Chief Clutch Dis-engagement

I have a 1940 Chief with a clutch problem. Entire engine/trans/clutch rebuilt 1000 miles ago. I've been riding this machine and adjusting the clutch as needed. Adjustment would be required because it would begin to be difficult to shift out of a gear or into the next gear. This might happen in the course of a short ride (10-15 miles). My last ride the bike was fine as I left but 10 miles later became difficult to shift. I stopped and it would barely go into first gear and would hardly shift into second.
Rode home. Opened up the primary to have a look.
I can't get the clutch adjusted to dis-engage. I have followed the vague instructions in an old Indian Repair and Overhaul Supplement.

Is there a trick to setting up the release worm correctly? I understand the lever being at the two o'clock position and setting the foot pedal heel height. I visually inspected the clutch, springs are all aligned and distance between the spring plate and pressure plate is consistent all the way around, no bent studs. It looks OK.
I measured the distance between the clutch spring plate and the pressure plate @ .098 which is less than the 1/8 inch minimum. Is that my problem?

Also I found three half dome shaped metal objects which look like rivet heads sheared off from somewhere (the generator gear/pully?) laying in the bottom of the inner primary case. The drive gear for the generator pulley seems to be centered correctly and is not wearing on the gear sides yet.

HI,
It sounds like your clutch disc stacking is incorrect. You probably have too many steel discs or too many fiber discs. You can't really see in there very well, so you would have to disassemble the clutch pack. I think that once you have your clutch pack assembled with the correct number of steels/fibers the problem is fixed. Page 37 of the 1948 Repair and Overhaul manual has stacking directions for the models prior to 1946.
The three half domed shaped objects in you found in the bottom of your primary drive case are probably the heads of the rivets that attach the generator drive to sprocket to the shaft. The heads are on the outside surface of the sprocket and should be visible even when the primary drive is assembled. Either somebody left them in there from an earlier repair (unlikely) or your generator drive sprocket is ready to shear. If it does shear, it will just spin on the shaft and might not be detected except that your generator drive pulley would spin free and not drive the generator. If you grab the sprocket and wiggle it, it should not move on the shaft. If it does you are going to have to pull the whole primary drive apart in order to fix it. Good Luck. Sincerely, Steven Bailey baiste@sgu.edu.