Form N-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-Q


QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number         811-21157        

        Nuveen Arizona Dividend Advantage Municipal Fund 3         
(Exact name of registrant as specified in charter)


        333 West Wacker Drive, Chicago, Illinois 60606         
(Address of principal executive offices) (Zip code)


Jessica R. Droeger—Vice President and Secretary
        333 West Wacker Drive, Chicago, Illinois 60606         
(Name and address of agent for service)

Registrant's telephone number, including area code:         312-917-7700        

Date of fiscal year end:            7/31          

Date of reporting period:          10/31/05         

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Schedule of Investments

  Portfolio of Investments (Unaudited)
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)
October 31, 2005

Principal    Optional Call    Market 
Amount (000)  Description(1)   Provisions*  Ratings**  Value 
  Consumer Staples - 1.4% (0.9% of Total Investments)       
$ 585  Puerto Rico, The Children's Trust Fund, Tobacco Settlement Asset-Backed Refunding Bonds, Series  5/12 at 100.00  BBB  $ 602,848 
  2002, 5.375%, 5/15/33       
  Education and Civic Organizations - 16.2% (11.0% of Total Investments)       
1,250  Arizona State University, System Revenue Bonds, Series 2005, 5.000%, 7/01/20 - AMBAC Insured  7/15 at 100.00  AAA  1,319,050 
1,000  Arizona Student Loan Acquisition Authority, Student Loan Revenue Refunding Bonds, Senior Series  11/09 at 102.00  Aaa  1,066,210 
  1999A-1, 5.750%, 5/01/15 (Alternative Minimum Tax)       
1,130  Energy Management Services LLC, Arizona State University, Energy Conservation Revenue Bonds, Main  7/12 at 100.00  AAA  1,216,196 
  Campus Project, Series 2002, 5.250%, 7/01/18 - MBIA Insured       
270  Glendale Industrial Development Authority, Arizona, Revenue Bonds, Midwestern University, Series  5/08 at 101.00  A-  276,739 
  1998A, 5.375%, 5/15/28       
540  Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah Webster  12/14 at 100.00  BBB-  551,167 
  Basic Schools Inc., Series 2004, 6.000%, 12/15/24       
565  Tucson Industrial Development Authority, Arizona, Charter School Revenue Bonds, Arizona  9/14 at 100.00  BBB-  573,407 
  Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34       
2,000  University of Arizona, Certificates of Participation, Series 2002B, 5.125%, 6/01/20 - AMBAC  6/12 at 100.00  AAA  2,110,780 
  Insured       
  Healthcare - 22.2% (15.1% of Total Investments)       
  Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children's Hospital,       
  Series 1999A:       
750  6.125%, 11/15/22  11/09 at 100.00  Baa3  762,112 
520  6.250%, 11/15/29  11/09 at 100.00  Baa3  529,854 
1,000  Arizona Health Facilities Authority, Hospital System Revenue Bonds, John C. Lincoln Health Network,  12/10 at 102.00  BBB  1,113,120 
  Series 2000, 6.875%, 12/01/20       
300  Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series  7/10 at 101.00  A-  335,424 
  1999A, 6.625%, 7/01/20       
625  Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004, 5.000%,  4/14 at 100.00  A-  638,019 
  4/01/20       
1,825  Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds, Catholic  7/14 at 100.00  A-  1,901,851 
  Healthcare West, Series 2004A, 5.375%, 7/01/23       
2,000  Maricopa County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Mayo Clinic  5/08 at 101.00  AA  2,080,700 
  Hospital, Series 1998, 5.250%, 11/15/37       
1,250  Scottsdale Industrial Development Authority, Arizona, Hospital Revenue Bonds, Scottsdale  12/11 at 101.00  A3  1,325,713 
  Healthcare, Series 2001, 5.800%, 12/01/31       
1,000  Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai Regional  8/13 at 100.00  Baa2  1,064,500 
  Medical Center, Series 2003A, 6.000%, 8/01/33       
  Housing/Multifamily - 4.5% (3.1% of Total Investments)       
1,545  Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing Revenue  6/11 at 102.00  Aaa  1,621,431 
  Bonds, Campaigne Place on Jackson, Series 2001, 5.600%, 6/20/21 (Alternative Minimum Tax)       
380  Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing Revenue 4/15 at 100.00  Aaa  379,027 
  Bonds, Park Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)      
  Industrials - 2.2% (1.5% of Total Investments)      
945  Yavapai County Industrial Development Authority, Arizona, Solid Waste Disposal Revenue Bonds, Waste No Opt. Call  BBB  955,953 
  Management Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put      
  3/01/08)      
  Tax Obligation/General - 19.4% (13.3% of Total Investments)      
660  Chandler, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/18 7/12 at 100.00  AA+  693,838 
2,250  DC Ranch Community Facilities District, Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/13 at 100.00  Aaa  2,332,058 
  5.000%, 7/15/27 - AMBAC Insured      
1,930  Glendale, Arizona, General Obligation Refunding Bonds, Series 2002, 5.000%, 7/01/19 7/11 at 100.00  AA  2,026,095 
1,000  Maricopa County Unified School District 11, Peoria, Arizona, General Obligation Refunding Bonds, No Opt. Call  AAA  1,078,220 
  Series 2002, 5.000%, 7/01/15 - FSA Insured      
1,575  Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds, Series 7/14 at 100.00  AAA  1,660,381 
  2004A, 5.000%, 7/01/20 - FSA Insured      
330  Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds, Series 7/15 at 100.00  AAA  346,629 
  2005B, 5.000%, 7/01/23 - MBIA Insured      
440  Tucson, Arizona, General Obligation Bonds, Series 2001B, 5.000%, 7/01/20 7/11 at 100.00  AA  461,406 
  Tax Obligation/Limited - 36.5% (24.9% of Total Investments)      
3,000  Arizona State Transportation Board, Highway Revenue Refunding Bonds, Series 2002A, 5.250%, 7/01/18 7/12 at 102.00  AAA  3,250,020 
2,660  Arizona Tourism and Sports Authority, Tax Revenue Bonds, Multipurpose Stadium Facility Project, 7/13 at 100.00  Aaa  2,888,308 
  Series 2003A, 5.375%, 7/01/20 - MBIA Insured      
160  Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series 2005, 7/15 at 100.00  N/R  159,461 
  5.500%, 7/15/29      
364  Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment Lien 7/10 at 102.00  N/R  400,262 
  Bonds, Series 2001A, 7.875%, 7/01/25      
800  Goodyear Community Facilities Utility District 1, Arizona, General Obligation Bonds, Series 2003, 7/13 at 100.00  A  819,616 
  5.350%, 7/15/28 - ACA Insured      
2,000  Mohave County, Arizona, Certificates of Participation, Series 2004, 5.250%, 7/01/19 - AMBAC 7/14 at 100.00  AAA  2,148,860 
  Insured      
950  Phoenix Civic Improvement Corporation, Arizona, Subordinate Excise Tax Revenue Bonds, Civic Plaza 7/15 at 100.00  AAA  997,871 
  Expansion Project, Series 2005A, 5.000%, 7/01/22 - FGIC Insured      
1,250  Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract Revenue No Opt. Call  A  1,277,063 
  Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured      
2,770  Tempe, Arizona, Excise Tax Revenue Refunding Bonds, Series 2003, 5.000%, 7/01/22 7/13 at 100.00  AA+  2,891,658 
1,250  Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series 7/15 at 100.00  N/R  1,257,725 
  2005, 5.750%, 7/15/24      
  Transportation - 13.6% (9.2% of Total Investments)      
  Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series 2002B:      
1,000  5.750%, 7/01/16 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00  AAA  1,086,530 
2,300  5.250%, 7/01/21 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00  AAA  2,388,182 
2,450  Tucson Airport Authority Inc., Arizona, Revenue Refunding Bonds, Series 2001B, 5.000%, 6/01/20 6/11 at 100.00  AAA  2,497,065 
  (Alternative Minimum Tax) - AMBAC Insured      
  U.S. Guaranteed *** - 8.9% (6.1% of Total Investments)      
1,800  Arizona School Facilities Board, School Improvement Revenue Bonds, Series 2002, 5.250%, 7/01/20 7/12 at 100.00  AAA  1,959,534 
  (Pre-refunded to 7/01/12)      
1,760  Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded to  7/12 at 100.00  AAA  1,967,486
  7/01/12) - FGIC Insured     
  Utilities - 10.1% (6.8% of Total Investments)     
1,250  Maricopa County Pollution Control Corporation, Arizona, Revenue Bonds, Arizona Public Service  11/12 at 100.00  AAA  1,283,563
  Company - Palo Verde Project, Series 2002A, 5.050%, 5/01/29 - AMBAC Insured     
1,660  Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 2005RR, 5.000%, 7/01/26 - XLCA  7/15 at 100.00  AAA  1,742,303
  Insured     
  Salt River Project Agricultural Improvement and Power District, Arizona, Electric System Revenue     
  Bonds, Series 2002B:     
360  5.000%, 1/01/22  1/13 at 100.00  AA  375,469
1,000  5.000%, 1/01/31  1/13 at 100.00  AA  1,027,500
  Water and Sewer - 12.0% (8.1% of Total Investments)     
650  Arizona Water Infrastructure Finance Authority, Water Quality Revenue Bonds, Series 2004A, 5.000%,  10/14 at 100.00  AAA  683,625
  10/01/22     
405  Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series 2003,  7/13 at 100.00  AAA  421,957
  5.000%, 7/01/23 - MBIA Insured     
1,000  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Wastewater System Revenue Refunding  7/11 at 100.00  AAA  1,058,560
  Bonds, Series 2001, 5.125%, 7/01/21 - FGIC Insured     
2,000  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Bonds, Series  7/12 at 100.00  AAA  2,102,540
  2002, 5.000%, 7/01/18 - FGIC Insured     
955  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Bonds, Series  7/15 at 100.00  AAA  992,414
  2005, 5.000%, 7/01/29 - MBIA Insured     
$ 61,459  Total Long-Term Investments (cost $63,430,694) - 147.0%      64,700,300
  Other Assets Less Liabilities - 3.0%      1,302,355
  Preferred Shares, at Liquidation Value - (50.0)%      (22,000,000 )
  Net Assets Applicable to Common Shares - 100%      $ 44,002,655

Forward Swaps outstanding at October 31, 2005:

 
 
Counterparty  		 
Notional 
Amount  		Fixed Rate
Paid by the Fund
(annualized) 		  Fixed Rate 
Payment 
Frequency  		Floating Rate 
Received by the Fund 
Based On  		Floating Rate 
Payment 
Frequency 


 
Effective  
Date(2) 

 
Termination 
Date  		 
Unrealized 
Appreciation 
 
 
Citigroup  $ 500,000  4.699 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/27/06  2/27/26  $ 34,638 
JPMorgan  800,000  4.833 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/09/06  2/09/36  55,355 
Morgan Stanley   1,600,000  4.816 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/15/06  2/15/36  115,844 
                $ 205,837 

USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates)

(1 )  All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares 
  unless otherwise noted. 
(2 )  Effective date represents the date on which both the Fund and counterparty commence interest rate payment 
  accruals on each forward swap contract. 
*   Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There 
  may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be 
  subject to periodic principal paydowns. 
**   Ratings: Using the higher of Standard & Poor's or Moody's rating. 
***   Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency 
  securities which ensures the timely payment of principal and interest. 
N/R   Investment is not rated. 

Income Tax Information

The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing taxable market discount and timing differences in recognizing certain gains and losses on investment transactions.

At October 31, 2005, the cost of investments was $63,634,561.

Gross unrealized appreciation and gross unrealized depreciation of investments at October 31, 2005, were as follows:
Gross unrealized:   
 Appreciation  $ 1,369,231  
 Depreciation  (303,492 ) 
Net unrealized appreciation of investments  $ 1,065,739  

Item 2. Controls and Procedures.

  1. The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)).
  2. There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 3. Exhibits.

File as exhibits as part of this Form a separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)), exactly as set forth below: EX-99 CERT Attached hereto.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)         Nuveen Arizona Dividend Advantage Municipal Fund 3        

By (Signature and Title)*          /s/ Jessica R. Droeger                     
                                                    Jessica R. Droeger
                                                    Vice President and Secretary

Date         12/29/05        

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*         /s/ Gifford R. Zimmerman                    
                                                   Gifford R. Zimmerman
                                                   Chief Administrative Officer (principal executive officer) 

Date         12/29/05        

By (Signature and Title)*         /s/ Stephen D. Foy                              
                                                   Stephen D. Foy
                                                   Vice President and Controller (principal financial officer) 

Date         12/29/05        

* Print the name and title of each signing officer under his or her signature.