Line baking sheet with buttered waxed paper; set aside.
Combine caramels, marshmallows and water in medium saucepan. Cook over medium heat, stirring constantly, until caramels melt. Cool slightly while preparing apples.
Rinse and thoroughly dry apples. Insert flat sticks in stem ends of apples.
Dip apples in caramel mixture, one at a time, coating completely. Remove excess caramel mixture by scraping apple bottoms across rim of saucepan. Place on prepared baking sheet. Refrigerate until firm.
Roll coated apples in chopped nuts before refrigerating.
Drizzle melted milk chocolate over coated apples before refrigerating.