<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 39 week periods             Commission File Number 1-4947-1
ended October 27, 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 October 27, 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.


                                        1

<PAGE>

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                     39 weeks ended
                                               --------------                     --------------
                                         Oct. 27,          Oct 28,          Oct. 27,          Oct. 28,
                                           2001             2000              2001              2000
                                           ----             ----              ----              ----
<S>                                     <C>              <C>               <C>               <C>
Interest earned from
        JCPenney and affiliates          $    0           $   11            $    0            $   16

Interest expense                              0                7                 0                10
                                         ------           ------            ------            ------

Income before income taxes                    0                4                 0                 6

Income taxes                                  0                1                 0                 2
                                         ------           ------            ------            ------

Net income                                    0                3                 0                 4

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

Reinvested earnings at
       end of period                     $1,093           $1,092            $1,093            $1,092
                                         ======           ======            ======            ======
</TABLE>


                                        2

<PAGE>

Balance Sheets
(Dollars in millions)

<TABLE>
<CAPTION>
                                                                  Oct. 27,         Oct. 28,        Jan.27,
                                                                     2001             2000            2001
                                                                  -------          -------         -------
<S>                                                               <C>              <C>             <C>
ASSETS

Loans to JCPenney and affiliates                                    $1,240           $1,621         $1,240
                                                                    ------           ------         ------

                                                                    $1,240           $1,621         $1,240
                                                                    ======           ======         ======

LIABILITIES AND EQUITY OF JCPENNEY

Short-term debt                                                     $    0           $  357         $    0

Due to JCPenney                                                          2               27              2

                                                                    ------           ------         ------
Total liabilities                                                   $    2           $  384         $    2

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

Reinvested earnings                                                 $1,093           $1,092         $1,093
                                                                    ------           ------         ------

Total equity of JCPenney                                            $1,238           $1,237         $1,238
                                                                    ------           ------         ------
                                                                    $1,240           $1,621         $1,240
                                                                    ======           ======         ======
</TABLE>


                                        3

<PAGE>

Consolidated Statements of Cash Flows
(Dollars in millions)


<TABLE>
<CAPTION>
                                                   39 weeks ended
                                                  ----------------
                                                Oct. 27,     Oct. 28,
                                                  2001         2000
                                                --------     --------
<S>                                             <C>         <C>
Operating Activities

       Net Income                               $    0       $     4

       (Increase) decrease in loans to
       JCPenney                                      0           (33)

       (Decrease) increase in amount due
       to JCPenney                                   0             2
                                                ------       -------
                                                     0           (27)
                                                ------       -------

Financing Activities

       Increase (decrease) in short-term
       debt                                          0            27
                                                ------       -------


Increase (decrease) in cash                          0             0

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

Cash at end of third 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 third quarter of
fiscal 2001, there were no requirements to raise cash through Funding.
Therefore, no borrowings were made in the third quarter of 2001. As a result of
there being no commercial paper issuance or outstanding amounts in the third
quarter, no earnings coverage was required resulting in no income, expense, or
provision for taxes for the quarter. Borrowing levels were $357 million at the
end of the third quarter of 2000.

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


                                       5

<PAGE>

PART II - OTHER INFORMATION


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


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

                None.

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

                None.




                                       6

<PAGE>

                                   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: December 7, 2001


                                       7