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:          4/30/06         

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)             
                           April 30, 2006             
Principal        Optional Call         
Amount (000)    Description (1)    Provisions (2)    Ratings (3)    Value 
    Consumer Staples – 1.3% (0.8% of Total Investments)             
$             580    Puerto Rico, The Children’s Trust Fund, Tobacco Settlement Asset-Backed Refunding Bonds,    5/12 at 100.00    BBB   $   591,368 
     Series 2002, 5.375%, 5/15/33             
    Education and Civic Organizations – 16.2% (10.9% 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    1,307,488 
1,000    Arizona Student Loan Acquisition Authority, Student Loan Revenue Refunding Bonds, Senior    11/09 at 102.00    Aaa    1,054,920 
     Series 1999A-1, 5.750%, 5/01/15 (Alternative Minimum Tax)             
1,130    Energy Management Services LLC, Arizona State University, Energy Conservation Revenue Bonds,    7/12 at 100.00    AAA    1,200,196 
     Main Campus Project, Series 2002, 5.250%, 7/01/18 – MBIA Insured             
270    Glendale Industrial Development Authority, Arizona, Revenue Bonds, Midwestern University,    5/08 at 101.00    A–    276,259 
     Series 1998A, 5.375%, 5/15/28             
540    Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah    12/14 at 100.00    BBB–    551,804 
     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–    573,786 
     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    AAA    2,087,420 
6,755    Total Education and Civic Organizations            7,051,873 
    Health Care – 20.8% (14.0% of Total Investments)             
300    Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series    7/10 at 101.00    A–    331,914 
     1999A, 6.625%, 7/01/20             
    Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children’s             
    Hospital, Series 1999A:             
350     6.125%, 11/15/22    11/09 at 100.00    Baa3    363,969 
520     6.250%, 11/15/29    11/09 at 100.00    Baa3    539,250 
625    Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004, 5.000%, 4/01/20    4/14 at 100.00    A–    634,575 
475    Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health    12/15 at 100.00    BBB    470,877 
     Network, Series 2005B, 5.000%, 12/01/37             
390    Maricopa County Industrial Development Authority, Arizona, Health Facilities Revenue Bonds,    5/16 at 100.00    AA    398,003 
     Mayo Clinic, Series 2006, 5.000%, 11/15/36 (WI/DD, Settling 5/11/06)             
1,825    Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,    7/14 at 100.00    A–    1,887,032 
     Catholic 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    2,063,080 
     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    1,323,275 
     Healthcare, Series 2001, 5.800%, 12/01/31             
1,000    Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai    8/13 at 100.00    Baa2    1,058,600 
     Regional Medical Center, Series 2003A, 6.000%, 8/01/33             
8,735    Total Health Care            9,070,575 
    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    1,610,663 
     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    4/15 at 100.00    Aaa    375,919 
     Revenue Bonds, Park Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)             
1,925    Total Housing/Multifamily            1,986,582 
    Industrials – 2.1% (1.4% of Total Investments)             
945    Yavapai County Industrial Development Authority, Arizona, Solid Waste Disposal Revenue Bonds,    3/28 at 100.00    BBB    947,485 
     Waste Management Inc., Series 2003B, 4.450%, 3/01/28 (Mandatory put 3/01/08) (Alternative             
     Minimum Tax)             
    Tax Obligation/General – 19.5% (13.1% of Total Investments)             
660    Chandler, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/18    7/12 at 100.00    AA+    689,040 
2,250    DC Ranch Community Facilities District, Scottsdale, Arizona, General Obligation Bonds, Series    7/13 at 100.00    Aaa    2,320,605 
     2002, 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    2,005,849 
1,000    Maricopa County Unified School District 11, Peoria, Arizona, General Obligation Refunding    No Opt. Call    AAA    1,067,010 
     Bonds, Series 2002, 5.000%, 7/01/15 – FSA Insured             
1,575    Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds,    7/14 at 100.00    AAA    1,646,363 
     Series 2004A, 5.000%, 7/01/20 – FSA Insured             
330    Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds,    7/15 at 100.00    AAA    344,668 
     Series 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    455,426 
8,185    Total Tax Obligation/General            8,528,961 
    Tax Obligation/Limited – 37.1% (24.9% of Total Investments)             
3,000    Arizona State Transportation Board, Highway Revenue Refunding Bonds, Series 2002A, 5.250%,    7/12 at 102.00    AAA    3,213,450 
     7/01/18             
2,660    Arizona Tourism and Sports Authority, Tax Revenue Bonds, Multipurpose Stadium Facility    7/13 at 100.00    Aaa    2,845,429 
     Project, Series 2003A, 5.375%, 7/01/20 – MBIA Insured             
160    Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series    7/15 at 100.00    N/R    160,043 
     2005, 5.500%, 7/15/29             
358    Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment    7/10 at 102.00    N/R    389,887 
     Lien Bonds, Series 2001A, 7.875%, 7/01/25             
800    Goodyear Community Facilities Utility District 1, Arizona, General Obligation Bonds, Series    7/13 at 100.00    A    818,080 
     2003, 5.350%, 7/15/28 – ACA Insured             
525    Greater Arizona Development Authority, Infrastructure Revenue Bonds, Series 2006A, 5.000%,    8/16 at 100.00    AAA    548,320 
     8/01/23 – MBIA Insured             
2,000    Mohave County, Arizona, Certificates of Participation, Series 2004, 5.250%, 7/01/19 – AMBAC    7/14 at 100.00    AAA    2,133,220 
     Insured             
1,250    Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract    No Opt. Call    A    1,266,950 
     Revenue 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+    2,876,313 
1,250    Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series    7/15 at 100.00    N/R    1,262,788 
     2005, 5.750%, 7/15/24             
665    Watson Road Community Facilities District, Arizona, Special Assessement Revenue Bonds, Series    7/16 at 100.00    N/R    661,994 
     2005, 6.000%, 7/01/30             
15,438    Total Tax Obligation/Limited            16,176,474 
    Transportation – 13.7% (9.2% 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    AAA    1,085,170 
2,300     5.250%, 7/01/21 – FGIC Insured (Alternative Minimum Tax)    7/12 at 100.00    AAA    2,386,296 
2,450    Tucson Airport Authority Inc., Arizona, Revenue Refunding Bonds, Series 2001B, 5.000%, 6/01/20 –    6/11 at 100.00    AAA    2,492,262 
     AMBAC Insured (Alternative Minimum Tax)             
5,750    Total Transportation            5,963,728 
    U.S. Guaranteed – 8.8% (5.9% of Total Investments) (4)             
1,000    Arizona Health Facilities Authority, Hospital System Revenue Bonds, John C. Lincoln Health    12/10 at 102.00    BBB (4)    1,142,850 
     Network, Series 2000, 6.875%, 12/01/20 (Pre-refunded 12/01/10)             
700    Arizona School Facilities Board, School Improvement Revenue Bonds, Series 2002, 5.250%,    7/12 at 100.00    AAA    752,766 
     7/01/20 (Pre-refunded 7/01/12)             
1,760    Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded    7/12 at 100.00    AAA    1,940,594 
     7/01/12) – FGIC Insured             
3,460    Total U.S. Guaranteed            3,836,210 
    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    1,280,125 
     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    AAA    1,726,151 
     XLCA 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    373,493 
1,000     5.000%, 1/01/31    1/13 at 100.00    AA    1,027,040 
4,270    Total Utilities            4,406,809 
    Water and Sewer – 14.7% (9.9% of Total Investments)             
650    Arizona Water Infrastructure Finance Authority, Water Quality Revenue Bonds, Series 2004A,    10/14 at 100.00    AAA    679,283 
     5.000%, 10/01/22             
760    Arizona Water Infrastructure Finance Authority, Water Quality Revenue Bonds, Series 2006A,    10/16 at 100.00    AAA    798,099 
     5.000%, 10/01/24             
405    Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series    7/13 at 100.00    AAA    419,685 
     2003, 5.000%, 7/01/23 – MBIA Insured             
380    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Wastewater System Revenue Bonds,    7/14 at 100.00    AAA    395,094 
     Series 2004, 5.000%, 7/01/24 – MBIA Insured             
1,000    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Wastewater System Revenue    7/11 at 100.00    AAA    1,046,350 
     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    2,088,000 
     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    989,416 
     2005, 5.000%, 7/01/29 – MBIA Insured             
6,150    Total Water and Sewer            6,415,927 
$        62,193    Total Investments (cost $63,992,196) – 148.8%            64,975,992 
    Other Assets Less Liabilities – 1.6%            683,946 
    Preferred Shares, at Liquidation Value – (50.4)%            (22,000,000) 
    Net Assets Applicable to Common Shares – 100%           $   43,659,938 

Forward Swaps outstanding at April 30, 2006:                         
        Fixed Rate        Floating Rate                 
        Paid    Fixed Rate    Received    Floating Rate            Unrealized 
    Notional    by the Fund    Payment    by the Fund    Payment    Effective    Termination    Appreciation 
Counterparty    Amount    (annualized)    Frequency    Based On    Frequency    Date (5)    Date    (Depreciation) 
Goldman Sachs    $500,000    4.013%    Quarterly    BMA    Quarterly    9/14/06    9/14/26    $23,136 
Merrill Lynch    900,000    4.021    Quarterly    BMA    Quarterly    9/21/06    9/21/26    40,911 
                                $64,047 
BMA – The daily arithmetic average of the weekly BMA (Bond Market Association) Municipal Swap Index.             

(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 or Moody’s rating. Ratings below BBB by Standard & Poor’s 
    Group or Baa by Moody’s Investor Service, Inc. are considered to be below investment grade. 
(4)    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. 
(5)    Effective date represents the date on which both Fund and counterparty commence interest payment accruals 
    on each forward swap conract. 
N/R    Not rated. 
WI/DD    Purchased on a when-issued or delayed delivery basis. 

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 the treatment of paydown gains and losses, timing differences in recognizing taxable market discount and timing differences in recognizing certain gains and losses on investment transactions.

At April 30, 2006, the cost of investments was $64,195,769.

Gross unrealized appreciation and gross unrealized depreciation of investments at April 30, 2006, were as follows:

Gross unrealized:     
  Appreciation    $1,087,173 
  Depreciation    (306,950) 
Net unrealized appreciation (depreciation) of investments    $   780,223 

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         June 28, 2006        

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         June 28, 2006        

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

Date        June 28, 2006        

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