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)

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


Kevin J. McCarthy 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:         10/31/09         

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, 2009       
Principal    Optional Call     
Amount (000)  Description (1)  Provisions (2)  Ratings (3)  Value 
  Consumer Staples – 1.1% (0.8% of Total Investments)       
$       495  Puerto Rico, The Children’s Trust Fund, Tobacco Settlement Asset-Backed Refunding Bonds,  5/12 at 100.00  BBB  $       472,428 
  Series 2002, 5.375%, 5/15/33       
  Education and Civic Organizations – 14.9% (10.6% of Total Investments)       
690  Arizona Higher Education Loan Authority, Student Loan Revenue Bonds, Series 2007B, Auction  3/10 at 100.00  AAA  586,797 
  Rate, 0.720%, 11/01/41 (4)       
1,250  Arizona State University, System Revenue Bonds, Series 2005, 5.000%, 7/01/20 – AMBAC Insured  7/15 at 100.00  N/R  1,304,400 
1,130  Energy Management Services LLC, Arizona State University, Energy Conservation Revenue Bonds,  7/12 at 100.00  AA  1,212,750 
  Main Campus Project, Series 2002, 5.250%, 7/01/18 – NPFG Insured       
540  Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah  12/14 at 100.00  BBB–  478,548 
  Webster 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–  479,657 
  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 Insured  6/12 at 100.00  AA–  2,119,640 
6,175  Total Education and Civic Organizations      6,181,792 
  Health Care – 29.8% (21.4% of Total Investments)       
1,015  Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series  1/17 at 100.00  A+  1,017,964 
  2007A, 5.000%, 1/01/25       
620  Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series  1/17 at 100.00  A+  413,075 
  2007B, 1.004%, 1/02/37       
2,390  Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series  1/18 at 100.00  A+  2,421,165 
  2008D, 5.500%, 1/01/38       
625  Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004,  4/14 at 100.00  A  633,375 
  5.000%, 4/01/20       
475  Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health  12/15 at 100.00  BBB  427,453 
  Network, Series 2005B, 5.000%, 12/01/37       
785  Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health  12/17 at 100.00  BBB  686,797 
  Network, Series 2007, 5.000%, 12/01/42       
1,825  Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,  7/14 at 100.00  A  1,861,427 
  Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23       
1,985  Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,  7/17 at 100.00  A  1,958,957 
  Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32       
2,000  Maricopa County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Mayo Clinic  11/09 at 100.50  Aa2  2,003,120 
  Hospital, Series 1998, 5.250%, 11/15/37       
1,000  Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai  8/13 at 100.00  Baa2  998,630 
  Regional Medical Center, Series 2003A, 6.000%, 8/01/33       
12,720  Total Health Care      12,421,963 
  Housing/Single Family – 3.6% (2.6% of Total Investments)       
1,495  Tucson and Pima County Industrial Development Authority, Arizona, Joint Single Family Mortgage  6/17 at 101.00  Aaa  1,509,367 
  Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax)       
  Tax Obligation/General – 2.5% (1.8% of Total Investments)       
1,000  Pinal County Unified School District 1, Florence, Arizona, General Obligation Bonds, Series  7/18 at 100.00  A  1,046,700 
  2008C, 5.250%, 7/01/28       
  Tax Obligation/Limited – 31.5% (22.6% of Total Investments)       
146  Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series  7/15 at 100.00  N/R  114,417 
  2005, 5.500%, 7/15/29       
2,250  DC Ranch Community Facilities District, Scottsdale, Arizona, General Obligation Bonds, Series  7/13 at 100.00  Baa1  2,123,528 
  2002, 5.000%, 7/15/27 – AMBAC Insured       
  Estrella Mountain Ranch Community Facilities District, Arizona, Special Assessment Bonds,       
  Montecito Assessment District, Series 2007:       
252  5.700%, 7/01/27  1/17 at 100.00  N/R  181,866 
155  5.800%, 7/01/32  1/17 at 100.00  N/R  106,688 
277  Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment  7/10 at 102.00  N/R  279,313 
  Lien Bonds, Series 2001A, 7.875%, 7/01/25       
525  Greater Arizona Development Authority, Infrastructure Revenue Bonds, Series 2006A, 5.000%,  8/16 at 100.00  AA–  545,370 
  8/01/23 – NPFG Insured       
1,076  Marana, Arizona, Tangerine Farms Road Improvement District Revenue Bonds, Series 2006,  7/16 at 100.00  Baa1  955,090 
  4.600%, 1/01/26       
290  Marley Park Community Facilities District, City of Surprise, Arizona, Limited Tax General  7/17 at 100.00  N/R  232,429 
  Obligation Bonds, Series 2007, 6.100%, 7/15/32       
490  Merrill Ranch Community Facilities District 1, Florence, Arizona, General Obligation Bonds,  7/18 at 100.00  N/R  455,759 
  Series 2008A, 7.400%, 7/15/33       
2,175  Mohave County, Arizona, Certificates of Participation, Series 2004, 5.250%, 7/01/19 –  7/14 at 100.00  N/R  2,293,906 
  AMBAC Insured       
640  Palm Valley Community Facility District 3, Goodyear, Arizona, General Obligation Bonds, Series  7/16 at 100.00  N/R  463,782 
  2006, 5.300%, 7/15/31       
425  Palm Valley Community Facility District 3, Goodyear, Arizona, Limited Tax General Obligation  7/17 at 100.00  N/R  327,386 
  Bonds, Series 2007, 5.800%, 7/15/32       
160  Parkway Community Facilities District 1, Prescott Valley, Arizona, General Obligation Bonds,  7/16 at 100.00  N/R  116,765 
  Series 2006, 5.350%, 7/15/31       
1,250  Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract  No Opt. Call  BBB–  1,214,063 
  Revenue Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 – ACA Insured       
1,130  San Luis Civic Improvement Corporation, Arizona, Municipal Facilities Excise Tax Revenue  7/15 at 100.00  A–  1,142,701 
  Bonds, Series 2005, 5.000%, 7/01/25 – SYNCORA GTY Insured       
665  Tartesso West Community Facility District, Buckeye, Arizona, Limited Tax General Obligation  7/17 at 100.00  N/R  533,809 
  Bonds, Series 2007, 5.900%, 7/15/32       
1,250  Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series  7/15 at 100.00  Baa1  1,220,813 
  2005, 5.750%, 7/15/24       
663  Watson Road Community Facilities District, Arizona, Special Assessment Revenue Bonds, Series  7/16 at 100.00  N/R  519,368 
  2005, 6.000%, 7/01/30       
425  Westpark Community Facilities District, Buckeye, Arizona, General Obligation Tax Increment  7/16 at 100.00  N/R  314,521 
  Bonds Series 2006, 5.250%, 7/15/31       
14,244  Total Tax Obligation/Limited      13,141,574 
  Transportation – 14.0% (10.0% of Total Investments)       
  Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series 2002B:       
1,000  5.750%, 7/01/16 – FGIC Insured (Alternative Minimum Tax)  7/12 at 100.00  AA–  1,049,910 
2,300  5.250%, 7/01/21 – FGIC Insured (Alternative Minimum Tax)  7/12 at 100.00  AA–  2,334,407 
2,450  Tucson Airport Authority Inc., Arizona, Revenue Refunding Bonds, Series 2001B, 5.000%, 6/01/20 –  6/11 at 100.00  A1  2,453,601 
  AMBAC Insured (Alternative Minimum Tax)       
5,750  Total Transportation      5,837,918 
  U.S. Guaranteed – 19.2% (13.8% of Total Investments) (5)       
300  Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series  7/10 at 101.00  N/R (5)  314,205 
  1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10)       
1,000  Arizona Health Facilities Authority, Hospital System Revenue Bonds, John C. Lincoln Health  12/10 at 102.00  BBB (5)  1,083,340 
  Network, Series 2000, 6.875%, 12/01/20 (Pre-refunded 12/01/10)       
1,575  Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds,  7/14 at 100.00  AAA  1,799,327 
  Series 2004A, 5.000%, 7/01/20 (Pre-refunded 7/01/14) – FSA Insured       
270  Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health Corporation, Series 2005, 5.000%,  4/15 at 100.00  N/R (5)  305,543 
  4/01/16 (Pre-refunded 4/01/15)       
1,250  Scottsdale Industrial Development Authority, Arizona, Hospital Revenue Bonds, Scottsdale  12/11 at 101.00  N/R (5)  1,386,100 
  Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11)       
2,770  Tempe, Arizona, Excise Tax Revenue Refunding Bonds, Series 2003, 5.000%, 7/01/22  7/13 at 100.00  AAA  3,123,810 
  (Pre-refunded 7/01/13)       
7,165  Total U.S. Guaranteed      8,012,325 
  Utilities – 11.9% (8.5% of Total Investments)       
1,250  Maricopa County Pollution Control Corporation, Arizona, Revenue Bonds, Arizona Public Service  11/12 at 100.00  Baa2  1,141,363 
  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 –  7/15 at 100.00  A3  1,648,762 
  SYNCORA GTY Insured       
270  Salt River Project Agricultural Improvement and Power District, Arizona, Electric System  1/13 at 100.00  Aa1  288,309 
  Revenue Bonds, Series 2002B, 5.000%, 1/01/22       
775  Salt River Project Agricultural Improvement and Power District, Arizona, Electric System  1/18 at 100.00  AA  868,031 
  Revenue Bonds, Tender Option Bond Trust 09-9W, 17.095%, 1/01/38 (IF)       
1,165  Salt Verde Financial Corporation, Arizona, Senior Gas Revenue Bonds, Series 2007, 5.000%, 12/01/37  No Opt. Call  A  996,483 
5,120  Total Utilities      4,942,948 
  Water and Sewer – 11.1% (7.9% of Total Investments)       
405  Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series  7/13 at 100.00  AA–  415,473 
  2003, 5.000%, 7/01/23 – NPFG Insured       
1,000  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Wastewater System Revenue  7/11 at 100.00  AA+  1,044,050 
  Refunding 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  2,133,300 
  2002, 5.000%, 7/01/18 – FGIC Insured       
  Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007:       
425  4.700%, 4/01/22  4/14 at 100.00  N/R  369,657 
490  4.900%, 4/01/32  4/17 at 100.00  N/R  396,822 
330  Yuma County Industrial Development Authority, Arizona, Exempt Revenue Bonds, Far West Water &  12/17 at 100.00  N/R  257,552 
  Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax)       
4,650  Total Water and Sewer      4,616,854 
$        58,814  Total Investments (cost $58,693,120) – 139.6%      58,183,869 
  Other Assets Less Liabilities – 4.6%      1,887,842 
  Preferred Shares, at Liquidation Value – (44.2)% (6)      (18,400,000)
  Net Assets Applicable to Common Shares – 100%      $ 41,671,711 


Fair Value Measurements

In determining the value of the Fund’s investments various inputs are used. These inputs are summarized in the three broad levels listed below:

  Level 1 – Quoted prices in active markets for identical securities.

  Level 2 – Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

  Level 3 – Significant unobservable inputs (including management’s assumptions in determining the fair value of investments).

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the Fund’s fair value measurements as of October 31, 2009:

  Level 1  Level 2  Level 3  Total 
Investments:         
Municipal Bonds  $ —  $57,597,072  $586,797  $58,183,869 

The following is a reconciliation of the Fund's Level 3 investments held at the beginning and end of the measurement period:

  Level 3 
  Investments 
Balance at beginning of period  $546,011 
Gains (losses):   
Net realized gains (losses)  — 
Net change in unrealized appreciation (depreciation)  40,786 
Net purchases at cost (sales at proceeds)  — 
Net discounts (premiums)  — 
Net transfers in to (out of) at end of period fair value  — 
Balance at end of period  $586,797 

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, timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments in inverse floating rate securities reflected as financing transactions, if any. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset value of the Fund.

At October 31, 2009, the cost of investments was $58,679,948.

Gross unrealized appreciation and gross unrealized depreciation of investments at October 31, 2009, were as follows:

Gross unrealized:   
  Appreciation  $ 1,616,520 
  Depreciation  (2,112,599)
Net unrealized appreciation (depreciation) of investments  $  (496,079)

(1)  All percentages shown in the Portfolio of Investments are based on net assets applicable to Common 
  shares unless otherwise noted. 
(2)  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. 
(3)  Ratings: Using the higher of Standard & Poor’s Group (“Standard & Poor’s”) or Moody’s Investor Service, 
  Inc. (“Moody’s”) rating. Ratings below BBB by Standard & Poor’s or Baa by Moody’s are considered to be 
  below investment grade. 
(4)  Investment valued at fair value using methods determined in good faith by, or at the discretion of, the 
  Board of Trustees. For fair value measurement disclosure purposes, investment categorized as Level 3. 
(5)  Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities 
  which ensure the timely payment of principal and interest. Such investments are normally considered to 
  be equivalent to AAA rated securities. 
(6)  Preferred Shares, at Liquidation Value as a percentage of Total Investments is 31.6%. 
N/R  Not rated. 
(IF)  Inverse floating rate investment. 

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: See 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/ Kevin J. McCarthy                    
                                                  Kevin J. McCarthy
                                                  Vice President and Secretary

Date         December 30, 2009        

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         December 30, 2009        

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

Date        December 30, 2009