SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-K

(Mark One)


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

For the fiscal year ended SEPTEMBER 30, 1997

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

For the transition period from __________________ to ________________

                          Commission file number 0-9728

                           GST EQUIPMENT FUNDING, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


           Delaware                                       91-1785734
----------------------------------        --------------------------------------
  (State or other jurisdiction of              (IRS Employer Identification
    incorporation or organization                         Number)


                  4001 Main Street, Vancouver, Washington 98663
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's telephone number, including area code: (360) 906-7100

          Securities registered pursuant to Section 12(b) of the Act:

                                      None

          Securities registered pursuant to Section 12(g) of the Act:

                                      None

  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 10-K WITH THE
                 REDUCED DISCLOSURE FORMAT CONTEMPLATED THEREBY.

                  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

<PAGE>
                  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


                  Indicate  the  number  of  shares  outstanding  of each of the
Registrant's  classes of common  stock,  as of the latest  practicable  date: At
January 7, 1998, there were  outstanding 100 shares of the  Registrant's  common
stock, $.01 par value per share.


<PAGE>
ITEM 1.   BUSINESS

OVERVIEW

         GST  Equipment  Funding,  Inc.  ("GST  Funding")  is a special  purpose
finance  subsidiary of GST  Telecommunications,  Inc.  ("GST").  GST Funding was
formed to issue its 13 1/4% Senior Secured Notes due 2007 (the "Secured  Notes")
that were sold in a private placement in May 1997 (the "Secured Notes Offering")
and to purchase  equipment with the proceeds of the Secured Notes Offering.  GST
Funding acts as a purchasing  agent for GST USA, Inc., a wholly owned subsidiary
of GST and the  parent  of GST  Funding  ("GST  USA")  and  sells to GST USA the
equipment it purchases.  Ultimately,  such  equipment is leased to the operating
subsidiaries  of GST by GST USA. Of the $255.8  million of net proceeds from the
issuance of the Secured  Notes,  as of September  30, 1997  approximately  $93.8
million was used to purchase  securities  pledged to fund the first six interest
payments  on the  Secured  Notes and  approximately  $91.3  million  was used to
purchase  telecommunications  equipment  ($41.5  million  of  which  was used to
refinance intercompany indebtedness).

         GST provides a broad range of  integrated  telecommunications  products
and services, primarily to business customers located in the western continental
United  States and Hawaii.  As a  facilities-based  competitive  local  exchange
carrier, GST operates state-of-the-art, digital telecommunications networks that
represent an alternative to incumbent local exchange  carriers.  GST's full line
of products, which offer a "one-stop" solution to customers'  telecommunications
services requirements,  include long distance,  Internet,  data transmission and
private  line  services,  and local  dial tone  services,  which  were  recently
introduced.

         GST's  digital   networks   currently  serve  39  markets  in  Arizona,
California,  Hawaii, Idaho, New Mexico, Texas and Washington.  In addition,  GST
has  networks  under  construction  which,  when  completed,  will  serve  three
additional  markets  and  expand its  regional  footprint  to  Oregon.  GST also
constructs, markets and manages longhaul fiber optic facilities,  principally in
Arizona,  California and Hawaii. GST's longhaul fiber optic facilities currently
extend  approximately  600 route miles and an  additional  1,100 route miles are
expected to become operational over the next 12 months.


ITEM 2.  PROPERTIES.

         GST Funding neither owns nor leases material properties.

ITEM 3.  LEGAL PROCEEDINGS.

         There are no  material  legal  proceedings  to which GST  Funding  is a
party.  GST Funding  knows of no  threatened  or pending  material  legal action
against it.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         Not required.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS.

         There is no established public trading market for GST Funding's common
equity. All of the issued and outstanding shares of such common equity are owned
by GST USA.

                                       -1-

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.
         Not required.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         OVERVIEW

         GST  Funding was formed on March 5, 1997 for the purpose of issuing the
Secured Notes and financing the purchase of  telecommunications  equipment.  GST
Funding acts as purchasing  agent for GST USA and sells to GST USA the equipment
it purchases with the proceeds from the Secured Notes Offering.  GST Funding has
only a limited operating history.

         As of September 30, 1997, GST Funding has purchased approximately $91.3
million of equipment and holds  restricted cash and investments of approximately
$170.7 million  restricted  for the  acquisition of equipment and the payment of
interest.  All of such  equipment  has  been  sold to GST  USA in  exchange  for
intercompany  notes.  Ultimately,  such  equipment  is  leased by GST USA to the
various operating subsidiaries of GST.

OPERATIONS

         The operations of GST Funding are limited to (i) purchasing  equipment,
(ii) selling equipment,  (iii) receiving payments under intercompany notes, (iv)
making  payments  of  interest  and  principal  on the  Secured  Notes,  and (v)
fulfilling its  obligations  under the indenture  relating to the Secured Notes,
the pledge agreement  relating to the security interest in the Secured Notes and
the  registration  rights  agreement  relating to the Secured Notes. GST Funding
satisfied its obligations under such  registration  rights agreement in November
1997, upon the consummation of an exchange offer for the Secured Notes.

LIQUIDITY AND CAPITAL RESOURCES

         On May 13, 1997,  GST Funding  completed  the Secured  Notes  Offering,
consisting  of $265.0  million in Secured  Notes.  Of the $255.8  million of net
proceeds  from the  issuance  of the Secured  Notes,  as of  September  30, 1997
approximately  $93.8 million was used to purchase securities pledged to fund the
first six interest payments on the Secured Notes and approximately $91.3 million
was used to purchase  telecommunications  equipment  ($41.5 million of which was
used to  refinance  intercompany  indebtedness).  The  indenture  governing  the
Secured Notes includes restrictive  covenants which, among other items, limit or
restrict additional  indebtedness incurred by GST Funding and GST, investment in
certain subsidiaries and the payment of dividends.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
         See page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE.
         Not applicable.


                                       -2-

<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
         Not required.

ITEM 11. EXECUTIVE COMPENSATION.
         Not required.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
         Not required.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          Not required.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
           AND REPORTS ON FORM 8-K.
(a)(1)   Financial Statements:  see the Index to Financial Statements.
   (2)   Financial Statement Schedules:  see the Index to Financial Statements.
   (3)   Exhibits:
   *3(a) Certificate of Incorporation of GST Funding.
   *3(b) By-Laws of GST Funding.
   *4(a) Indenture dated as of May 13, 1997, by and among GST Funding, GST, GST
         USA and United States Trust Company of New York.
 *10(a)  Collateral Pledge and Security Agreement dated as of May 13, 1997, by
         and among GST Funding, United States Trust Company of New York and the
         holders of the Notes as defined therein.
  **27   Financial Data Schedule.

----------------------------------------
*        Incorporated  by reference to GST Funding's  Registration  Statement on
         Form S-4 (No. 333-33601).
**       Filed herewith.
(b)      Reports on Form 8-K:  None.

                                       -3-

<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of Vancouver, State of Washington, on the 7th day of January, 1998.

                                             GST EQUIPMENT FUNDING, INC.


                                             By:  /S/ JOHN WARTA
                                                  -----------------------------
                                                      John Warta,
                                                      Chairman of the Board


                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears  below  constitutes  and  appoints  John Warta,  Stephen  Irwin,  Daniel
Trampush  and  Clifford  V.  Sander his true and lawful  attorney-in-fact,  each
acting alone, with full power of substitution and  resubstitution for him and in
his  name,  place  and  stead,  in any and all  capacities  to sign  any and all
amendments to this report, and to file the same, with all exhibits thereto,  and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,  hereby ratifying and confirming all that said  attorneys-in-fact or
their  substitutes,  each acting  alone,  may lawfully do or cause to be done by
virtue thereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  this  report  has been duly  signed by the  following  persons  in the
capacities on January 7, 1998.

             SIGNATURE                              TITLE

      /S/ JOHN WARTA
 ----------------------------    Chairman of the Board, Chief Executive Officer
           (John Warta)          (Principal Executive Officer) and Director


     /S/ DANIEL L. TRAMPUSH
-----------------------------    Vice President and Chief Financial Officer
       (Daniel L. Trampush)      (Principal Financial Officer)


    /S/ CLIFFORD V. SANDER
-----------------------------    Vice President, Treasurer and Assistant
       (Clifford V. Sander)      Secretary (Principal Accounting Officer)
                                 and Director


      /S/ STEPHEN IRWIN
-----------------------------    Senior Vice President, Secretary and Director
          (Stephen Irwin)

<PAGE>
                         INDEX TO FINANCIAL STATEMENTS

GST Equipment Funding, Inc.
  Independent Auditors' Report of KPMG Peat Marwick LLP.....................F-2
  Balance Sheet at September 30, 1997.......................................F-3
  Statement of Operations for the period from March 5, 1997
    (date of inception) to September 30, 1997...............................F-4
  Statement of Shareholder's Deficit for the period
    from March 5, 1997 (date of inception) to
    September 30, 1997......................................................F-5
  Statement of Cash Flows for the period from March 5, 1997
    (date of inception) to September 30, 1997...............................F-6
  Notes to Financial Statements.............................................F-7





                                     F - 1

<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                              FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1997


                   (WITH INDEPENDENT AUDITORS' REPORT THEREON)


<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
GST Equipment Funding, Inc.:


We have audited the accompanying  balance sheet of GST Equipment  Funding,  Inc.
(the Company) as of September 30, 1997, and the related statement of operations,
shareholder's deficit, and cash flows for the period from March 5, 1997 (date of
inception)  to  September  30,  1997.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of GST Equipment Funding, Inc. as
of September 30, 1997,  and the results of its operations and cash flows for the
period  from  March 5,  1997  (date  of  inception)  to  September  30,  1997 in
conformity with generally accepted accounting principles.




                                             /s/ KPMG PEAT MARWICK LLP
                                             -------------------------
                                                 KPMG PEAT MARWICK LLP

Portland, Oregon
November 26, 1997



                                      F - 2

<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                                  BALANCE SHEET

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                               SEPTEMBER 30, 1997




                                     ASSETS

Current assets:
     Cash.....................................................  $       1,003
     Restricted cash and investments..........................         48,964
                                                                   ----------

                                                                       49,967
                                                                   ----------
Restricted investments........................................        121,711
Notes receivable from parent..................................         91,274
Interest receivable from parent...............................          3,655
Deferred financing costs, less accumulated
     amortization of $364.....................................          9,182
                                                                   ----------

                                                                      225,822
                                                                   ----------
                                                                $     275,789
                                                                   ==========
                      LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
     Accrued interest payable.................................         13,460
     Accrued income taxes payable to parent...................          2,680
     Other payable to parent..................................          1,905
                                                                   ----------

                                                                       18,045
                                                                   ----------
Long-term debt................................................        265,000

Shareholder's deficit:
     Common stock:
        Authorized - 1,000 of $.01 par common shares;
           issued and outstanding - 100 shares................              -
     Additional paid-in capital...............................          1,000
     Accumulated deficit......................................         (8,256)
                                                                   ----------

                                                                       (7,256)
                                                                   ----------
                                                                $     275,789
                                                                  ===========

See accompanying notes to financial statements.


                                      F - 3
<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                             STATEMENT OF OPERATIONS

                                 (IN THOUSANDS)

                        FOR THE PERIOD FROM MARCH 5, 1997
                    (DATE OF INCEPTION) TO SEPTEMBER 30, 1997


Revenues:
     Interest income..............................    $      8,248
                                                         ---------

                Total revenues....................           8,248
                                                         ---------

Operating costs and expenses:
     Interest expense.............................          13,824
                                                         ---------

                Loss before income taxes..........          (5,576)
                                                         ---------

Income taxes......................................          (2,680)
                                                         ---------

                Net loss..........................    $     (8,256)
                                                         =========


See accompanying notes to financial statements.









                                      F - 4



<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                       STATEMENT OF SHAREHOLDER'S DEFICIT

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                        FOR THE PERIOD FROM MARCH 5, 1997
                    (DATE OF INCEPTION) TO SEPTEMBER 30, 1997


<TABLE>
<CAPTION>

                                                 COMMON STOCK        ADDITIONAL                     TOTAL
                                               --------------         PAID-IN   ACCUMULATED     SHAREHOLDER'S
                                               SHARES   AMOUNT        CAPITAL     DEFICIT           DEFICIT
                                               ------   ------        -------     -------           -------

<S>                                             <C>     <C>               <C>   <C>                    <C>
Balance, at date of inception......             100     $  -              1          -                 1

Capital investment by parent.......              -         -            999          -               999
Net loss...........................              -         -             -      (8,256)           (8,256)
                                                ---     ----          -----     ------            -------

Balance, September 30, 1997........             100     $  -          1,000     (8,256)           (7,256)
                                                ===     ====          =====     ======            ========
</TABLE>


See accompanying notes to financial statements.









                                      F - 5

<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                             STATEMENT OF CASH FLOWS

                                 (IN THOUSANDS)

                        FOR THE PERIOD FROM MARCH 5, 1997
                    (DATE OF INCEPTION) TO SEPTEMBER 30, 1997



Operations:
     Net loss.............................................    $      (8,256)
     Items not involving cash:
        Amortization of deferred financing costs..........              364

Changes in non-cash operating working capital:
     Interest receivable from parent......................           (3,655)
     Accrued interest payable.............................           13,460
     Accrued income taxes payable to parent...............            2,680
     Other payable to parent..............................            1,905
                                                                 ----------

                Cash provided by operations...............            6,498
                                                                 ----------

Investing:
     Change in cash and investments restricted for
        fixed asset purchases.............................          (76,885)
     Notes receivable from parent.........................          (91,274)
                                                                 ----------

                Cash used in investing activities.........         (168,159)
                                                                    -------

Financing:
     Proceeds from issuance of long-term debt.............          265,000
     Purchase of investments restricted for interest
        payments..........................................          (93,790)
     Deferred debt financing costs........................           (9,546)
     Proceeds from investment by parent...................            1,000
                                                                 ----------

                Cash provided by financing activities.....          162,664
                                                                 ----------

                Increase in cash and cash equivalents.....            1,003

Cash and cash equivalents, beginning of period............               -
                                                                 ---------

Cash and cash equivalents, end of period..................    $       1,003
                                                                 ==========


See accompanying notes to financial statements.





                                      F - 6

<PAGE>

                           GST EQUIPMENT FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 (IN THOUSANDS)

                               SEPTEMBER 30, 1997




(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       DESCRIPTION OF THE COMPANY

       GST  Equipment  Funding,  Inc. (the Company) was formed on March 5, 1997.
       The Company is a  wholly-owned  subsidiary  of GST USA,  Inc.  (GST USA),
       which is a wholly-owned subsidiary of GST Telecommunications, Inc. (GST).

       The Company's  operations are limited to (i) purchasing  equipment,  (ii)
       selling equipment to parent,  (iii) receiving payments under Intercompany
       Notes,  and (iv)  making  payments of interest  and  principal  on senior
       secured notes.

       RESTRICTED CASH AND INVESTMENTS

       Pursuant to the terms of the senior secured notes issued on May 13, 1997,
       the Company's use of the net proceeds are restricted for the  acquisition
       of equipment and payment of interest.

       INVESTMENTS

       The Company  classifies its investments,  consisting  exclusively of U.S.
       Treasury  securities,   as   available-for-sale   and   held-to-maturity.
       Held-to-maturity  investments,  totaling $95,974 and maturing between one
       and three years, are restricted for interest payments. Available-for-sale
       investments,  totaling  $74,701  and  maturing  between one month and two
       years,  are  restricted  for equipment  purchases.  All  investments  are
       reported in the  accompanying  financial  statements  at amortized  cost.
       Amortized cost approximates the market value at September 30, 1997.

       DEFERRED FINANCING COSTS

       Deferred financing costs consisting of legal, accounting and underwriting
       fees related to the May 13, 1997 debt offering have been deferred and are
       being amortized to interest expense over the life of the related notes.


                                                                     (Continued)




                                      F - 7
<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 (IN THOUSANDS)




       INCOME TAXES

       The  Company  accounts  for income  taxes  under the asset and  liability
       method.  Under the asset and  liability  method,  deferred  income  taxes
       reflect the future tax consequences of differences  between the tax bases
       of assets and liabilities and their financial  reporting  amounts at each
       year-end.  Deferred tax assets and liabilities are measured using enacted
       tax rates expected to apply to taxable income in the years in which those
       temporary differences are expected to be recovered or settled. The effect
       on deferred  tax assets and  liabilities  of a change in the tax rates is
       recognized  in income in the period that  includes  the  enactment  date.
       Valuation  allowances are  established  when necessary to reduce deferred
       tax assets to the amounts expected to be realized.

       FINANCIAL INSTRUMENTS

       The carrying amounts  reported in the balance sheet for cash,  short-term
       borrowings,  accounts  payable and accrued  liabilities  approximate fair
       values due to the short maturity of those instruments.

       The carrying amount of the Company's long-term debt approximates its fair
       value.  The fair value of the  Company's  long-term  debt was  determined
       based on quoted  market  prices for  similar  issues or on current  rates
       available to the Company for debt of the same  remaining  maturities  and
       similar terms.

       Fair  value  estimates  are made at a  specific  point in time,  based on
       relevant  market  information  about  the  financial  instrument.   These
       estimates are subjective in nature and involve  uncertainties and matters
       of  significant   judgment  and  therefore   cannot  be  determined  with
       precision.   Changes  in  assumptions  could  significantly   affect  the
       estimates.

       USE OF ESTIMATES

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.


                                                                     (Continued)




                                      F - 8
<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 (IN THOUSANDS)


(2) FINANCING ARRANGEMENTS

       LONG-TERM DEBT

       The Company's  long-term  debt consists of the following at September 30,
       1997:

           Senior secured notes, interest at 13.25%
               with semi-annual interest payments due
               commencing November 1, 1997,
               principal due May 13, 2007........................    $ 265,000
                                                                       ========

       ISSUANCE OF SENIOR SECURED NOTES

       The Company  completed a private  placement  (the May Offering)  under an
       indenture  (the  Indenture)  dated May 13,  1997,  of  $265,000 of senior
       secured notes (the Notes).  The Notes bear interest at 13.25%  payable in
       semi-annual  installments  commencing November 1, 1997. Net proceeds from
       the May Offering totaled  approximately  $255,800,  and are to be used to
       refinance  approximately $41,500 of intercompany  indebtedness,  and fund
       the purchase of equipment and the first six scheduled  interest  payments
       totaling $93,790 on the Notes.  Pursuant to the Indenture,  all purchased
       equipment  will be  sold  to GST  USA  for use in its  telecommunications
       operations  (see  note 3).  The  Notes are  secured  by a first  priority
       security  interest  in  the  equipment  and  the  restricted   investment
       securities  held for the  payment of  interest.  The Notes are subject to
       certain debt covenants.

       The  Indenture  provides  that GST USA will  assume  and  become a direct
       obligor on the Notes and GST will guarantee the Notes on May 13, 2000, or
       earlier if permitted by the terms of their  existing  debt.  Once assumed
       the  Notes  will be  secured  senior  indebtedness  of GST USA.  The Note
       Guarantee will be senior unsecured indebtedness of GST.

       The Notes are  redeemable  at the option of GST USA, in whole or in part,
       at any time,  on or after May 1, 2002,  initially  at  106.625%  of their
       principal amount, plus accrued and unpaid interest,  declining ratably to
       100% on or after May 1, 2004.  If on May 13, 2000,  GST USA is prohibited
       from  assuming  all of the Notes,  the Company will redeem the portion of
       the Notes that cannot be assumed at 101% of their  principal  amount plus
       accrued interest at the date of redemption.


                                                                     (Continued)



                                      F - 9
<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 (IN THOUSANDS)

(3) RELATED PARTY TRANSACTIONS

       The Company acts as a  purchasing  agent for GST USA and sells to GST USA
       the equipment it purchases  with the proceeds  from the May Offering.  At
       September  30,  1997,  the  Company's  cumulative  purchases  for GST USA
       totaled $91,274, represented by the note receivable from parent. The note
       receivable is guaranteed by GST and bears interest at 15.25%,  compounded
       semiannually  on May and  November  1, and is  payable in full on May 13,
       2000.

       The payable to parent of $1,905 at  September  30, 1997  consists of cash
       advances  from GST USA for the purchase of  equipment  and the payment of
       expenses related to the May Offering.

(4) INCOME TAXES

       Income tax expense for the period from March 5, 1997 (date of  inception)
       to September 30, 1997, consists of:

                                       CURRENT       DEFERRED       TOTAL

         Federal.................   $     2,680            -         2,680
         State...................            -             -            -
                                       --------     ---------      ------

                                    $     2,680            -         2,680
                                       ========     =========      =======

       The  provision  for  income  taxes  differs  from the  "expected"  amount
       computed by applying the U.S. federal corporate rate as follows:

         Computed "expected" income tax benefit.................    $(1,896)
         Increase resulting from:
             Change in valuation allowance......................      4,576
                                                                    -------

         Actual tax expense.....................................    $ 2,680
                                                                    =======

       The tax effects of temporary  differences  that give rise to deferred tax
       assets and deferred tax  liabilities  at September 30, 1997,  are derived
       primarily  from  interest  expense  not  currently   deductible  for  tax
       purposes.  Gross deferred tax assets and liabilities amount to $4,576 and
       $-0-, respectively, at September 30, 1997.


                                                                     (Continued)



                                     F - 10
<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 (IN THOUSANDS)




       The valuation allowance for deferred tax assets as of September 30, 1997,
       was  $4,576.  The net  change in the total  valuation  allowance  for the
       period from March 5, 1997 (date of inception)  ended  September 30, 1997,
       was an increase of $4,576.

       The  Company  files  consolidated  income  tax  returns  with its  parent
       corporation.  However,  income tax  expense is computed as if the Company
       filed on a single entity basis. The tax related balance due to the parent
       corporation as of September 30, 1997 was $2,680.










                                     F - 11
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT

   *3(a) Certificate of Incorporation of GST Funding.
   *3(b) By-Laws of GST Funding.
   *4(a) Indenture dated as of May 13, 1997, by and among GST Funding, GST, GST
         USA and United States Trust Company of New York.
 *10(a)  Collateral Pledge and Security Agreement dated as of May 13, 1997, by
         and among GST Funding, United States Trust Company of New York and the
         holders of the Notes as defined therein.
  **27   Financial Data Schedule.

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

*        Incorporated  by reference to GST Funding's  Registration  Statement on
         Form S-4 (No. 333-33601).
**       Filed herewith.