By Teresa Carson

PORTLAND, Oregon, April 13 (Reuters) - The U.S. state of Oregon sued OppenheimerFunds Inc for $36 million on Monday in an attempt to win back losses on state-sponsored college savings plans Oregon claims were badly handled by the money manager.

The suit charges OppenheimerFunds managers began investing in credit default swaps and other derivatives without appropriate disclosure to Oregon, contributing to dismal returns in the last year or so as the global credit crunch hammered such risky investments.

"Families were doing the right thing and saving for college, but unknown to them or Oregon, their money was invested in ways that were plainly inappropriate for those saving for college or already in college," Oregon Treasurer Ben Westlund said in a statement.

OppenheimerFunds said the claims lack merit and it will defend itself vigorously, blaming losses on the broad financial turmoil.

"The mutual fund cited in the complaint experienced significant losses due to unprecedented market volatility in 2008, as did other mutual funds and investments," an OppenheimerFunds representative said in an e-mailed statement.

Oregon's suit charges OppenheimerFunds failed to inform the state "of the substantial changes in risks" that the fund managers had undertaken by late 2007 or early 2008 in its Core Bond Fund underpinning the investment.

Some of the losses hit funds designed for those close to entering or already in college. The investments were supposed to be conservative or ultra-conservative, but "had become a hedge-fund like investment fund that took extreme risks in a search for speculative large returns," the suit said.

The OppenheimerFunds representative said its portfolio managers did not radically change investment policies in 2007 and 2008 and any policy changes it did make were relayed to the state's board overseeing the investment.