Preheat oven 350*

In large skillet, heat butter over medium heat.

Add apples, sugar, walnuts, and cinnamon; bring just to boil, stirring constantly.

Reduce heat; simmer, uncovered, until apples are tender; stirring occasionally.

Remove from heat; stir in 2 tsp vanilla.

For bread pudding, in large bowl, whisk eggs, milk, 1.5 cups sugar, cream, 1.5 tsp vanilla, and nutmeg until blended.

Stir in bread cubes and apple mixture.

Transfer to greased 13x9 in. baking dish.

Sprinkle with 2 Tbsp sugar.

Bake, uncovered, 40-45 minutes or until a knife inserted near the center comes out clean.

For caramel sauce, in a small heavy sauce pan, combine 1 cup sugar and 1/4 cup water; stir gently to moisten all the sugar.

Cook over med-low heat, gently swirling pan occasionally, until the sugar is dissolved.

Cover; bring to boil over medium-high heat for 1 minutes.

Uncover pan; continue to boil until syrup turns a medium amber color.

Immediately remove from heat and carefully stir in 1 cup cream and 2 Tbsp butter.

Serve caramel sauce over warm bread pudding.