diff --git a/.idea/dictionaries/abreslav.xml b/.idea/dictionaries/abreslav.xml
index bec9ce9fb24..db3d985c5e2 100644
--- a/.idea/dictionaries/abreslav.xml
+++ b/.idea/dictionaries/abreslav.xml
@@ -3,6 +3,7 @@
     <words>
       <w>inferrer</w>
       <w>nullable</w>
+      <w>substitutor</w>
       <w>subtyping</w>
       <w>supertype</w>
       <w>supertypes</w>
diff --git a/idea/src/org/jetbrains/jet/lang/resolve/ClassDescriptorResolver.java b/idea/src/org/jetbrains/jet/lang/resolve/ClassDescriptorResolver.java
index e4cc15230c9..570e7a6d2f7 100644
--- a/idea/src/org/jetbrains/jet/lang/resolve/ClassDescriptorResolver.java
+++ b/idea/src/org/jetbrains/jet/lang/resolve/ClassDescriptorResolver.java
@@ -7,10 +7,7 @@ import org.jetbrains.jet.lang.psi.*;
 import org.jetbrains.jet.lang.types.*;
 import org.jetbrains.jet.lexer.JetTokens;
 
-import java.util.ArrayList;
-import java.util.Collection;
-import java.util.Collections;
-import java.util.List;
+import java.util.*;
 
 /**
  * @author abreslav
@@ -222,7 +219,7 @@ public class ClassDescriptorResolver {
     }
 
     public List<TypeParameterDescriptor> resolveTypeParameters(DeclarationDescriptor containingDescriptor, WritableScope extensibleScope, List<JetTypeParameter> typeParameters) {
-        // TODO : When-clause
+        // TODO : Where-clause
         List<TypeParameterDescriptor> result = new ArrayList<TypeParameterDescriptor>();
         for (JetTypeParameter typeParameter : typeParameters) {
             result.add(resolveTypeParameter(containingDescriptor, extensibleScope, typeParameter));
@@ -231,15 +228,18 @@ public class ClassDescriptorResolver {
     }
 
     private TypeParameterDescriptor resolveTypeParameter(DeclarationDescriptor containingDescriptor, WritableScope extensibleScope, JetTypeParameter typeParameter) {
+        // TODO: other bounds from where-clause
         JetTypeReference extendsBound = typeParameter.getExtendsBound();
+        JetType bound = extendsBound == null
+                ? JetStandardClasses.getDefaultBound()
+                : typeResolver.resolveType(extensibleScope, extendsBound);
         TypeParameterDescriptor typeParameterDescriptor = new TypeParameterDescriptor(
                 containingDescriptor,
                 AttributeResolver.INSTANCE.resolveAttributes(typeParameter.getModifierList()),
                 typeParameter.getVariance(),
                 typeParameter.getName(),
-                extendsBound == null
-                        ? Collections.<JetType>singleton(JetStandardClasses.getDefaultBound())
-                        : Collections.singleton(typeResolver.resolveType(extensibleScope, extendsBound))
+                Collections.singleton(bound),
+                bound
         );
         extensibleScope.addTypeParameterDescriptor(typeParameterDescriptor);
         trace.recordDeclarationResolution(typeParameter, typeParameterDescriptor);
diff --git a/idea/src/org/jetbrains/jet/lang/resolve/LazySubstitutingClassDescriptor.java b/idea/src/org/jetbrains/jet/lang/resolve/LazySubstitutingClassDescriptor.java
index 38ab2483748..0b30c6c7a08 100644
--- a/idea/src/org/jetbrains/jet/lang/resolve/LazySubstitutingClassDescriptor.java
+++ b/idea/src/org/jetbrains/jet/lang/resolve/LazySubstitutingClassDescriptor.java
@@ -38,6 +38,12 @@ public class LazySubstitutingClassDescriptor implements ClassDescriptor {
         return new SubstitutingScope(memberScope, substitutionContext);
     }
 
+    @NotNull
+    @Override
+    public JetType getDefaultType() {
+        throw new UnsupportedOperationException(); // TODO
+    }
+
     @NotNull
     @Override
     public FunctionGroup getConstructors(List<TypeProjection> typeArguments) {
diff --git a/idea/src/org/jetbrains/jet/lang/resolve/MutableClassDescriptor.java b/idea/src/org/jetbrains/jet/lang/resolve/MutableClassDescriptor.java
index 8d67fa50916..1529a843e2a 100644
--- a/idea/src/org/jetbrains/jet/lang/resolve/MutableClassDescriptor.java
+++ b/idea/src/org/jetbrains/jet/lang/resolve/MutableClassDescriptor.java
@@ -35,10 +35,16 @@ public class MutableClassDescriptor extends MutableDeclarationDescriptor impleme
     @Override
     public JetScope getMemberScope(List<TypeProjection> typeArguments) {
         List<TypeParameterDescriptor> typeParameters = getTypeConstructor().getParameters();
-        Map<TypeConstructor,TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(typeParameters, typeArguments);
+        Map<TypeConstructor,TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(typeParameters, typeArguments);
         return new SubstitutingScope(unsubstitutedMemberScope, substitutionContext);
     }
 
+    @NotNull
+    @Override
+    public JetType getDefaultType() {
+        return TypeUtils.makeUnsubstitutedType(this, unsubstitutedMemberScope);
+    }
+
     public void addConstructor(@NotNull ConstructorDescriptor constructorDescriptor) {
         assert constructorDescriptor.getContainingDeclaration() == this;
         constructors.addFunction(constructorDescriptor);
@@ -49,11 +55,12 @@ public class MutableClassDescriptor extends MutableDeclarationDescriptor impleme
     public FunctionGroup getConstructors(List<TypeProjection> typeArguments) {
         // TODO : Duplicates ClassDescriptorImpl
         assert typeArguments.size() == getTypeConstructor().getParameters().size();
+
         if (typeArguments.size() == 0) {
             return constructors;
         }
-        Map<TypeConstructor, TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(getTypeConstructor().getParameters(), typeArguments);
-        return new LazySubstitutingFunctionGroup(substitutionContext, constructors);
+        Map<TypeConstructor, TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(getTypeConstructor().getParameters(), typeArguments);
+        return new LazySubstitutingFunctionGroup(substitutionContext, constructors, TypeSubstitutor.INSTANCE_FOR_CONSTRUCTORS);
     }
 
     @NotNull
diff --git a/idea/src/org/jetbrains/jet/lang/resolve/TypeResolver.java b/idea/src/org/jetbrains/jet/lang/resolve/TypeResolver.java
index bf460c1f9ee..a8fe8dda02f 100644
--- a/idea/src/org/jetbrains/jet/lang/resolve/TypeResolver.java
+++ b/idea/src/org/jetbrains/jet/lang/resolve/TypeResolver.java
@@ -9,7 +9,6 @@ import org.jetbrains.jet.lang.types.*;
 import java.util.ArrayList;
 import java.util.Collections;
 import java.util.List;
-import java.util.Set;
 
 /**
  * @author abreslav
@@ -148,8 +147,8 @@ public class TypeResolver {
             JetProjectionKind projectionKind = argumentElement.getProjectionKind();
             JetType type;
             if (projectionKind == JetProjectionKind.STAR) {
-                Set<JetType> upperBounds = constructor.getParameters().get(i).getUpperBounds();
-                arguments.add(new TypeProjection(Variance.OUT_VARIANCE, TypeUtils.intersect(semanticServices.getTypeChecker(), upperBounds)));
+                TypeParameterDescriptor parameterDescriptor = constructor.getParameters().get(i);
+                arguments.add(TypeUtils.makeStarProjection(parameterDescriptor));
             }
             else {
                 // TODO : handle the Foo<in *> case
diff --git a/idea/src/org/jetbrains/jet/lang/resolve/WritableFunctionGroup.java b/idea/src/org/jetbrains/jet/lang/resolve/WritableFunctionGroup.java
index 7bac48a0e03..a1249333de1 100644
--- a/idea/src/org/jetbrains/jet/lang/resolve/WritableFunctionGroup.java
+++ b/idea/src/org/jetbrains/jet/lang/resolve/WritableFunctionGroup.java
@@ -59,7 +59,9 @@ public class WritableFunctionGroup implements FunctionGroup {
             if (functionDescriptor.getTypeParameters().size() == typeArgCount) {
                 if (FunctionDescriptorUtil.getMinimumArity(functionDescriptor) <= valueArgCount &&
                         valueArgCount <= FunctionDescriptorUtil.getMaximumArity(functionDescriptor)) {
-                    result.add(FunctionDescriptorUtil.substituteFunctionDescriptor(typeArguments, functionDescriptor));
+                    FunctionDescriptor substitutedFunctionDescriptor = FunctionDescriptorUtil.substituteFunctionDescriptor(typeArguments, functionDescriptor);
+                    assert substitutedFunctionDescriptor != null;
+                    result.add(substitutedFunctionDescriptor);
                 }
             }
         }
diff --git a/idea/src/org/jetbrains/jet/lang/types/ClassDescriptor.java b/idea/src/org/jetbrains/jet/lang/types/ClassDescriptor.java
index ac15a99bdd9..2d55620f257 100644
--- a/idea/src/org/jetbrains/jet/lang/types/ClassDescriptor.java
+++ b/idea/src/org/jetbrains/jet/lang/types/ClassDescriptor.java
@@ -21,4 +21,10 @@ public interface ClassDescriptor extends DeclarationDescriptor {
     @Override
     @NotNull
     DeclarationDescriptor getContainingDeclaration();
+
+    /**
+     * @return type A&lt;T&gt; for the class A&lt;T&gt;
+     */
+    @NotNull
+    JetType getDefaultType();
 }
diff --git a/idea/src/org/jetbrains/jet/lang/types/ClassDescriptorImpl.java b/idea/src/org/jetbrains/jet/lang/types/ClassDescriptorImpl.java
index 2ebc609887d..e9603e2036c 100644
--- a/idea/src/org/jetbrains/jet/lang/types/ClassDescriptorImpl.java
+++ b/idea/src/org/jetbrains/jet/lang/types/ClassDescriptorImpl.java
@@ -24,13 +24,6 @@ public class ClassDescriptorImpl extends DeclarationDescriptorImpl implements Cl
         super(containingDeclaration, attributes, name);
     }
 
-//    public ClassDescriptorImpl(@NotNull DeclarationDescriptor containingDeclaration, String name, JetScope memberDeclarations) {
-//        this(containingDeclaration, Collections.<Attribute>emptyList(), name);
-//        this.initialize(Collections.<Attribute>emptyList(), true,
-//                name, Collections.<TypeParameterDescriptor>emptyList(),
-//                Collections.<Type>singleton(JetStandardClasses.getAnyType()), memberDeclarations);
-//    }
-//
     public final ClassDescriptorImpl initialize(boolean sealed,
                                                 @NotNull List<TypeParameterDescriptor> typeParameters,
                                                 @NotNull Collection<? extends JetType> superclasses,
@@ -55,10 +48,16 @@ public class ClassDescriptorImpl extends DeclarationDescriptorImpl implements Cl
         if (typeConstructor.getParameters().isEmpty()) {
             return  memberDeclarations;
         }
-        Map<TypeConstructor, TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(typeConstructor.getParameters(), typeArguments);
+        Map<TypeConstructor, TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(typeConstructor.getParameters(), typeArguments);
         return new SubstitutingScope(memberDeclarations, substitutionContext);
     }
 
+    @NotNull
+    @Override
+    public JetType getDefaultType() {
+        return TypeUtils.makeUnsubstitutedType(this, memberDeclarations);
+    }
+
     @NotNull
     @Override
     public FunctionGroup getConstructors(List<TypeProjection> typeArguments) {
@@ -66,8 +65,8 @@ public class ClassDescriptorImpl extends DeclarationDescriptorImpl implements Cl
         if (typeArguments.size() == 0) {
             return constructors;
         }
-        Map<TypeConstructor, TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(getTypeConstructor().getParameters(), typeArguments);
-        return new LazySubstitutingFunctionGroup(substitutionContext, constructors);
+        Map<TypeConstructor, TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(getTypeConstructor().getParameters(), typeArguments);
+        return new LazySubstitutingFunctionGroup(substitutionContext, constructors, TypeSubstitutor.INSTANCE_FOR_CONSTRUCTORS);
     }
 
     @Override
diff --git a/idea/src/org/jetbrains/jet/lang/types/ConstructorDescriptorImpl.java b/idea/src/org/jetbrains/jet/lang/types/ConstructorDescriptorImpl.java
index 0ef331378e9..a4c3280dcee 100644
--- a/idea/src/org/jetbrains/jet/lang/types/ConstructorDescriptorImpl.java
+++ b/idea/src/org/jetbrains/jet/lang/types/ConstructorDescriptorImpl.java
@@ -64,6 +64,6 @@ public class ConstructorDescriptorImpl extends FunctionDescriptorImpl implements
     @NotNull
     @Override
     public JetType getUnsubstitutedReturnType() {
-        return TypeUtils.makeUnsubstitutedType(getContainingDeclaration());
+        return getContainingDeclaration().getDefaultType();
     }
 }
diff --git a/idea/src/org/jetbrains/jet/lang/types/ErrorType.java b/idea/src/org/jetbrains/jet/lang/types/ErrorType.java
index 06a8686075e..54a9d2dbaa1 100644
--- a/idea/src/org/jetbrains/jet/lang/types/ErrorType.java
+++ b/idea/src/org/jetbrains/jet/lang/types/ErrorType.java
@@ -179,6 +179,10 @@ public class ErrorType {
             return Collections.emptyList();
         }
 
+        @Override
+        public String toString() {
+            return constructor.toString();
+        }
     }
 
     private ErrorType() {}
diff --git a/idea/src/org/jetbrains/jet/lang/types/FunctionDescriptorUtil.java b/idea/src/org/jetbrains/jet/lang/types/FunctionDescriptorUtil.java
index d6da415cb93..348b7465aba 100644
--- a/idea/src/org/jetbrains/jet/lang/types/FunctionDescriptorUtil.java
+++ b/idea/src/org/jetbrains/jet/lang/types/FunctionDescriptorUtil.java
@@ -1,6 +1,7 @@
 package org.jetbrains.jet.lang.types;
 
 import org.jetbrains.annotations.NotNull;
+import org.jetbrains.annotations.Nullable;
 
 import java.util.*;
 
@@ -37,29 +38,9 @@ public class FunctionDescriptorUtil {
         return unsubstitutedValueParameters.size();
     }
 
-    @NotNull
-    public static List<ValueParameterDescriptor> getSubstitutedValueParameters(FunctionDescriptor substitutedDescriptor, @NotNull FunctionDescriptor functionDescriptor, @NotNull List<JetType> typeArguments) {
-        // TODO : Review, maybe duplicates LazySubstitutingFunctionDescriptor
-        List<ValueParameterDescriptor> result = new ArrayList<ValueParameterDescriptor>();
-        Map<TypeConstructor, TypeProjection> context = createSubstitutionContext(functionDescriptor, typeArguments);
-        List<ValueParameterDescriptor> unsubstitutedValueParameters = functionDescriptor.getUnsubstitutedValueParameters();
-        for (int i = 0, unsubstitutedValueParametersSize = unsubstitutedValueParameters.size(); i < unsubstitutedValueParametersSize; i++) {
-            ValueParameterDescriptor unsubstitutedValueParameter = unsubstitutedValueParameters.get(i);
-            // TODO : Lazy?
-            result.add(new ValueParameterDescriptorImpl(
-                    substitutedDescriptor,
-                    i,
-                    unsubstitutedValueParameter.getAttributes(),
-                    unsubstitutedValueParameter.getName(),
-                    TypeSubstitutor.INSTANCE.substitute(context, unsubstitutedValueParameter.getType(), Variance.IN_VARIANCE),
-                    unsubstitutedValueParameter.hasDefaultValue(),
-                    unsubstitutedValueParameter.isVararg()
-            ));
-        }
-        return result;
-    }
-
     private static Map<TypeConstructor, TypeProjection> createSubstitutionContext(@NotNull FunctionDescriptor functionDescriptor, List<JetType> typeArguments) {
+        if (functionDescriptor.getTypeParameters().isEmpty()) return Collections.emptyMap();
+
         Map<TypeConstructor, TypeProjection> result = new HashMap<TypeConstructor, TypeProjection>();
 
         int typeArgumentsSize = typeArguments.size();
@@ -73,26 +54,64 @@ public class FunctionDescriptorUtil {
         return result;
     }
 
-    @NotNull
-    public static JetType getSubstitutedReturnType(@NotNull FunctionDescriptor functionDescriptor, @NotNull List<JetType> typeArguments) {
-        // TODO : Review, maybe duplicates LazySubstitutingFunctionDescriptor
-        return TypeSubstitutor.INSTANCE.substitute(createSubstitutionContext(functionDescriptor, typeArguments), functionDescriptor.getUnsubstitutedReturnType(), Variance.OUT_VARIANCE);
+    @Nullable
+    private static List<ValueParameterDescriptor> getSubstitutedValueParameters(FunctionDescriptor substitutedDescriptor, @NotNull FunctionDescriptor functionDescriptor, Map<TypeConstructor, TypeProjection> substitutionContext, TypeSubstitutor typeSubstitutor) {
+        List<ValueParameterDescriptor> result = new ArrayList<ValueParameterDescriptor>();
+        List<ValueParameterDescriptor> unsubstitutedValueParameters = functionDescriptor.getUnsubstitutedValueParameters();
+        for (int i = 0, unsubstitutedValueParametersSize = unsubstitutedValueParameters.size(); i < unsubstitutedValueParametersSize; i++) {
+            ValueParameterDescriptor unsubstitutedValueParameter = unsubstitutedValueParameters.get(i);
+            // TODO : Lazy?
+            JetType substitutedType = typeSubstitutor.substitute(substitutionContext, unsubstitutedValueParameter.getType(), Variance.IN_VARIANCE);
+            if (substitutedType == null) return null;
+            result.add(new ValueParameterDescriptorImpl(
+                    substitutedDescriptor,
+                    i,
+                    unsubstitutedValueParameter.getAttributes(),
+                    unsubstitutedValueParameter.getName(),
+                    substitutedType,
+                    unsubstitutedValueParameter.hasDefaultValue(),
+                    unsubstitutedValueParameter.isVararg()
+            ));
+        }
+        return result;
     }
 
-    @NotNull
+    @Nullable
+    private static JetType getSubstitutedReturnType(@NotNull FunctionDescriptor functionDescriptor, Map<TypeConstructor, TypeProjection> substitutionContext, TypeSubstitutor typeSubstitutor) {
+        return typeSubstitutor.substitute(substitutionContext, functionDescriptor.getUnsubstitutedReturnType(), Variance.OUT_VARIANCE);
+    }
+
+    @Nullable
     public static FunctionDescriptor substituteFunctionDescriptor(@NotNull List<JetType> typeArguments, @NotNull FunctionDescriptor functionDescriptor) {
-        if (functionDescriptor.getTypeParameters().isEmpty()) {
+        Map<TypeConstructor, TypeProjection> substitutionContext = createSubstitutionContext(functionDescriptor, typeArguments);
+        return substituteFunctionDescriptor(functionDescriptor, substitutionContext, TypeSubstitutor.INSTANCE);
+    }
+
+    @Nullable
+    public static FunctionDescriptor substituteFunctionDescriptor(FunctionDescriptor functionDescriptor, Map<TypeConstructor, TypeProjection> substitutionContext, TypeSubstitutor typeSubstitutor) {
+        if (substitutionContext.isEmpty()) {
             return functionDescriptor;
         }
         FunctionDescriptorImpl substitutedDescriptor = new FunctionDescriptorImpl(
                 functionDescriptor,
-                // TODO : substitute
+                // TODO : safeSubstitute
                 functionDescriptor.getAttributes(),
                 functionDescriptor.getName());
+
+        List<ValueParameterDescriptor> substitutedValueParameters = getSubstitutedValueParameters(substitutedDescriptor, functionDescriptor, substitutionContext, typeSubstitutor);
+        if (substitutedValueParameters == null) {
+            return null;
+        }
+
+        JetType substitutedReturnType = getSubstitutedReturnType(functionDescriptor, substitutionContext, typeSubstitutor);
+        if (substitutedReturnType == null) {
+            return null;
+        }
+
         substitutedDescriptor.initialize(
                 Collections.<TypeParameterDescriptor>emptyList(), // TODO : questionable
-                getSubstitutedValueParameters(substitutedDescriptor, functionDescriptor, typeArguments),
-                getSubstitutedReturnType(functionDescriptor, typeArguments)
+                substitutedValueParameters,
+                substitutedReturnType
         );
         return substitutedDescriptor;
     }
diff --git a/idea/src/org/jetbrains/jet/lang/types/JetStandardClasses.java b/idea/src/org/jetbrains/jet/lang/types/JetStandardClasses.java
index 1e67287c008..67239a5cf63 100644
--- a/idea/src/org/jetbrains/jet/lang/types/JetStandardClasses.java
+++ b/idea/src/org/jetbrains/jet/lang/types/JetStandardClasses.java
@@ -94,8 +94,7 @@ public class JetStandardClasses {
                 parameters.add(new TypeParameterDescriptor(
                         classDescriptor,
                         Collections.<Attribute>emptyList(),
-                        Variance.OUT_VARIANCE, "T" + j,
-                        Collections.singleton(getNullableAnyType())));
+                        Variance.OUT_VARIANCE, "T" + j));
             }
             TUPLE[i] = classDescriptor.initialize(
                     true,
@@ -132,8 +131,7 @@ public class JetStandardClasses {
             parameters.add(0, new TypeParameterDescriptor(
                     receiverFunction,
                     Collections.<Attribute>emptyList(),
-                    Variance.IN_VARIANCE, "T",
-                    Collections.singleton(getNullableAnyType())));
+                    Variance.IN_VARIANCE, "T"));
             RECEIVER_FUNCTION[i] = receiverFunction.initialize(
                     false,
                     parameters,
@@ -147,14 +145,12 @@ public class JetStandardClasses {
             parameters.add(new TypeParameterDescriptor(
                     function,
                     Collections.<Attribute>emptyList(),
-                    Variance.IN_VARIANCE, "P" + j,
-                    Collections.singleton(getNullableAnyType())));
+                    Variance.IN_VARIANCE, "P" + j));
         }
         parameters.add(new TypeParameterDescriptor(
                 function,
                 Collections.<Attribute>emptyList(),
-                Variance.OUT_VARIANCE, "R",
-                Collections.singleton(getNullableAnyType())));
+                Variance.OUT_VARIANCE, "R"));
         return parameters;
     }
 
diff --git a/idea/src/org/jetbrains/jet/lang/types/JetTypeChecker.java b/idea/src/org/jetbrains/jet/lang/types/JetTypeChecker.java
index bcd37da59f1..3e36cd86fe9 100644
--- a/idea/src/org/jetbrains/jet/lang/types/JetTypeChecker.java
+++ b/idea/src/org/jetbrains/jet/lang/types/JetTypeChecker.java
@@ -98,7 +98,7 @@ public class JetTypeChecker {
             }
             commonSupertypes = computeCommonRawSupertypes(merge);
         }
-        assert !commonSupertypes.isEmpty();
+        assert !commonSupertypes.isEmpty() : commonSupertypes;
         Map.Entry<TypeConstructor, Set<JetType>> entry = commonSupertypes.entrySet().iterator().next();
         JetType result = computeSupertypeProjections(entry.getKey(), entry.getValue());
 
@@ -274,13 +274,13 @@ public class JetTypeChecker {
             return;
         }
         handler.beforeChildren(current);
-        Map<TypeConstructor, TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(current);
+        Map<TypeConstructor, TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(current);
         for (JetType supertype : current.getConstructor().getSupertypes()) {
             TypeConstructor supertypeConstructor = supertype.getConstructor();
             if (visited.contains(supertypeConstructor)) {
                 continue;
             }
-            JetType substitutedSupertype = TypeSubstitutor.INSTANCE.substitute(substitutionContext, supertype, Variance.INVARIANT);
+            JetType substitutedSupertype = TypeSubstitutor.INSTANCE.safeSubstitute(substitutionContext, supertype, Variance.INVARIANT);
             dfs(substitutedSupertype, visited, handler);
         }
         handler.afterChildren(current);
@@ -331,7 +331,7 @@ public class JetTypeChecker {
         for (JetType immediateSupertype : constructor.getSupertypes()) {
             JetType correspondingSupertype = findCorrespondingSupertype(immediateSupertype, supertype);
             if (correspondingSupertype != null) {
-                return TypeSubstitutor.INSTANCE.substitute(subtype, correspondingSupertype, Variance.INVARIANT);
+                return TypeSubstitutor.INSTANCE.safeSubstitute(subtype, correspondingSupertype, Variance.INVARIANT);
             }
         }
         return null;
@@ -339,7 +339,7 @@ public class JetTypeChecker {
 
     private boolean checkSubtypeForTheSameConstructor(@NotNull JetType subtype, @NotNull JetType supertype) {
         TypeConstructor constructor = subtype.getConstructor();
-        assert constructor.equals(supertype.getConstructor());
+        assert constructor.equals(supertype.getConstructor()) : constructor + " is not " + supertype.getConstructor();
 
         List<TypeProjection> subArguments = subtype.getArguments();
         List<TypeProjection> superArguments = supertype.getArguments();
diff --git a/idea/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java b/idea/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
index 81c492f5f2e..6a971526b4b 100644
--- a/idea/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
+++ b/idea/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
@@ -499,10 +499,10 @@ public class JetTypeInferrer {
                 JetUserType typeElement = (JetUserType) superTypeQualifier.getTypeElement();
                 ClassDescriptor superclass = typeResolver.resolveClass(scope, typeElement);
                 Collection<? extends JetType> supertypes = thisType.getConstructor().getSupertypes();
-                Map<TypeConstructor, TypeProjection> substitutionContext = TypeSubstitutor.INSTANCE.buildSubstitutionContext(thisType);
+                Map<TypeConstructor, TypeProjection> substitutionContext = TypeUtils.buildSubstitutionContext(thisType);
                 for (JetType declaredSupertype : supertypes) {
                     if (declaredSupertype.getConstructor().equals(superclass.getTypeConstructor())) {
-                        result = TypeSubstitutor.INSTANCE.substitute(substitutionContext, declaredSupertype, Variance.INVARIANT);
+                        result = TypeSubstitutor.INSTANCE.safeSubstitute(substitutionContext, declaredSupertype, Variance.INVARIANT);
                         break;
                     }
                 }
diff --git a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutedPropertyDescriptorImpl.java b/idea/src/org/jetbrains/jet/lang/types/LazySubstitutedPropertyDescriptorImpl.java
index e387454c1a4..57ef5254149 100644
--- a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutedPropertyDescriptorImpl.java
+++ b/idea/src/org/jetbrains/jet/lang/types/LazySubstitutedPropertyDescriptorImpl.java
@@ -21,7 +21,7 @@ public class LazySubstitutedPropertyDescriptorImpl implements PropertyDescriptor
     @Override
     public JetType getType() {
         if (propertyType == null) {
-            propertyType = TypeSubstitutor.INSTANCE.substitute(substitutionContext, propertyDescriptor.getType(), Variance.OUT_VARIANCE);
+            propertyType = TypeSubstitutor.INSTANCE.safeSubstitute(substitutionContext, propertyDescriptor.getType(), Variance.OUT_VARIANCE);
         }
         return propertyType;
     }
diff --git a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionDescriptor.java b/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionDescriptor.java
deleted file mode 100644
index 56cee728333..00000000000
--- a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionDescriptor.java
+++ /dev/null
@@ -1,96 +0,0 @@
-package org.jetbrains.jet.lang.types;
-
-import org.jetbrains.annotations.NotNull;
-
-import java.util.ArrayList;
-import java.util.List;
-import java.util.Map;
-
-/**
- * @author abreslav
- */
-public class LazySubstitutingFunctionDescriptor implements FunctionDescriptor {
-    private final Map<TypeConstructor, TypeProjection> substitutionContext;
-    private final FunctionDescriptor functionDescriptor;
-
-    public LazySubstitutingFunctionDescriptor(Map<TypeConstructor, TypeProjection> substitutionContext, FunctionDescriptor functionDescriptor) {
-        this.substitutionContext = substitutionContext;
-        this.functionDescriptor = functionDescriptor;
-    }
-
-    @NotNull
-    @Override
-    public List<TypeParameterDescriptor> getTypeParameters() {
-        List<TypeParameterDescriptor> result = new ArrayList<TypeParameterDescriptor>();
-        for (TypeParameterDescriptor parameterDescriptor : functionDescriptor.getTypeParameters()) {
-            // TODO : lazy?
-            result.add(new TypeParameterDescriptor(
-                    this,
-                    parameterDescriptor.getAttributes(),
-                    parameterDescriptor.getVariance(),
-                    parameterDescriptor.getName(),
-                    TypeSubstitutor.INSTANCE.substituteInSet(substitutionContext, parameterDescriptor.getUpperBounds(), Variance.INVARIANT)));
-        }
-        return result;
-    }
-
-    @NotNull
-    @Override
-    public List<ValueParameterDescriptor> getUnsubstitutedValueParameters() {
-        List<ValueParameterDescriptor> result = new ArrayList<ValueParameterDescriptor>();
-        List<ValueParameterDescriptor> unsubstitutedValueParameters = functionDescriptor.getUnsubstitutedValueParameters();
-        for (int i = 0, unsubstitutedValueParametersSize = unsubstitutedValueParameters.size(); i < unsubstitutedValueParametersSize; i++) {
-            ValueParameterDescriptor parameterDescriptor = unsubstitutedValueParameters.get(i);
-            result.add(new ValueParameterDescriptorImpl(
-                    this,
-                    i,
-                    parameterDescriptor.getAttributes(),
-                    parameterDescriptor.getName(),
-                    TypeSubstitutor.INSTANCE.substitute(substitutionContext, parameterDescriptor.getType(), Variance.IN_VARIANCE),
-                    parameterDescriptor.hasDefaultValue(),
-                    parameterDescriptor.isVararg()
-            ));
-        }
-        return result;
-    }
-
-    @NotNull
-    @Override
-    public JetType getUnsubstitutedReturnType() {
-        return TypeSubstitutor.INSTANCE.substitute(substitutionContext, functionDescriptor.getUnsubstitutedReturnType(), Variance.OUT_VARIANCE);
-    }
-
-    @NotNull
-    @Override
-    public FunctionDescriptor getOriginal() {
-        return functionDescriptor.getOriginal();
-    }
-
-    @Override
-    public List<Attribute> getAttributes() {
-        // TODO : Substitute?
-        return functionDescriptor.getAttributes();
-    }
-
-    @Override
-    public String getName() {
-        return functionDescriptor.getName();
-    }
-
-    @NotNull
-    @Override
-    public DeclarationDescriptor getContainingDeclaration() {
-        return functionDescriptor.getContainingDeclaration();
-    }
-
-    @Override
-    public <R, D> R accept(DeclarationDescriptorVisitor<R, D> visitor, D data) {
-        return visitor.visitFunctionDescriptor(this, data);
-    }
-
-    @Override
-    public void acceptVoid(DeclarationDescriptorVisitor<Void, Void> visitor) {
-        accept(visitor, null);
-    }
-}
-
diff --git a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionGroup.java b/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionGroup.java
index e0a214d011e..326ea5311ea 100644
--- a/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionGroup.java
+++ b/idea/src/org/jetbrains/jet/lang/types/LazySubstitutingFunctionGroup.java
@@ -1,6 +1,7 @@
 package org.jetbrains.jet.lang.types;
 
 import org.jetbrains.annotations.NotNull;
+import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lang.resolve.OverloadResolutionResult;
 
 import java.util.ArrayList;
@@ -14,10 +15,16 @@ import java.util.Map;
 public class LazySubstitutingFunctionGroup implements FunctionGroup {
     private final Map<TypeConstructor, TypeProjection> substitutionContext;
     private final FunctionGroup functionGroup;
+    private final TypeSubstitutor typeSubstitutor;
 
-    public LazySubstitutingFunctionGroup(Map<TypeConstructor, TypeProjection> substitutionContext, FunctionGroup functionGroup) {
+    public LazySubstitutingFunctionGroup(Map<TypeConstructor, TypeProjection> substitutionContext, FunctionGroup functionGroup, TypeSubstitutor typeSubstitutor) {
         this.substitutionContext = substitutionContext;
         this.functionGroup = functionGroup;
+        this.typeSubstitutor = typeSubstitutor;
+    }
+
+    public LazySubstitutingFunctionGroup(Map<TypeConstructor, TypeProjection> substitutionContext, FunctionGroup functionGroup) {
+        this(substitutionContext, functionGroup, TypeSubstitutor.INSTANCE);
     }
 
     @NotNull
@@ -34,15 +41,27 @@ public class LazySubstitutingFunctionGroup implements FunctionGroup {
 
         Collection<FunctionDescriptor> result = new ArrayList<FunctionDescriptor>();
         for (FunctionDescriptor function : resolutionResult.getFunctionDescriptors()) {
-            if (substitutionContext.isEmpty()) {
-                result.add(function);
-            } else {
-                result.add(new LazySubstitutingFunctionDescriptor(substitutionContext, function));
+            FunctionDescriptor functionDescriptor = substitute(substitutionContext, function, typeSubstitutor);
+            if (functionDescriptor != null) {
+                result.add(functionDescriptor);
             }
         }
         return resolutionResult.newContents(result);
     }
 
+    @Nullable
+    public FunctionDescriptor substitute(
+            @NotNull Map<TypeConstructor, TypeProjection> substitutionContext,
+            @NotNull FunctionDescriptor functionDescriptor, TypeSubstitutor typeSubstitutor) {
+        if (substitutionContext.isEmpty()) return functionDescriptor;
+
+        FunctionDescriptor substituted = FunctionDescriptorUtil.substituteFunctionDescriptor(functionDescriptor, substitutionContext, typeSubstitutor);
+        if (substituted == null) {
+            return null;
+        }
+        return substituted;
+    }
+
     @Override
     public boolean isEmpty() {
         return functionGroup.isEmpty();
diff --git a/idea/src/org/jetbrains/jet/lang/types/TypeParameterDescriptor.java b/idea/src/org/jetbrains/jet/lang/types/TypeParameterDescriptor.java
index fc778a3670a..9a728880f93 100644
--- a/idea/src/org/jetbrains/jet/lang/types/TypeParameterDescriptor.java
+++ b/idea/src/org/jetbrains/jet/lang/types/TypeParameterDescriptor.java
@@ -13,8 +13,15 @@ public class TypeParameterDescriptor extends DeclarationDescriptorImpl {
     private final Variance variance;
     private final Set<JetType> upperBounds;
     private final TypeConstructor typeConstructor;
+    private final JetType boundsAsType;
 
-    public TypeParameterDescriptor(@NotNull DeclarationDescriptor containingDeclaration, List<Attribute> attributes, Variance variance, String name, Set<JetType> upperBounds) {
+    public TypeParameterDescriptor(
+            @NotNull DeclarationDescriptor containingDeclaration,
+            @NotNull List<Attribute> attributes,
+            @NotNull Variance variance,
+            @NotNull String name,
+            @NotNull Set<JetType> upperBounds,
+            @NotNull JetType boundsAsType) {
         super(containingDeclaration, attributes, name);
         this.variance = variance;
         this.upperBounds = upperBounds;
@@ -26,10 +33,21 @@ public class TypeParameterDescriptor extends DeclarationDescriptorImpl {
                 "&" + name,
                 Collections.<TypeParameterDescriptor>emptyList(),
                 upperBounds);
+        this.boundsAsType = boundsAsType;
     }
 
-    public TypeParameterDescriptor(@NotNull DeclarationDescriptor containingDeclaration, List<Attribute> attributes, Variance variance, String name) {
-        this(containingDeclaration, attributes, variance, name, Collections.singleton(JetStandardClasses.getNullableAnyType()));
+    public TypeParameterDescriptor(
+            @NotNull DeclarationDescriptor containingDeclaration,
+            @NotNull List<Attribute> attributes,
+            @NotNull Variance variance,
+            @NotNull String name) {
+        this(
+            containingDeclaration,
+            attributes,
+            variance,
+            name,
+            Collections.singleton(JetStandardClasses.getNullableAnyType()),
+            JetStandardClasses.getNullableAnyType());
     }
 
     public Variance getVariance() {
@@ -49,6 +67,11 @@ public class TypeParameterDescriptor extends DeclarationDescriptorImpl {
         return typeConstructor.toString();
     }
 
+    @NotNull
+    public JetType getBoundsAsType() {
+        return boundsAsType;
+    }
+
     @Override
     public <R, D> R accept(DeclarationDescriptorVisitor<R, D> visitor, D data) {
         return visitor.visitTypeParameterDescriptor(this, data);
diff --git a/idea/src/org/jetbrains/jet/lang/types/TypeSubstitutor.java b/idea/src/org/jetbrains/jet/lang/types/TypeSubstitutor.java
index e4756accb07..067885681a2 100644
--- a/idea/src/org/jetbrains/jet/lang/types/TypeSubstitutor.java
+++ b/idea/src/org/jetbrains/jet/lang/types/TypeSubstitutor.java
@@ -1,6 +1,7 @@
 package org.jetbrains.jet.lang.types;
 
 import org.jetbrains.annotations.NotNull;
+import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lang.resolve.SubstitutingScope;
 
 import java.util.*;
@@ -9,75 +10,135 @@ import java.util.*;
  * @author abreslav
  */
 public class TypeSubstitutor {
+
+    public static final class SubstitutionException extends Exception {
+        public SubstitutionException(String message) {
+            super(message);
+        }
+    }
+
     public static final TypeSubstitutor INSTANCE = new TypeSubstitutor();
 
+    public static final TypeSubstitutor INSTANCE_FOR_CONSTRUCTORS = new TypeSubstitutor() {
+        @Override
+        protected boolean errorCondition(Variance ve, Variance p1) {
+            return false;
+        }
+    };
+
     private TypeSubstitutor() {}
 
-    public JetType substitute(@NotNull JetType context, @NotNull JetType subject, @NotNull Variance howThisTypeIsUsed) {
-        return substitute(buildSubstitutionContext(context), subject, howThisTypeIsUsed);
+    public JetType safeSubstitute(@NotNull JetType context, @NotNull JetType subject, @NotNull Variance howThisTypeIsUsed) {
+        return safeSubstitute(TypeUtils.buildSubstitutionContext(context), subject, howThisTypeIsUsed);
     }
 
     @NotNull
+    public JetType safeSubstitute(@NotNull Map<TypeConstructor, TypeProjection> substitutionContext, @NotNull JetType type, @NotNull Variance howThisTypeIsUsed) {
+        try {
+            return unsafeSubstitute(substitutionContext, type, howThisTypeIsUsed);
+        } catch (SubstitutionException e) {
+            return ErrorType.createErrorType(e.getMessage());
+        }
+    }
+
+    @Nullable
     public JetType substitute(@NotNull Map<TypeConstructor, TypeProjection> substitutionContext, @NotNull JetType type, @NotNull Variance howThisTypeIsUsed) {
-        TypeProjection value = substitutionContext.get(type.getConstructor());
+        try {
+            return unsafeSubstitute(substitutionContext, type, howThisTypeIsUsed);
+        } catch (SubstitutionException e) {
+            return null;
+        }
+    }
+
+    @NotNull
+    private JetType unsafeSubstitute(@NotNull Map<TypeConstructor, TypeProjection> substitutionContext, @NotNull JetType type, @NotNull Variance howThisTypeIsUsed) throws SubstitutionException {
+        TypeConstructor constructor = type.getConstructor();
+        TypeProjection value = substitutionContext.get(constructor);
         if (value != null) {
-            Variance projectionKind = value.getProjectionKind();
-            if (howThisTypeIsUsed.allowsInPosition() && !projectionKind.allowsInPosition()
-                    || howThisTypeIsUsed.allowsOutPosition() && !projectionKind.allowsOutPosition()) {
-                return ErrorType.createWrongVarianceErrorType(value);
+            assert constructor.getDeclarationDescriptor() instanceof TypeParameterDescriptor;
+
+            if (errorCondition(howThisTypeIsUsed, value.getProjectionKind())) {
+                throw new SubstitutionException("!!" + value.toString());
             }
             return value.getType();
         }
 
-        return specializeType(type, substitutionContext);
+        return specializeType(type, substitutionContext, howThisTypeIsUsed);
     }
 
-    private JetType specializeType(JetType subjectType, Map<TypeConstructor, TypeProjection> substitutionContext) {
+    private JetType specializeType(JetType subjectType, Map<TypeConstructor, TypeProjection> substitutionContext, Variance callSiteVariance) throws SubstitutionException {
+        List<TypeProjection> newArguments = new ArrayList<TypeProjection>();
+        List<TypeProjection> arguments = subjectType.getArguments();
+        for (int i = 0, argumentsSize = arguments.size(); i < argumentsSize; i++) {
+            TypeProjection argument = arguments.get(i);
+            TypeParameterDescriptor parameterDescriptor = subjectType.getConstructor().getParameters().get(i);
+            newArguments.add(substituteInProjection(
+                    substitutionContext,
+                    argument,
+                    parameterDescriptor,
+                    callSiteVariance));
+        }
         return new JetTypeImpl(
                 subjectType.getAttributes(),
                 subjectType.getConstructor(),
                 subjectType.isNullable(),
-                substituteInArguments(substitutionContext, subjectType),
+                newArguments,
                 new SubstitutingScope(subjectType.getMemberScope(), substitutionContext));
     }
 
-    private List<TypeProjection> substituteInArguments(Map<TypeConstructor, TypeProjection> substitutionContext, JetType subjectType) {
-        List<TypeProjection> newArguments = new ArrayList<TypeProjection>();
-        for (TypeProjection argument : subjectType.getArguments()) {
-            newArguments.add(substituteInProjection(substitutionContext, argument));
+    @NotNull
+    private TypeProjection substituteInProjection(
+            @NotNull Map<TypeConstructor, TypeProjection> substitutionContext,
+            @NotNull TypeProjection p0_E,
+            @NotNull TypeParameterDescriptor d_T, // variance of the parameter this projection is substituted for
+            @NotNull Variance v) throws SubstitutionException {
+        JetType E = p0_E.getType();
+        Variance p0 = p0_E.getProjectionKind();
+        Variance d = d_T.getVariance();
+
+        Variance p01 = (p0 == Variance.INVARIANT) ? d : p0;
+        Variance ve = v.superpose(p01);
+
+        TypeProjection p1_A = substitutionContext.get(E.getConstructor());
+        if (p1_A != null) {
+            assert E.getConstructor().getDeclarationDescriptor() instanceof TypeParameterDescriptor;
+
+            JetType A = p1_A.getType();
+            Variance p1 = p1_A.getProjectionKind();
+
+            if (!allows(d, p0)) {
+                return TypeUtils.makeStarProjection(d_T);
+            }
+
+            if (errorCondition(ve, p1)) {
+                throw new SubstitutionException(""); // TODO : error message
+            }
+
+            return new TypeProjection(p0 == Variance.INVARIANT ? p1 : p0,  specializeType(A, substitutionContext, ve));
         }
-        return newArguments;
+        return new TypeProjection(
+                p0,
+                specializeType(E, substitutionContext, ve));
     }
 
-    @NotNull
-    private TypeProjection substituteInProjection(Map<TypeConstructor, TypeProjection> substitutionContext, TypeProjection subject) {
-        JetType subjectType = subject.getType();
-        TypeProjection value = substitutionContext.get(subjectType.getConstructor());
-        if (value != null) {
-            return value;
-        }
-        return new TypeProjection(subject.getProjectionKind(), specializeType(subjectType, substitutionContext));
+    protected boolean errorCondition(Variance ve, Variance p1) {
+        return !allows(ve, p1);
     }
 
     public Set<JetType> substituteInSet(Map<TypeConstructor, TypeProjection> substitutionContext, Set<JetType> types, Variance howTheseTypesWillBeUsed) {
         Set<JetType> result = new HashSet<JetType>();
         for (JetType type : types) {
-            result.add(substitute(substitutionContext, type, howTheseTypesWillBeUsed));
+            result.add(safeSubstitute(substitutionContext, type, howTheseTypesWillBeUsed));
         }
         return result;
     }
 
-    public Map<TypeConstructor, TypeProjection> buildSubstitutionContext(JetType context) {
-        return buildSubstitutionContext(context.getConstructor().getParameters(), context.getArguments());
-    }
-
-    public Map<TypeConstructor, TypeProjection> buildSubstitutionContext(List<TypeParameterDescriptor> parameters, List<TypeProjection> contextArguments) {
-        Map<TypeConstructor, TypeProjection> parameterValues = new HashMap<TypeConstructor, TypeProjection>();
-        for (int i = 0, parametersSize = parameters.size(); i < parametersSize; i++) {
-            TypeParameterDescriptor parameter = parameters.get(i);
-            TypeProjection value = contextArguments.get(i);
-            parameterValues.put(parameter.getTypeConstructor(), value);
+    private boolean allows(Variance declarationSiteVariance, Variance callSiteVariance) {
+        switch (declarationSiteVariance) {
+            case INVARIANT: return true;
+            case IN_VARIANCE: return callSiteVariance != Variance.OUT_VARIANCE;
+            case OUT_VARIANCE: return callSiteVariance != Variance.IN_VARIANCE;
         }
-        return parameterValues;
+        throw new IllegalStateException(declarationSiteVariance.toString());
     }
 }
diff --git a/idea/src/org/jetbrains/jet/lang/types/TypeUtils.java b/idea/src/org/jetbrains/jet/lang/types/TypeUtils.java
index 03999b9ffeb..f0b75e08185 100644
--- a/idea/src/org/jetbrains/jet/lang/types/TypeUtils.java
+++ b/idea/src/org/jetbrains/jet/lang/types/TypeUtils.java
@@ -147,14 +147,14 @@ public class TypeUtils {
     }
 
     @NotNull
-    public static JetType makeUnsubstitutedType(ClassDescriptor classDescriptor) {
+    public static JetType makeUnsubstitutedType(ClassDescriptor classDescriptor, JetScope unsubstitutedMemberScope) {
         List<TypeProjection> arguments = getArguments(classDescriptor);
         return new JetTypeImpl(
                 Collections.<Attribute>emptyList(),
                 classDescriptor.getTypeConstructor(),
                 false,
                 arguments,
-                classDescriptor.getMemberScope(arguments)
+                unsubstitutedMemberScope
         );
     }
 
@@ -166,4 +166,25 @@ public class TypeUtils {
         }
         return result;
     }
+
+    @NotNull
+    public static Map<TypeConstructor, TypeProjection> buildSubstitutionContext(@NotNull  JetType context) {
+        return buildSubstitutionContext(context.getConstructor().getParameters(), context.getArguments());
+    }
+
+    @NotNull
+    public static Map<TypeConstructor, TypeProjection> buildSubstitutionContext(@NotNull List<TypeParameterDescriptor> parameters, @NotNull List<TypeProjection> contextArguments) {
+        Map<TypeConstructor, TypeProjection> parameterValues = new HashMap<TypeConstructor, TypeProjection>();
+        for (int i = 0, parametersSize = parameters.size(); i < parametersSize; i++) {
+            TypeParameterDescriptor parameter = parameters.get(i);
+            TypeProjection value = contextArguments.get(i);
+            parameterValues.put(parameter.getTypeConstructor(), value);
+        }
+        return parameterValues;
+    }
+
+    @NotNull
+    public static TypeProjection makeStarProjection(@NotNull TypeParameterDescriptor parameterDescriptor) {
+        return new TypeProjection(Variance.OUT_VARIANCE, parameterDescriptor.getBoundsAsType());
+    }
 }
diff --git a/idea/src/org/jetbrains/jet/lang/types/Variance.java b/idea/src/org/jetbrains/jet/lang/types/Variance.java
index 0cfdc6b406d..4f1cdd3f281 100644
--- a/idea/src/org/jetbrains/jet/lang/types/Variance.java
+++ b/idea/src/org/jetbrains/jet/lang/types/Variance.java
@@ -4,18 +4,20 @@ package org.jetbrains.jet.lang.types;
  * @author max
  */
 public enum Variance {
-    INVARIANT("", true, true),
-    IN_VARIANCE("in", true, false),
-    OUT_VARIANCE("out", false, true);
+    INVARIANT("", true, true, 0),
+    IN_VARIANCE("in", true, false, -1),
+    OUT_VARIANCE("out", false, true, +1);
 
     private final String label;
     private final boolean allowsInPosition;
     private final boolean allowsOutPosition;
+    private final int superpositionFactor;
 
-    Variance(String label, boolean allowsInPosition, boolean allowsOutPosition) {
+    Variance(String label, boolean allowsInPosition, boolean allowsOutPosition, int superpositionFactor) {
         this.label = label;
         this.allowsInPosition = allowsInPosition;
         this.allowsOutPosition = allowsOutPosition;
+        this.superpositionFactor = superpositionFactor;
     }
 
     public boolean allowsInPosition() {
@@ -26,6 +28,16 @@ public enum Variance {
         return allowsOutPosition;
     }
 
+    public Variance superpose(Variance other) {
+        int r = this.superpositionFactor * other.superpositionFactor;
+        switch (r) {
+            case  0: return INVARIANT;
+            case -1: return IN_VARIANCE;
+            case +1: return OUT_VARIANCE;
+        }
+        throw new IllegalStateException();
+    }
+
     @Override
     public String toString() {
         return label;
diff --git a/idea/testData/resolve/Projections.jet b/idea/testData/resolve/Projections.jet
new file mode 100644
index 00000000000..33b8b071452
--- /dev/null
+++ b/idea/testData/resolve/Projections.jet
@@ -0,0 +1,56 @@
+class In<in T> {
+  ~In.f:T->Unit~fun f(t : T) : Unit {}
+  ~In.f:Int->Int~fun f(t : Int) : Int {}
+  ~In.f1~fun f1(t : T) : Unit {}
+}
+
+class Out<out T> {
+  ~Out.f~fun f() : T {}
+  ~Out.f(a)~fun f(a : Int) : Int {a}
+}
+
+class Inv<T> {
+  ~Inv.f~fun f(t : T) : T {t}
+  ~Inv.inf~fun inf(t : T) : Unit {}
+  ~Inv.outf~fun outf() : T {}
+}
+
+fun testInOut() {
+  new In<String>().`In.f:T->Unit`f("1");
+  new In<in String>().`In.f:T->Unit`f("1");
+  new In<out String>().`!`f("1")
+  new In<*>().`!`f("1");
+
+  new In<String>().`In.f:Int->Int`f(1);
+  new In<in String>().`In.f:Int->Int`f(1);
+  new In<out String>().`In.f:Int->Int`f(1)
+  new In<out String>().`!`f1(1)
+  new In<*>().`In.f:Int->Int`f(1);
+
+  new Out<Int>().`Out.f(a)`f(1)
+  new Out<out Int>().`Out.f(a)`f(1)
+  new Out<in Int>().`Out.f(a)`f(1)
+  new Out<*>().`Out.f(a)`f(1)
+
+  new Out<Int>().`Out.f`f()
+  new Out<out Int>().`Out.f`f()
+  new Out<in Int>().`!`f()
+  new Out<*>().`Out.f`f()
+
+  new Inv<Int>().`Inv.f`f(1)
+  new Inv<in Int>().`!`f(1)
+  new Inv<out Int>().`!`f(1)
+  new Inv<*>().`!`f(1)
+
+  new Inv<Int>().`Inv.inf`inf(1)
+  new Inv<in Int>().`Inv.inf`inf(1)
+  new Inv<out Int>().`!`inf(1)
+  new Inv<*>().`!`inf(1)
+
+  new Inv<Int>().`Inv.outf`outf()
+  new Inv<in Int>().`!`outf()
+  new Inv<out Int>().`Inv.outf`outf()
+  new Inv<*>().`Inv.outf`outf()
+
+  new Inv<Int>().`Inv.outf`outf(1)
+}
\ No newline at end of file
diff --git a/idea/tests/org/jetbrains/jet/resolve/JetResolveTest.java b/idea/tests/org/jetbrains/jet/resolve/JetResolveTest.java
index 12e201e18c5..13b7adcd82f 100644
--- a/idea/tests/org/jetbrains/jet/resolve/JetResolveTest.java
+++ b/idea/tests/org/jetbrains/jet/resolve/JetResolveTest.java
@@ -142,4 +142,8 @@ public class JetResolveTest extends ExtensibleResolveTestCase {
         doTest("/resolve/ResolveOfInfixExpressions.jet", true, true);
     }
 
+    public void testProjections() throws Exception {
+        doTest("/resolve/Projections.jet", true, true);
+    }
+
 }
\ No newline at end of file