LINE baking sheets with wax paper.
COMBINE powdered sugar, peanut butter, milk and vanilla extract in large bowl; mix well with wooden spoon. Stir in oats, cereal and morsels; mix until cereal is completely coated.
ROLL and press cereal mixture into 1-inch balls; place on prepared baking sheets. Let stand until firm. Store in tightly covered container in refrigerator.
MELT remaining (approximately 1/3 cup) NESTLÉ TOLL HOUSE Peanut Butter & Milk Chocolate Morsels in small, microwave-safe bowl on MEDIUM-HIGH (70%) power for 30 seconds; stir. Microwave at additional 10- to 20-second intervals, stirring until smooth. Dip half of each ball into melted morsels. Place on waxed paper. Refrigerate until firm. Cover tightly and store in refrigerator. Or, if desired, dip chilled cookies into melted chocolate just before eating.