<PAGE>
 
                                                                    Exhibit 10.7

                                PROMISSORY NOTE
                                        
$250,000.00                                             Eden Prairie, Minnesota
                                                                  June 26, 1998

FOR VALUE RECEIVED, the undersigned, Grandchildren's Realty Alternative
Management Program I L.P., a Minnesota limited partnership ("Maker"), hereby
agrees and promises to pay to the order of VirtualFund.com, Inc., a Minnesota
corporation ("Holder"), at its address of 7090 Shady Oak Road, Eden Prairie, MN
55344, or at any other place designated by the Holder hereof, in lawful money of
the United States, the principal sum of Two Hundred Fifty Thousand Dollars and
No Cents ($250,000.00), with interest thereon at the rate of two percent (2%)
above the Prime Rate (as herein defined).  The term "Prime Rate" as used herein
means an annual interest rate equal to the rate per annum publicly announced by
Norwest Bank, N.A. or any successor thereto ("Norwest") as being its prime rate.
The Prime Rate shall change automatically, without notice and simultaneously,
with each change in the per annum rate announced by Norwest.  The principal
amount and interest accruing hereunder shall be due and payable on February 25,
1999.  This Note may be prepaid without penalty, in whole or in part, at any
time and from time to time prior to February 25, 1999.  This Note is secured by
a Guaranty of even date herewith made by Melvin L. Masters and by a Pledge
Agreement of even date herewith between Maker and Holder.

This Note shall be due and payable (together with unpaid interest) immediately,
without demand or notice thereof, if a petition in bankruptcy is filed by or
against the Maker under the United States Bankruptcy Code, as amended, and such
petition is not withdrawn or dismissed within thirty (30) days.

The Maker agrees to pay all costs of collection, including reasonable attorneys'
fees and legal expenses, in the event this Note is not paid when due, whether or
not legal proceedings are commenced.  This Note is a Minnesota contract and
Holder may seek to enforce it in any court sitting in the State of Minnesota,
and Maker specifically consents to both the subject matter and personal
jurisdiction of such courts.  Service of process may be made by registered or
certified mail in addition to the methods allowed by law.

Maker waives its rights for presentment, demand for payment, notice of dishonor
or protest.


GRANDCHILDREN'S REALTY ALTERNATIVE
MANAGEMENT PROGRAM I L.P.
 
 
By:____________________________
Its:___________________________
 
 
Maker's Address:  ________________________
                  ________________________
<PAGE>
 
                                PLEDGE AGREEMENT
                                        
     THIS PLEDGE AGREEMENT is entered into and effective as of June ___, 1998,
by Grandchildren's Realty Alternative Management Program I L.P., a Minnesota
limited partnership (the "Pledgor") and an affiliate of Melvin L. Masters (the
"Masters"), in favor of VirtualFund.com, Inc., a Minnesota corporation (the
"Secured Party").

     A.  The Pledgor has issued a promissory note of even date herewith (the
"Note") payable to the order of the Secured Party in the original principal
amount of Two Hundred Fifty Thousand Dollars and No Cents ($250,000.00) in
connection with a loan from the Secured Party to the Pledgor (the "Loan").

     B.  Masters, as the sole shareholder of the general partner of the Pledgor,
will benefit indirectly from the Loan and, as such, has agreed to guaranty
payment of the Note pursuant to the terms of a guaranty executed by Masters on
the date hereof (the "Guaranty").

     C.  To secure the obligations of Masters under the Guaranty and the
obligations of the Pledgor under the Note, the Secured Party requires that the
Pledgor grant the Secured Party a security interest in Eighty Thousand Nine
Hundred Ninety-Three (80,993) shares of common stock of the Secured Party owned
by the Pledgor (the "Shares") in accordance with this Pledge Agreement, and the
Pledgor agrees to grant the Secured Party such a security interest.

     For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Pledgor hereby agrees as follows:

     1.  Terms of Pledge.
         --------------- 

     (a) Pledge.  The Pledgor does hereby pledge and grant to the Secured Party
a security interest in all of the following described property (the
"Collateral"):

          (1)  The Shares; and

          (2) The proceeds of any dividend or other distribution attributable to
     the Shares (payable other than in cash) or any shares of stock or
     securities of the Company or of another corporation payable with respect to
     the Shares in connection with any change in the corporate structure or
     shares of the Company or pursuant to any merger or recapitalization or
     otherwise.

     (b) Delivery of Collateral.  The Secured Party hereby acknowledges receipt
of the certificate evidencing the Collateral together with a stock power
therefor duly endorsed.  The Pledgor agrees to deliver promptly to the Secured
Party, in the exact form received, all securities and other property which come
into the possession, custody or control of the Pledgor which would be included
within the definition of Collateral in Section 1(a) above.
<PAGE>
 
     (c) Actions Prior to an Event of Default.  Until the occurrence of an Event
of Default (as defined in Section 3(a) below) the Pledgor will have the sole
right (a) to vote the securities constituting the Collateral and to give
consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast, or consent, waiver or ratification given or action taken that
would violate or not comply with any of the terms and provisions of this Pledge
Agreement; and (b) to receive any and all cash dividends declared and paid on
the securities constituting the Collateral that are not otherwise in violation
of any of the terms and provisions of this Pledge Agreement.

     (d) Termination of Security Interest and Return of Collateral.  Upon such
date as the entire principal sum and all accrued interest on the Note shall have
been paid in full, (i) all of the Collateral shall automatically, and without
any further action of the parties hereto, be released from the security interest
of the Secured Party created by this Pledge Agreement and (ii) the Secured Party
shall deliver the certificate or certificates representing the Collateral to the
Pledgor.

     2.  Representations, Warranties And Covenants of the Pledgor.
         -------------------------------------------------------- 

     (a) Power and Authority to Pledge.  The Pledgor has full power and
authority to execute and deliver this Pledge Agreement and to perform the
Pledgor's obligations hereunder.

     (b) Enforceability.  This Pledge Agreement is the valid and binding
obligation of the Pledgor, enforceable against the Pledgor according to its
terms, subject to applicable bankruptcy, insolvency, moratorium and other laws
affecting creditors' rights and remedies and the judicial limitations on the
right to specific performance.  Upon delivery of the Shares to the Secured
Party, this Pledge Agreement shall create a valid first lien upon, and perfected
security interest in, the Shares.

     (c) Title to Collateral.  The Pledgor warrants and represents to the
Secured Party that it holds title to the Collateral free and clear of any liens,
encumbrances, security interests and restrictions on transfer and assignment
thereof, except for the security interest created by this Pledge Agreement and
as required by federal and state securities laws.

     (d) Preservation of Rights on Collateral.  The Pledgor will take any action
necessary to preserve redemption, conversion, warrant, preemptive or other
rights (and be aware of the dates limiting the exercise of such rights)
concerning the Collateral.

     (e) Maintenance of Security Interest.  The Pledgor will do and enact all
things deemed necessary or appropriate by the Secured Party from time to time to
establish, determine priority of, perfect, continue perfection, terminate and
enforce the Secured Party's interest in the Collateral and the Secured Party's
rights under this Pledge Agreement.

                                       2
<PAGE>
 
     3.  Events of Default and Remedies.
         ------------------------------ 

     (a) Events of Default.  The occurrence of one or more of the following
shall constitute an "Event of Default" hereunder:

          (1) The Pledgor defaults in the performance or observance of any of
     the terms or covenants in this Pledge Agreement unless cured within ten
     (10) days of notice of such occurrence from the Secured Party;

          (2) Any representation or warranty made by the Pledgor in this Pledge
     Agreement is untrue in any material respect unless cured within ten (10)
     days of notice of such occurrence from the Secured Party;

          (3)  Any default under the Note; or

          (4) Any default or failure to perform under the Guaranty.

     (b) Secured Party's Right to Sell Collateral.  Upon the occurrence of an
Event of Default, the Collateral shall be forfeited by the Pledgor to the
Secured Party unless the Secured Party, in its sole discretion, permits the
Pledgor to continue to make payments under the Note and to retain his rights and
interest in the Collateral.  The Secured Party shall be entitled to sell the
Collateral upon ten (10) business days' written notice to Pledgor, at a private
sale.  Thereafter the Collateral shall be held by the Secured Party for its own
account and the Secured Party may cause the Collateral to be registered in its
name and, to the extent permitted by law, may vote the Collateral (whether or
not transferred or registered in the name of the Secured Party) and give all
consents, waivers and ratifications in respect thereof, and may receive all
dividends, interest and other distributions thereon.  The Secured Party may
limit sales to purchasers who are acquiring for investment and not with any view
to distribution and may condition any sale or sales upon restriction against
future transfers to the extent that the Secured Party as it may be advised by
counsel as necessary to protect the Secured Party from any liability under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, state securities laws, and any like or similar laws now or hereafter in
effect.

     (c) Rights Cumulative.  All rights and remedies of the Secured Party
hereunder are in addition to rights and remedies afforded the Secured Party
under the Note, any other document or under law.  All remedies are cumulative
and may be exercised by the Secured Party concurrently or consecutively.  No
failure or omission of the Secured Party to exercise any such right or remedy
shall constitute a waiver thereof.

     4.  Termination.  Upon payment in full of the obligations under the Note,
this Pledge Agreement and the security interest granted herein shall terminate
and be of no further force and effect, and the Secured Party shall thereupon
promptly return to the Pledgor such of the Collateral and such other documents
delivered by the Pledgor as may then be in the Secured Party's possession.

                                       3
<PAGE>
 
     5.  Application of Proceeds.  The proceeds of any sale of the Collateral
shall be applied as follows:

          (a) First, to the payment of the costs and expenses of such sale, and
     all expenses (including reasonable fees and expenses of counsel);

          (b) Second, to the payment of all amounts owing under the Note; and

          (c) Finally, to the payment to Pledgor, or to its successors and
     asigns, or as a court of competent jurisdiction may direct, of any surplus
     then remaining from such proceeds.

     6.  Miscellaneous.

          (a) Agreement Binding. This Pledge Agreement shall be binding upon and
     inure to the benefit of the successors and permitted assigns of the Pledgor
     and the Secured Party. This Pledge Agreement may not be assigned by either
     party without the prior written consent of the other party.

          (b) Severability. In the event that one or more provisions of this
     Pledge Agreement should be declared to be invalid, illegal or unenforceable
     in any respect by a court of competent jurisdiction, the validity, legality
     and enforceability of the remaining provisions herein shall not in any way
     be affected or impaired thereby.

          (c) Survival of Representations. All representations and warranties
     made herein are, and shall continue to be, true and correct in all material
     respects until the Note is paid in full.

          (d) Notices. All notices and other communications required or
     permitted to be given hereunder shall be given and become effective when
     deposited in the U.S. Mail postage prepaid, return receipt requested
     addressed to the parties at the addresses of the parties set forth in the
     stock records of the Company, or such other address as the parties may
     designate from time to time.

          (e) Governing Law. This Pledge Agreement shall be construed,
     interpreted and governed according to the laws of the State of Minnesota.

          (f) Nature of Obligations. The obligations of the Pledgor under this
     Pledge Agreement shall be absolute and unconditional and shall remain in
     full force and effect without regard to, and shall not be released,
     suspended, discharged, terminated, lessened or otherwise affected by, any
     circumstance or occurrence whatsoever, whether or not the Pledgor shall
     have notice or knowledge, including, without limitation, (a) any renewal,
     extension, substitution, amendment or modification of or addition or
     supplement to or deletion from the Note, the Guaranty, this Pledge
     Agreement or any permitted assignment or transfer of any thereof; (b) any
     waiver, consent, extension, indulgence or other action or inaction under or
     in respect of the Note, the Guaranty, this Pledge Agreement, or any
     exercise or nonexercise of any right, remedy, power or privilege under or
     in respect of the 

                                       4
<PAGE>
 
     Note or this Pledge Agreement; (c) any furnishing of any additional
     collateral or security to the Secured Party or its assignee or any
     acceptance thereof or any release of any collateral or security in whole or
     in part by the Secured Party or its assignee under this Pledge Agreement or
     otherwise; (d) any limitation on any party's liability or obligations under
     the Note, the Guaranty or under this Pledge Agreement or any invalidity or
     unenforceability, in whole or in part, or any such instrument or any term
     thereof; or (e) any bankruptcy, insolvency, reorganization, composition,
     adjustment, dissolution, liquidation or other like proceeding relating to
     the Pledgor, or any action taken with respect to this Pledge Agreement, the
     Guaranty or the Note by any trustee or receiver, or by any court, in any
     such proceeding.

     IN WITNESS WHEREOF, the parties have executed this Pledge Agreement as of
the day and year first above written.


GRANDCHILDREN'S REALTY ALTERNATIVE
MANAGEMENT PROGRAM I L.P.


By:____________________________
Its:___________________________



VIRTUALFUND.COM, INC.


By:____________________________
Its:___________________________


                                       5
<PAGE>
 
                                   GUARANTY


IN CONSIDERATION OF and in order to induce VIRTUALFUND.COM, INC., a Minnesota
corporation (the "Company"), to extend credit to GRANDCHILDREN'S REALTY
ALTERNATIVE MANAGEMENT PROGRAM I L.P., a Minnesota limited partnership (the
"Borrower"), Melvin L. Masters (the "Guarantor") does hereby:

1.  Unconditionally and absolutely guarantee to the Company the full and prompt
payment, when due, of all indebtedness, obligation and liability of whatsoever
nature of the Borrower to the Company, whether now existing or hereafter created
and whether due or to become due, absolute or contingent, direct or indirect, or
joint or joint and several, including, without limitation, indebtedness,
obligation and liability created or arising under that certain promissory note
of Borrower, dated of even date herewith, in the original principal amount of
$250,000.00 payable to the order of the Company (such indebtedness, obligation
and liability herein collectively referred to as the "Obligations"), and the
prompt and full performance of all other duties of the Borrower to the Company,
together with any and all costs and expenses of and incidental to the collection
of the Obligations or the enforcement of this Guaranty, including, but not
limited to, reasonable attorneys' fees.

2.  Waive presentment, demand, notice of nonpayment, protest and notice of
protest on the Obligations and notice of the creation of the Obligations by the
Borrower.

3.  Agree that the Company may from time to time, without notice to the
Guarantor, extend, modify, renew, or compromise the Obligations and the
liability of the Guarantor under this Guaranty, in whole or in part, without
releasing, extinguishing or affecting in any manner whatsoever the liability of
the Guarantor under this Guaranty.

4.  Agree that this Guaranty shall be construed as a continuing, absolute and
unconditional guarantee without regard to (i) the validity, regularity or
enforceability of the Obligations or the disaffirmance thereof in any insolvency
or bankruptcy proceeding relating to the Borrower, or (ii) any event or any
conduct or action of the Borrower to the Company or any other party, which might
otherwise constitute a legal or equitable discharge of a surety or guarantor but
for this provision.

5.  Agree that the Company is expressly authorized to forward any or all
collateral and security which may at any time be placed with it by the Borrower
or the Guarantor or any other person, directly to the Borrower for collection
and remittance or for credit, or to collect the same in any other manner and to
renew, extend, compromise, exchange, release, surrender, or modify the terms of,
such collateral and security with or without consideration and without notice to
the Guarantor and without in any manner affecting the absolute liability of the
Guarantor hereunder; that the liability of the Guarantor hereunder shall not be
affected or impaired by any failure, neglect, or omission on the part of the
Company to realize upon the Obligations, or upon any collateral or security
therefor, nor by the taking by the Company of any other guaranty or guaranties
to secure 
<PAGE>
 
the Obligations, nor by taking by the Company of collateral or security of any
kind nor by any act or failure to act whatsoever which but for this provision
might or could in law or in equity act to release or reduce the Guarantor's
liabilities hereunder; and that no failure or delay on the part of the Company
in exercising any right or remedy hereunder shall operate as or constitute a
waiver of such right or remedy; nor shall any single or partial exercise of any
right or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by law.

6.  Agree that so long as any portion of the Obligations are due and owing or to
become due and owing by the Borrower to the Company, the Guarantor shall not,
without the prior written consent of the Company, collect or seek to collect
from the Borrower any claim acquired by the Guarantor through payment of any
part of the Obligations, whether by subrogation or otherwise.

7.  Waive any rights of subrogation, indemnity, reimbursement and contribution
which would otherwise arise or be acquired by the Guarantor by reason of payment
by the Guarantor of any part of the Obligations.

8.  Agree that the liability of the Guarantor hereunder shall be reinstated to
the extent the Company is required at any time to disgorge or repay any amounts
then previously received in payment of the Obligations, for any reason,
including, without limitation, amounts recovered pursuant to preference claims
in connection with bankruptcy proceedings of the Borrower.

9.  Agree that this Guaranty shall inure to the benefit of the Company and its
successors, assigns, and legal representatives and that the Guarantor shall have
no right to assign or otherwise transfer his rights and obligations under this
Guaranty to any third party without the prior written consent of the Company;
and that any such assignment or transfer shall not release or affect the
liability of the Guarantor hereunder in any manner whatsoever.

10.  Agree that the Guarantor may be joined in any action or proceeding
commenced against the Borrower in connection with or based upon the Obligations
and recovery may be had against the Guarantor in any such action or proceeding
or in any independent action or proceeding against the Guarantor under this
Guaranty should the Borrower fail to duly and punctually pay any of the
principal of or interest on the Obligations, without any requirement that the
Company first resort for payment or performance to, or assert, prosecute, or
exhaust any remedy or claim against, the Borrower or any other person or entity.

11.  Agree that this Guaranty shall be deemed a contract made under and pursuant
to the laws of the state of Minnesota and shall be governed by and construed
under the laws of such state and that, wherever possible, each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty or any part thereof shall
be  prohibited by or invalid under applicable law, such 

                                       2
<PAGE>
 
provision shall be ineffective without invalidating the remainder of such
provision or the remaining provisions of the Guaranty.

12.  Agree that all notices pursuant to this Guaranty shall be given by
facsimile or by notice in writing, hand-delivered or sent by first-class mail,
postage prepaid, to the parties hereto at the following addresses:

     The Company:      VirtualFund.com, Inc.
                       7090 Shady Oak Road
                       Eden Prairie, MN  55344
                       Attention:  General Counsel

     The Guarantor:    Melvin L. Masters
                       3213 South Duluth Avenue
                       Sioux Falls, SD  57105

or to such other number or address as such party shall designate in a written
notice to the other party.  All such notices shall be effective upon delivery to
the designated address.

13.  Represent, acknowledge and agree that:
          (a)  The Company's willingness, upon receipt of this Guaranty, to
               extend credit to the Borrower would also inure to the benefit of
               the Guarantor and constitutes good and valuable consideration to
               the Guarantor; and

          (b)  The Company may from time to time determine at its sole
               discretion that the financial condition of the Borrower and/or
               the Guarantor is not adequate to support additional extensions of
               credit to the Borrower and that the Company may request
               additional assurances of payment and of the Borrower's ability to
               pay the Obligations to the Company, and if such assurances are
               not forthcoming, may refuse to extend additional credit to the
               Borrower without in any way affecting the liability of the
               Guarantor hereunder.

Dated as of the ____ day of June, 1998.

 
                                                       ________________________
                                                       Melvin L. Masters
STATE OF______________________)
                              ) ss.
COUNTY OF_____________________)

This instrument was acknowledged before me this _______ day of June, 1998, by
Melvin L. Masters.
 
                                                       ________________________
                                                       Notary Public

                                       3