diff --git a/grammar/src/types.grm b/grammar/src/types.grm
index 91e18e42a87..35b16fa0aaf 100644
--- a/grammar/src/types.grm
+++ b/grammar/src/types.grm
@@ -30,7 +30,7 @@ functionType
   ;
 
 functionTypeContents
-  : "(" (parameter | type){","} ")" ":" type
+  : "(" (parameter | modifiers /*lazy out ref*/ type){","} ")" ":" type
   ;
 
 tupleType
diff --git a/idea/src/org/jetbrains/jet/lang/parsing/JetParsing.java b/idea/src/org/jetbrains/jet/lang/parsing/JetParsing.java
index 62199f949af..38b4b711d88 100644
--- a/idea/src/org/jetbrains/jet/lang/parsing/JetParsing.java
+++ b/idea/src/org/jetbrains/jet/lang/parsing/JetParsing.java
@@ -772,6 +772,7 @@ public class JetParsing {
         if (!at(RPAR)) {
             while (true) {
                 if (!parseValueParameter()) {
+                    parseModifierList(); // lazy, out, ref
                     parseTypeRef();
                 }
                 if (!at(COMMA)) break;
diff --git a/idea/testData/psi/FunctionTypes.jet b/idea/testData/psi/FunctionTypes.jet
index ae37a029419..83c5bea43fa 100644
--- a/idea/testData/psi/FunctionTypes.jet
+++ b/idea/testData/psi/FunctionTypes.jet
@@ -12,3 +12,5 @@ type f = {(a : [a] a, foo, x : bar) : b}
 type f = {(foo, a : a) : b}
 type f = {(foo, a : {(a) : b}) : b}
 type f = {(foo, a : {(a) : b}) : {() : ()}}
+
+type f = {(lazy foo, out a : {(ref a) : b}) : {() : ()}}
\ No newline at end of file
diff --git a/idea/testData/psi/FunctionTypes.txt b/idea/testData/psi/FunctionTypes.txt
index 0426efe3d23..65bbd693b27 100644
--- a/idea/testData/psi/FunctionTypes.txt
+++ b/idea/testData/psi/FunctionTypes.txt
@@ -13,7 +13,7 @@ JetFile: FunctionTypes.jet
         PsiElement(LBRACE)('{')
         VALUE_PARAMETER_LIST
           PsiElement(LPAR)('(')
-          TYPE_REFERENCE
+          MODIFIER_LIST
             ATTRIBUTE_ANNOTATION
               PsiElement(LBRACKET)('[')
               ATTRIBUTE
@@ -21,7 +21,8 @@ JetFile: FunctionTypes.jet
                   USER_TYPE
                     PsiElement(IDENTIFIER)('a')
               PsiElement(RBRACKET)(']')
-            PsiWhiteSpace(' ')
+          PsiWhiteSpace(' ')
+          TYPE_REFERENCE
             USER_TYPE
               PsiElement(IDENTIFIER)('a')
           PsiElement(RPAR)(')')
@@ -401,6 +402,72 @@ JetFile: FunctionTypes.jet
         PsiWhiteSpace(' ')
         PsiElement(COLON)(':')
         PsiWhiteSpace(' ')
+        TYPE_REFERENCE
+          PsiElement(LBRACE)('{')
+          VALUE_PARAMETER_LIST
+            PsiElement(LPAR)('(')
+            PsiElement(RPAR)(')')
+          PsiWhiteSpace(' ')
+          PsiElement(COLON)(':')
+          PsiWhiteSpace(' ')
+          TYPE_REFERENCE
+            TUPLE_TYPE
+              PsiElement(LPAR)('(')
+              PsiElement(RPAR)(')')
+          PsiElement(RBRACE)('}')
+        PsiElement(RBRACE)('}')
+    PsiWhiteSpace('\n\n')
+    TYPEDEF
+      PsiElement(type)('type')
+      PsiWhiteSpace(' ')
+      PsiElement(IDENTIFIER)('f')
+      PsiWhiteSpace(' ')
+      TYPE_PARAMETER_LIST
+        <empty list>
+      PsiElement(EQ)('=')
+      PsiWhiteSpace(' ')
+      TYPE_REFERENCE
+        PsiElement(LBRACE)('{')
+        VALUE_PARAMETER_LIST
+          PsiElement(LPAR)('(')
+          MODIFIER_LIST
+            PsiElement(lazy)('lazy')
+          PsiWhiteSpace(' ')
+          TYPE_REFERENCE
+            USER_TYPE
+              PsiElement(IDENTIFIER)('foo')
+          PsiElement(COMMA)(',')
+          PsiWhiteSpace(' ')
+          VALUE_PARAMETER
+            MODIFIER_LIST
+              PsiElement(out)('out')
+            PsiWhiteSpace(' ')
+            PsiElement(IDENTIFIER)('a')
+            PsiWhiteSpace(' ')
+            PsiElement(COLON)(':')
+            PsiWhiteSpace(' ')
+            TYPE_REFERENCE
+              PsiElement(LBRACE)('{')
+              VALUE_PARAMETER_LIST
+                PsiElement(LPAR)('(')
+                MODIFIER_LIST
+                  PsiElement(ref)('ref')
+                PsiWhiteSpace(' ')
+                TYPE_REFERENCE
+                  USER_TYPE
+                    PsiElement(IDENTIFIER)('a')
+                PsiElement(RPAR)(')')
+              PsiWhiteSpace(' ')
+              PsiElement(COLON)(':')
+              PsiWhiteSpace(' ')
+              TYPE_REFERENCE
+                USER_TYPE
+                  PsiElement(IDENTIFIER)('b')
+              PsiElement(RBRACE)('}')
+          PsiElement(RPAR)(')')
+        PsiWhiteSpace(' ')
+        PsiElement(COLON)(':')
+        PsiWhiteSpace(' ')
         TYPE_REFERENCE
           PsiElement(LBRACE)('{')
           VALUE_PARAMETER_LIST
diff --git a/idea/testData/psi/FunctionTypes_ERR.txt b/idea/testData/psi/FunctionTypes_ERR.txt
index 9a7fffd7b32..c742264d19f 100644
--- a/idea/testData/psi/FunctionTypes_ERR.txt
+++ b/idea/testData/psi/FunctionTypes_ERR.txt
@@ -13,7 +13,7 @@ JetFile: FunctionTypes_ERR.jet
         PsiElement(LBRACE)('{')
         VALUE_PARAMETER_LIST
           PsiElement(LPAR)('(')
-          TYPE_REFERENCE
+          MODIFIER_LIST
             ATTRIBUTE_ANNOTATION
               PsiElement(LBRACKET)('[')
               ATTRIBUTE
@@ -21,7 +21,8 @@ JetFile: FunctionTypes_ERR.jet
                   USER_TYPE
                     PsiElement(IDENTIFIER)('a')
               PsiElement(RBRACKET)(']')
-            PsiWhiteSpace(' ')
+          PsiWhiteSpace(' ')
+          TYPE_REFERENCE
             USER_TYPE
               PsiElement(IDENTIFIER)('a')
           PsiElement(RPAR)(')')