PLACE water and chocolate in heavy medium saucepan; cook on low heat until chocolate is completely melted and mixture is well blended, stirring constantly with wire whisk. Add sugar; mix well.

BRING to boil on medium-high heat. Boil 3 min., stirring constantly. Gradually add milk, stirring with wire whisk until well blended. Stir in vanilla. Reduce heat to medium.

COOK until mixture is heated through, stirring occasionally.