diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
index f5b5f06dae2..32c775540ec 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
@@ -429,18 +429,20 @@ public class JetFlowInformationProvider {
         Map<VariableDescriptor, VariableInitializers> exitInstructionData = Maps.newHashMap(enterInstructionData);
         if (instruction instanceof WriteValueInstruction) {
             VariableDescriptor variable = extractVariableDescriptorIfAny(instruction, false);
-            VariableInitializers initializationAtThisElement = new VariableInitializers(((WriteValueInstruction) instruction).getElement());
+            VariableInitializers enterInitializers = enterInstructionData.get(variable);
+            VariableInitializers initializationAtThisElement = new VariableInitializers(((WriteValueInstruction) instruction).getElement(), enterInitializers);
             exitInstructionData.put(variable, initializationAtThisElement);
         }
         else if (instruction instanceof VariableDeclarationInstruction) {
             VariableDescriptor variable = extractVariableDescriptorIfAny(instruction, false);
             VariableInitializers enterInitializers = enterInstructionData.get(variable);
-            if (enterInitializers == null || !enterInitializers.isInitialized()) {
+            if (enterInitializers == null || !enterInitializers.isInitialized() || !enterInitializers.isDeclared()) {
                 JetElement element = ((VariableDeclarationInstruction) instruction).getElement();
                 if (element instanceof JetProperty) {
                     JetProperty property = (JetProperty) element;
                     if (property.getInitializer() == null) {
-                        VariableInitializers variableDeclarationInfo = new VariableInitializers(false, true);
+                        boolean isInitialized = enterInitializers != null && enterInitializers.isInitialized();
+                        VariableInitializers variableDeclarationInfo = new VariableInitializers(isInitialized, true);
                         exitInstructionData.put(variable, variableDeclarationInfo);
                     }
                 }
@@ -640,7 +642,7 @@ public class JetFlowInformationProvider {
     }
 
 ////////////////////////////////////////////////////////////////////////////////
-//  Util methods
+//  Util methods                                                                                                              7
 
     @Nullable
     private VariableDescriptor extractVariableDescriptorIfAny(Instruction instruction, boolean onlyReference) {
@@ -709,9 +711,9 @@ public class JetFlowInformationProvider {
             this.isDeclared = isDeclared;
         }
 
-        public VariableInitializers(JetElement element) {
+        public VariableInitializers(JetElement element, @Nullable VariableInitializers previous) {
             isInitialized = true;
-            isDeclared = element instanceof JetProperty;
+            isDeclared = element instanceof JetProperty || (previous != null && previous.isDeclared());
             possibleLocalInitializers.add(element);
         }
         
@@ -748,8 +750,11 @@ public class JetFlowInformationProvider {
 
             VariableInitializers that = (VariableInitializers) o;
 
+            if (isDeclared != that.isDeclared) return false;
             if (isInitialized != that.isInitialized) return false;
-            if (possibleLocalInitializers != null ? !possibleLocalInitializers.equals(that.possibleLocalInitializers) : that.possibleLocalInitializers != null) {
+            if (possibleLocalInitializers != null
+                ? !possibleLocalInitializers.equals(that.possibleLocalInitializers)
+                : that.possibleLocalInitializers != null) {
                 return false;
             }
 
@@ -760,6 +765,7 @@ public class JetFlowInformationProvider {
         public int hashCode() {
             int result = possibleLocalInitializers != null ? possibleLocalInitializers.hashCode() : 0;
             result = 31 * result + (isInitialized ? 1 : 0);
+            result = 31 * result + (isDeclared ? 1 : 0);
             return result;
         }
     }
diff --git a/compiler/testData/diagnostics/tests/controlFlowAnalysis/kt1066.jet b/compiler/testData/diagnostics/tests/controlFlowAnalysis/kt1066.jet
new file mode 100644
index 00000000000..5abcafaaeaa
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/controlFlowAnalysis/kt1066.jet
@@ -0,0 +1,37 @@
+//KT-1066 false 'Variable cannot be initialized before declaration'
+//+JDK
+
+package kt1066
+
+import java.util.Set
+
+fun randomDigit() = 0.chr
+
+fun foo(excluded: Set<Char>) {
+    var digit : Char
+
+    do {
+        digit = randomDigit()
+//      ^^^^^ here!
+    } while (excluded.contains(digit))
+}
+
+fun test() {
+    var sum : Int = 0
+    var first : Int = 1
+    var second : Int = 2
+    var temp : Int //= 0 // variable 'temp' initializer is redundant
+
+    while (true)
+    {
+        if (second > 4000000)
+            break
+
+        if (second % 2 == 0)
+            sum += second
+
+        temp = second
+        second = first + second
+        first = temp
+    }
+}
\ No newline at end of file