DIRECTIONS:

Preheat oven to 350 degrees. Grease and flour three 9 inch round cake pans.

Blend the cake mix, pudding, mix, water, eggs and oil in a large mixing bowl. Beat at medium speed for 4 minutes. Stir in 2 cups of the coconut and the chopped walnuts. Pour the batter into the prepared pans.

Bake at 350 degrees for 35 minutes. Let cakes cool in pans for 15 minutes then remove and finish cooling on rack.

To make frosting: Melt the butter or margarine in a skillet. Add the 2 cups flaked coconut and stir constantly over low heat until golden brown. Spread coconut on absorbant paper to cool.

Cream the remaining 2 tablespoons butter or margarine with the cream cheese. Add the milk and confectioners sugar alternately, beating well. Add the vanilla and stir in 1-3/4 cups of the toasted coconut.

To assemble cake: Spread tops of cooled cake layers with some of the frosting. Stack them and then frost the sides of the cake. Sprinkle cake with the remaining toasted coconut.