Go to vlvworld.com and find the Information Center. There you will find that your transmission is an M46.
In the Bentley, notice the table on the first page of the Ignition System section. According to that, you do have the Volvo/Chrysler ignition system. So, you will have the white distributor cap. Bosch used the pumpkin colored caps through all years, as far as I know.
Also in the Bentley, table a., pg. 241-2, your '86 is identified as LH2.2. On the same page is a chart of functionality for each of the LH versions.
However, a lot can happen in 22 years. People change things, sometimes just for the sake of change. Once you know what you are looking for, verify it is present on your car. For instance, if you've got a pumpkin colored cap on the distributor, or a distributor on the head, your car has been changed from the original configuration; all bets are off when it comes to ID from a book. ;-)
Also, signup at volvo.com and seek out the Owner's library; the owner's manual that is usually lost from the glove box is available there.
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Mr. Shannon DeWolfe -- (I've taken to using Mr. because my name tends to mislead folks on the WWW. I am a 52 year old fat man
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