From the Shimano service manual and tips from da Vinci

Top Adjustment

Turn the top adjustment screw so that the guide pulley is in line with the outer line of the smallest sprocket when looking from the back.

rd1

Low Adjustment

Turn the low adjustment screw so that the guide pulley moves to a position directly in line with the largest sprocket.

With the bike in a stand, push inward on the rear derailleur, by hand, and pedal the bike. You want to be sure the chain can not overshoot the largest sprocket and into the spokes.

rd2

How to use the B-tention adjustment screw

Shift the chain to the smallest chainring (driving gears) and the largest sprocket (rear cog), and turn the crank arm backward. Then turn the B-tension adjustment screw to adjust the guide pulley as close to the sprocket as possible but not so close that it touches. Next, shift the chain to the smallest sprocket (rear cog) and repeat the above to make sure that the pulley does not touch the sprocket.

rd3

SIS Adjustment

Operate the shifting lever to move the chain from the top gear to the 2nd gear.
* If the chain will not move to the 2nd gear, turn the outer casing adjustment barrel to increase the tension—(1)counter clockwise.
* lf the chain moves past the 2nd gear, decrease the tension–(1) clockwise.

Next, with the chain on the 2nd gear, increase the inner cable tension (1) while turning the crank arm forward. Stop turning the outer casing adjustment barrel Just before the chain makes noise against the 3rd gear.
If the bike hesitates shifting into smaller rear cogs (sprockets), turn the adjustment barrel clockwise (2). If the bike hesitates shifting into larger cogs, turn the adjustment barrel counter clockwise (1).

This completes the adjustment.

For the best SIS performance, periodically lubricate all power-transmission parts.