By Terence Pare

(FORTUNE Magazine) – Say what you want about Michael R. Milken, but he sure knows how to spread the jelly. In 1987, Drexel Burnham Lambert's alchemist of junk bonds and his wife, Lori, 42, donated over $93 million to two charitable foundations controlled by the Milken family, according to papers recently filed at the attorney general's office in California. Kenneth Lerer, Milken's personal spokesman, says, ''The only motive Michael Milken has in operating these foundations is public-spiritedness.'' (As a paragon of school-spiritedness, Mike was the head cheerleader at his Van Nuys, California, high school.) The documents show more than do-gooding. For one thing, the staggering sum the Milkens donated to their foundations points to a possible annual income for 1987 of at least $310 million. For another, the reports indicate that however smart he might seem, Milken has produced uneven results for his foundations, the Capital Fund Foundation and the M and L Milken Foundation. Or do the numbers say something else? Could he have another motive for starting the foundations besides altruism? Milken set up his first charitable foundation in 1982. But the flow of charitable funds became a torrent in late 1986, after the Ivan Boesky insider trading scandal broke. Since 1982 Milken has contributed more than $158 million. That's quite a gift, particularly for someone still only 42. John D. Rockefeller gave $182.9 million to the foundation that bears his name, which he established when he was 74. Milken can afford virtue. Tax law commonly limits the charitable contributions that can be deducted annually to 30% of adjusted gross income. Any contribution in excess of that is unrequited philanthropy, as far as Uncle Sam is concerned. If Milken gave only what he could take off his current tax return, his adjusted gross income for 1987 works out to at least $310 million. Of course, especially generous individuals may and do contribute more than what's deductible. The IRS allows them to carry forward charitable contributions in excess of that 30% of adjusted gross income. But there is a five-year limit, and they can't be sure they'll have enough income to take advantage of the deduction in the years ahead. Milken's foundations have disbursed more than $13 million over the past six years to educational, medical, and social service institutions (see table). That isn't much compared with the $183 million the two foundations had in total assets at the end of 1987. But charitable foundations are required to distribute a minimum of only 5% of their investment assets. Thus, though Milken has given up ownership of the money, he has not given up the right to play with it. He may buy and sell securities, for example, as long as whatever profits accrue go to the foundations. Through his spokesman, Milken maintains that he is a passive investor who leaves the active management of the foundation portfolios to Century Investments, a Los Angeles money management firm. But it's worth pointing out that most of the foundations' investments are Drexel products, mainly junk bonds. In addition, Milken has sometimes made his contributions in the form of securities, instead of cash. Not surprisingly, the foundations' two biggest money makers turn out to be securities that Milken picked. In 1985 he donated 427,748 shares of First Executive, a Los Angeles insurance company, to the Capital Fund Foundation; two years later he gave $866,000 worth of Blue Bell 15% convertible debentures to the M and L Milken Foundation. Fred Carr, CEO of First Executive, was one of Drexel's earliest and best junk bond customers. In 1983, First Executive bought much of the public high yield issues Drexel offered. Milken's friendship with Carr notwithstanding, the foundation slowly unloaded First Executive shares over the spring and summer of 1986 with the stock near its high. By the end of November, Capital had recorded a gain of over $8 million. Jeans maker Blue Bell was a 1984 Drexel-engineered leveraged buyout. Of a total issue of convertible debentures worth about $12,485,000, the M and L Foundation ended up with 7% a year later. When blue jeans rival VF bought Blue Bell in 1986, M and L reported a capital gain large enough, $6.4 million, to more than cover all its disbursements for the year, $5.3 million. But some investments have been headaches. In 1985 the Capital Fund invested about $4.8 million in Phillips Petroleum just as that company was beating back takeover entrepreneur Carl Icahn. Now the SEC claims that Drexel and Milken, through Capital, helped Ivan Boesky conceal capital deficiencies in Seemala, his arbitrage company. They allegedly did this by purchasing shares of Phillips from Seemala -- providing the Boesky firm enough cash to satisfy regulations -- and selling half of them back later. Most intriguing are the investments that didn't make vast profits. In December 1984, Milken contributed $27.7 million in cash to Capital. The foundation then bought Metromedia Broadcasting 15% bonds due in 1996, paying $28.8 million. (At the end of its fiscal year, Capital reported assets of only $44 million.) Metromedia was the biggest junk deal up to that time, so big that some analysts doubted it would go over. It did, with Capital buying 8.6% of the 15% bonds. Two months later, Capital liquidated the position at a nominal profit, bought Metromedia zero coupon bonds, and netted almost $2 million on them. Where does charity begin?