UPDATE:

Received the APE tensioner and installed.
Ordered a cover gasket from cyclewareables.com..If you order from the guy,that answered my call, be prepared to have to Alpha Beta Charlie all of your letters...maybe his hearing aid wasn't working well??? Anyway, they have a ton of stuff for the KZ's and it got shipped out pretty fast.

Did valve clearance check. Found the problem.
All intake/exhaust were within spec except the #3 cylinder intake. I can't even get a .004 gauge in there. That's the smallest one I have in my set.

Any ideas where to go from here? Stuck/sticking valve? I did here some ticking in that vicinity last time I rode it. Also noticed more grease/gunk on the outside carb intake at #3 than the others. I wouldn't think I'd be lucky enough to put it back together and use some marvel mystery oil to fix the problem.

Thanks

 

I would prolly pull the cam and re-shim. While the cam is off, you can use the heel of your hand to press down to see if the valve is stuck or not. Is that valve in question still holding a leak down test?

 

Adjusted clearances, went ahead and shimmed two that were almost out of spec. Set the manual tensioner.
Bike runs smoother but that dang noise is still there. Did a coil test, primary in spec., 12500 secondary resistance (book says spec is abour15K) so I'm not sure that would do it.
Haven't performed a leakdown test yet. Saw a kit for a diesel engine at harbor frieght but not for gas.
Noise seems to be loudest around the stator cover to the middle of the engine and 2nd loudest around the clutch cover but very hard to pin-point, even with the mechanics stethoscope.
Runs, drives, shifts (though gets a little clunkier after a few minutes of gear changes) and seems to perform fine otherwise. Now the noise subsides almost out of the friction zone instead of in the middle somewhere and a hesitation/stumbling around 6000 rpm. Not always! But more times than not if laying on the throttle.