<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.
                                     20549

                                  ___________

                                   FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

                                  __________

For the 13 week and 26 week periods           Commission File Number 1-4947-1
ended July 28, 2001

                       J. C. PENNEY FUNDING CORPORATION
    -----------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


              Delaware                                        51-0101524
    -----------------------------------------------------------------------
   (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                       Identification 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
                                                         ------------------

                              -------------------

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

500,000 shares of Common Stock of $100 par value, as of July 28, 2001.

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

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PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
         --------------------

The following interim financial information of J. C. Penney Funding Corporation
("Funding"), a wholly owned subsidiary of J. C. Penney Company, Inc.
("JCPenney"), is unaudited; however, in the opinion of Funding, it includes all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation. The financial information should be read in conjunction with the
audited financial statements included in Funding's Annual Report on Form 10-K
for the 52 weeks ended January 27, 2001.


Statements of Income and Reinvested Earnings
(Dollars in millions)


<TABLE>
<CAPTION>
                                                                      13 weeks ended                 26 weeks ended
                                                                      --------------                 --------------
                                                                July 28,        July 29,        July 28,        July 29,
                                                                  2001            2000            2001             2000
                                                                ------          ------          ------           ------
<S>                                                             <C>             <C>             <C>             <C>
Interest earned from
   JCPenney and affiliates                                      $    0          $    0          $    0           $    5

Interest expense                                                     0               0               0                3
                                                                ------          ------          ------           ------

Income before income taxes                                           0               0               0                2
Income taxes                                                         0               0               0                1
                                                                ------          ------          ------           ------

Net income                                                           0               0               0                1

Reinvested earnings at                                           1,093           1,089           1,093            1,088
   beginning of period                                          ------          ------          ------           ------

Reinvested earnings at
   end of period                                                $1,093          $1,089          $1,093           $1,089
                                                                ======          ======          ======           ======
</TABLE>

                                       2
<PAGE>

Balance Sheets
(Dollars in millions)

<TABLE>
<CAPTION>
                                                                July 28,          July 29,              Jan.27,
                                                                   2001              2000                 2001
                                                                 ------            ------               ------
<S>                                                             <C>               <C>                   <C>
ASSETS
Loans to JCPenney and affiliates                                 $1,240            $1,362               $1,240
                                                                 ------            ------               ------

                                                                 $1,240            $1,362               $1,240
                                                                 ======            ======               ======

LIABILITIES AND EQUITY OF JCPENNEY

Short-term debt                                                  $    0            $  103               $    0

Due to JCPenney                                                       2                25                    2

                                                                 ------            ------               ------
Total liabilities                                                $    2            $  128               $    2

Equity of JCPenney:
    Common stock (including contributed capital),
     par value $100:
    Authorized, 750,000 shares
    Issued, 500,000 shares                                       $  145            $  145               $  145

Reinvested earnings                                              $1,093            $1,089               $1,093
                                                                 ------            ------               ------

Total equity of JCPenney                                         $1,238            $1,234               $1,238
                                                                 ------            ------               ------
                                                                 $1,240            $1,362               $1,240
                                                                 ======            ======               ======
</TABLE>

                                       3
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Consolidated Statements of Cash Flows
(Dollars in millions)



<TABLE>
<CAPTION>
                                                                    26 weeks ended
                                                             ----------------------------
                                                           July 28,              July 29,
                                                             2001                  2000
                                                            -----                 -----
<S>                                                        <C>                   <C>
Operating activities
   Net income                                               $   0                 $   1
   (Increase) decrease in loans to
   JCPenney                                                     0                   226
   (Decrease) increase in amount due
   to JCPenney                                                  0                     0
                                                            -----                 -----
                                                                0                   227
                                                            -----                 -----

Financing activities
   increase (decrease) in short-term
   debt                                                         0                  (227)
                                                            -----                 -----


Increase (decrease) in cash                                     0                     0

Cash at beginning of year                                       0                     0
                                                            -----                 -----

Cash at end of second quarter                               $   0                 $   0
                                                            =====                 =====
</TABLE>

                                       4
<PAGE>

ITEM 2.   Management's Discussion and Analysis of Financial Condition and
          ---------------------------------------------------------------
          Results of Operations.
          ---------------------

Funding derives earnings on loans to JCPenney under the terms of the Loan
Agreement which provides for unsecured loans to be made by Funding to JCPenney.
Additionally, in order to maintain Funding's income at defined coverage ratios,
Funding's income is supplemented by charges to JCPenney. The income of Funding
is designed to cover Funding's fixed charges (interest expense) at a coverage
ratio mutually agreed upon by Funding and JCPenney. The earnings to fixed
charges coverage ratio has historically been at least one and one-half times.

Funding from time to time issues commercial paper through Credit Suisse First
Boston Corporation, J.P. Morgan Securities Inc., Merrill Lynch Money Markets
Inc., and Morgan Stanley Dean Witter to corporate and institutional investors in
the domestic market. The commercial paper is guaranteed by JCPenney on a
subordinated basis. The commercial paper is rated "A3" by Standard & Poor's
Corporation, "Not-Prime" by Moody's Investors Service, and "B" by Fitch
Investors Service, Inc.

JCPenney's financing requirements have been substantially reduced over the last
several quarters due to its positive liquidity position. The sale of J. C.
Penney Direct Marketing Services, Inc., which closed in June 2001, generated
cash proceeds at closing of approximately $1.3 billion.

Based on JCPenney's positive cash position throughout the second quarter of
fiscal 2001, there were no requirements to raise cash through Funding.
Therefore, no borrowings were made in the second quarter of 2001. As a result of
there being no commercial paper issuance or outstanding amounts in the second
quarter, no earnings coverage was required resulting in no income, expense, or
provision for taxes for the quarter. Borrowing levels were $103 million at the
end of the second quarter of 2000.

Given JCPenney's current liquidity position, it is anticipated that no
commercial paper will be issued during the second half of fiscal 2001.

                                       5
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PART II - OTHER INFORMATION


     Item 6.  Exhibits and Reports on Form 8-K
              --------------------------------

          (a) Exhibits
              --------

              None.

          (b) Reports on Form 8-K
              -------------------

              None.

                                       6
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                                  SIGNATURES
                                  ----------


Pursuant to the requirements 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


                                               By: /s/ W. J. Alcorn
                                                  ------------------------------

                                                  W. J. Alcorn
                                                  Controller
                                                  (Principal Accounting Officer)



Date: September 7, 2001

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