diff --git a/idea/src/org/jetbrains/jet/plugin/completion/smart/TypeInstantiationItems.kt b/idea/src/org/jetbrains/jet/plugin/completion/smart/TypeInstantiationItems.kt
index d284010e2cc..df9952e67bb 100644
--- a/idea/src/org/jetbrains/jet/plugin/completion/smart/TypeInstantiationItems.kt
+++ b/idea/src/org/jetbrains/jet/plugin/completion/smart/TypeInstantiationItems.kt
@@ -55,9 +55,10 @@ import org.jetbrains.jet.lang.types.JetTypeImpl
 import org.jetbrains.jet.lang.descriptors.annotations.Annotations
 import org.jetbrains.jet.lang.resolve.DescriptorUtils
 import org.jetbrains.jet.lang.resolve.java.mapping.KotlinToJavaTypesMap
-import org.jetbrains.jet.lang.resolve.lazy.ResolveSessionUtils
 import org.jetbrains.jet.lang.descriptors.ModuleDescriptor
 import org.jetbrains.jet.lang.resolve.resolveTopLevelClass
+import org.jetbrains.jet.lang.types.TypeProjectionImpl
+import org.jetbrains.jet.lang.types.Variance
 
 class TypeInstantiationItems(
         val resolutionFacade: ResolutionFacade,
@@ -142,11 +143,14 @@ class TypeInstantiationItems(
         var lookupString = lookupElement.getLookupString()
         var allLookupStrings = setOf(lookupString)
 
-        var itemText = lookupString + DescriptorRenderer.SHORT_NAMES_IN_TYPES.renderTypeArguments(typeArgs)
+        // drop "in" and "out" from type arguments - they cannot be used in constructor call
+        val typeArgsToUse = typeArgs.map { if (it != null) TypeProjectionImpl(Variance.INVARIANT, it.getType()) else null }
+
+        var itemText = lookupString + DescriptorRenderer.SHORT_NAMES_IN_TYPES.renderTypeArguments(typeArgsToUse)
         var signatureText: String? = null
 
         val insertHandler: InsertHandler<LookupElement>
-        val typeText = qualifiedNameForSourceCode(classifier) + IdeDescriptorRenderers.SOURCE_CODE.renderTypeArguments(typeArgs)
+        val typeText = qualifiedNameForSourceCode(classifier) + IdeDescriptorRenderers.SOURCE_CODE.renderTypeArguments(typeArgsToUse)
         if (isAbstract) {
             val constructorParenthesis = if (classifier.getKind() != ClassKind.TRAIT) "()" else ""
             itemText += constructorParenthesis
diff --git a/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt b/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt
new file mode 100644
index 00000000000..772a80b6134
--- /dev/null
+++ b/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt
@@ -0,0 +1,13 @@
+fun registerHandler(handler: Handler<out Message>) {}
+
+fun test() {
+    registerHandler(<caret>)
+}
+
+trait Message
+
+trait Handler<E> {
+    fun handle(e: E)
+}
+
+// ELEMENT: object
\ No newline at end of file
diff --git a/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt.after b/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt.after
new file mode 100644
index 00000000000..572cc56155d
--- /dev/null
+++ b/idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt.after
@@ -0,0 +1,17 @@
+fun registerHandler(handler: Handler<out Message>) {}
+
+fun test() {
+    registerHandler(object: Handler<Message> {
+        override fun handle(e: Message) {
+            <caret><selection>throw UnsupportedOperationException()</selection>
+        }
+    })
+}
+
+trait Message
+
+trait Handler<E> {
+    fun handle(e: E)
+}
+
+// ELEMENT: object
\ No newline at end of file
diff --git a/idea/testData/completion/smartMultiFile/GenericInheritors1/GenericInheritors1.kt b/idea/testData/completion/smartMultiFile/GenericInheritors1/GenericInheritors1.kt
index 80a4dd91276..7d248e1ce64 100644
--- a/idea/testData/completion/smartMultiFile/GenericInheritors1/GenericInheritors1.kt
+++ b/idea/testData/completion/smartMultiFile/GenericInheritors1/GenericInheritors1.kt
@@ -10,6 +10,6 @@ fun foo(): KotlinTrait<I1, I2> {
 // ABSENT: KotlinInheritor3
 // EXIST: { lookupString: "object", itemText: "object: KotlinInheritor4<I1, I2>(){...}" }
 // ABSENT: KotlinInheritor5
-// EXIST: { lookupString: "KotlinInheritor6", itemText: "KotlinInheritor6<I1, out Any?, out I3>", tailText: "() (p)" }
+// EXIST: { lookupString: "KotlinInheritor6", itemText: "KotlinInheritor6<I1, Any?, I3>", tailText: "() (p)" }
 // EXIST: { lookupString: "JavaInheritor1", itemText: "JavaInheritor1", tailText: "() (<root>)" }
 // ABSENT: JavaInheritor2
diff --git a/idea/tests/org/jetbrains/jet/completion/handlers/SmartCompletionHandlerTestGenerated.java b/idea/tests/org/jetbrains/jet/completion/handlers/SmartCompletionHandlerTestGenerated.java
index 609f9a902e3..1fd6cab621c 100644
--- a/idea/tests/org/jetbrains/jet/completion/handlers/SmartCompletionHandlerTestGenerated.java
+++ b/idea/tests/org/jetbrains/jet/completion/handlers/SmartCompletionHandlerTestGenerated.java
@@ -19,7 +19,6 @@ package org.jetbrains.jet.completion.handlers;
 import com.intellij.testFramework.TestDataPath;
 import org.jetbrains.jet.JUnit3RunnerWithInners;
 import org.jetbrains.jet.JetTestUtils;
-import org.jetbrains.jet.test.InnerTestClasses;
 import org.jetbrains.jet.test.TestMetadata;
 import org.junit.runner.RunWith;
 
@@ -240,6 +239,12 @@ public class SmartCompletionHandlerTestGenerated extends AbstractSmartCompletion
         doTest(fileName);
     }
 
+    @TestMetadata("ConstructorForGenericType2.kt")
+    public void testConstructorForGenericType2() throws Exception {
+        String fileName = JetTestUtils.navigationMetadata("idea/testData/completion/handlers/smart/ConstructorForGenericType2.kt");
+        doTest(fileName);
+    }
+
     @TestMetadata("ConstructorForJavaClass.kt")
     public void testConstructorForJavaClass() throws Exception {
         String fileName = JetTestUtils.navigationMetadata("idea/testData/completion/handlers/smart/ConstructorForJavaClass.kt");