Wow, that is very funny.
You are right; it's not in the spec. I'm actually quite suprised I didn't already know this considering how much time I've spend reading the thing ;-) I'll make an excuse that I haven't read chapter 29 in as much detail as some of the others...
Gotcha! It actually is in the spec, sort of, in section 29.4.3 as an argument to make-clim-stream-pane. It is not in the index, which has caused me to overlook it on several occasions. It appears it exists only as an argument to make-clim-stream-pane and the derived functions, and is not an initarg usable in a call to make-pane. I don't see anywhere in the spec stating that define-application-frame should be smart enough to use make-clim-stream-pane rather than make-pane in certain cases, but I'm not looking very hard either.
Keep on hacking..