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In the current editor's draft, in 2.3.6 [1], in the note in "1.", it is said: "It also means that if the content of the initial template is [...]" But we can now have an initial function, so there is not necessarily an initial template any more. The very same sentence still says "as in the example above" but that piece of text has been detached from the mentioned example. [1] https://w3.org/XML/Group/qtspecs/specifications/xslt-30/html/Overview-diff.html#post-processing
The WG accepted the bug on 2014-03-20 and asked the editor to fix it, which he has now done.