., as Co-Agents for the Lenders
        (incorporated by reference to Exhibit 4(e) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 25, 1997*).

   (f)  Amendment and Restatement Agreement to 364-Day Revolving Credit
        Agreement, dated as of October 1, 1999, among J. C. Penney Company,
        Inc., J. C. Penney Funding Corporation, the Lenders party thereto, The
        Chase Manhattan Bank, as Administrative Agent, Salomon Smith Barney
        Inc., as Syndication Agent, and Bank of America, N.A. and Credit Suisse
        First Boston, as Co-Documentation Agents (incorporated by reference to
        Exhibit 4(a) to Funding's Quarterly Report on Form 10-Q for the 13 and
        39 weeks ended October 30, 1999*).

   (g)  Amendment and Restatement Agreement to Five-Year Revolving Credit
        Agreement, dated as of November 21, 1997, among J. C. Penney Company,
        Inc., J. C. Penney Funding Corporation, the Lenders party thereto,
        Morgan Guaranty Trust Company of New York, as Agent, and Bank of America
        National Trust and Savings Association, Bankers Trust Company, The Chase
        Manhattan Bank, Citibank, N.A., Credit Suisse First Boston, and
        NationsBank of Texas, N.A., as Managing Agents (incorporated by
        reference to Exhibit 4(g) to Funding's Annual Report on Form 10-K for
        the 53 weeks ended January 31, 1998*).

                                      G-2
<PAGE>

                                 EXHIBIT INDEX

     Exhibit
     -------

   (h)  Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
        Penney Funding Corporation and J.P. Morgan Securities Inc. (incorporated
        by reference to Exhibit 10(a) to Funding's Current Report on Form 8-K,
        Date of Report - April 3, 1992*).

   (i)  Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
        Penney Funding Corporation and The First Boston Corporation
        (incorporated by reference to Exhibit 10(b) to Funding's Current Report
        on Form 8-K, Date of Report - April 3, 1992*).

   (j)  Commercial Paper Dealer Agreement dated May 3, 1994 between J. C. Penney
        Funding Corporation and Merrill Lynch Money Markets Inc. (incorporated
        by reference to Exhibit 4(g) to Funding's Annual Report on Form 10-K for
        the 52 weeks ended January 28, 1995*).

   (k)  Commercial Paper Dealer Agreement dated January 25, 1995 between J. C.
        Penney Funding Corporation and Morgan Stanley & Co. Incorporated
        (incorporated by reference to Exhibit 4(h) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 28, 1995*).

   (l)  Commercial Paper Dealer Agreement dated February 7, 1997 between J. C.
        Penney Funding Corporation and Credit Suisse First Boston Corporation
        (incorporated by reference to Exhibit 4(l) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 25, 1997*).**

   (m)  Guaranty dated as of December 3, 1996, executed by J. C. Penney Company,
        Inc. with respect to the Amended and Restated 364-Day and Five Year
        Revolving Credit Agreements, each dated as of December 3, 1996
        (incorporated by reference to Exhibit 4(m) to Funding's Annual Report on
        Form 10-K for the 52 weeks ended January 25, 1997*).

   Instruments evidencing long-term debt, previously issued but now fully
   prepaid, have not been filed as exhibits hereto because none of the debt
   authorized under any such instrument exceeded 10 percent of the total assets
   of the Registrant.  The Registrant agrees to furnish a copy of any of its
   long-term debt instruments to the Securities and Exchange Commission upon
   request.

                                      G-3
<PAGE>

                                 EXHIBIT INDEX

     Exhibit
     -------

10. Material Contracts
    ------------------

    The Corporation has no compensatory plans or arrangements required to be
    filed as exhibits to this Report pursuant to Item 14(c) of this Report.

    (a) Loan Agreement dated as of January 28, 1986 between J. C. Penney
        Company, Inc. and J. C. Penney Financial Corporation (incorporated by
        reference to Exhibit 1 to Funding's Current Report on Form 8-K, Date of
        Report - January 28, 1986*).

    (b) Amendment No. 1 to Loan Agreement dated as of January 28, 1986 between
        J. C. Penney Company, Inc. and J. C. Penney Financial Corporation
        (incorporated by reference to Exhibit 1 to Funding's Current Report on
        Form 8-K, Date of Report - December 31, 1986*).

    (c) Amendment No. 2 to Loan Agreement dated as of January 28, 1986 between
        J. C. Penney Company, Inc. and J. C. Penney Funding Corporation
        (incorporated by reference to Exhibit 10(e) to Funding's Annual Report
        on Form 10-K for the 52 weeks ended January 25, 1997*).

13. Annual Report to Security Holders
    ---------------------------------

        Excerpt from Funding's 2000 Annual Report.

23. Independent Auditors' Consent
    -----------------------------


                                      G-4
<PAGE>

99. Additional Exhibits
    -------------------

        Excerpt from JCPenney's 2000 Annual Report to Stockholders.

*SEC file number 1-4947-1

**Funding has entered into identical Commercial Paper Dealer Agreements dated
  February 7, 1997 with each of Merrill Lynch Money Markets Inc., J.P. Morgan
  Securities Inc., and Morgan Stanley & Co. Incorporated, which agreements are
  omitted pursuant to Instruction 2 to Item 601 of Regulation S-K. Funding
  agrees to furnish a copy of any of such agreements to the Securities and
  Exchange Commission upon request.

                                      G-5