This paper proposes the manufacturing of distribution transformers using a novel type of magnetic core which is called composite wound core. A composite wound core is constructed of a combination of conventional and high magnetization grain-oriented steel. The main advantage of transformers assembled of composite wound cores over conventional transformers is the significant reduction of the manufacturing and operating cost. For the analysis of composite wound core transformers, a FE model considering anisotropy and high saturation conditions, and an advanced 3D hybrid FE-BE model have been developed.