Arrange apples in a greased 13x9-in. baking dish. Combine 1/2 cup sugar and cinnamon; set aside 1 tablespoon. Sprinkle remaining cinnamon-sugar over apples.
In a small bowl, combine the flour, baking powder and remaining sugar; beat in the milk and butter until blended. Drop by tablespoonfuls over apples; sprinkle with reserved cinnamon-sugar. Bake at 350° for 35-40 minutes or until golden brown. Remove to a wire rack.
Meanwhile, in a saucepan, combine the sugar, cornstarch, salt and water until smooth. Bring to a boil over medium heat. Cook and stir for 2 minutes or until thickened and bubbly. Remove from the heat; add butter and vanilla. Serve with warm kuchen.