As long as the spool isn't rubbing, closer to the deck the better. If the gap is larger, the reefing line can fall off the spool when tacking and get lodged under the spool and jam.
To adjust on an AI, you unlock and then turn the 2 turnbuckles from the front hatch then re-lock (with each nut). I hope that makes sense. Search the forums and there should be a better step by step instructions.
- - - - - Hobie Island Sailing since 2006 - - - - - 2011 & 2015 Hobie AIs and a 2012 TI