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MELT butter in 3-qt. saucepan on medium heat. Add flour; stir with wire whisk until well blended. Gradually add milk, stirring until well blended. Stir in water. Cook until thickened, stirring constantly.
ADD cheese; cook until cheese is completely melted, stirring constantly. Stir in remaining ingredients; cover. Reduce heat to medium-low.
SIMMER 10 min. or until heated through, stirring occasionally.