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:            07/31          

Date of reporting period:          04/30/05         

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)                     
                           April 30, 2005                     
 
 
 
Principal            Optional Call        Market 
Amount (000)        Description(1)        Provisions*    Ratings**    Value 
 
            Consumer Staples - 4.2% (2.8% of Total Investments)                     
$    1,880        Puerto Rico, The Children's Trust Fund, Tobacco Settlement Asset-Backed Refunding Bonds, Series            5/12 at 100.00    BBB    $ 1,895,284 
            2002, 5.375%, 5/15/33                     
 
            Education and Civic Organizations - 13.6% (9.1% 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    1,353,013 
    1,000        Arizona Student Loan Acquisition Authority, Student Loan Revenue Refunding Bonds, Senior Series        11/09 at 102.00    Aaa    1,082,190 
            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    1,237,531 
            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-    279,431 
            1998A, 5.375%, 5/15/28                     
    2,000        University of Arizona, Certificates of Participation, Series 2002B, 5.125%, 6/01/20 - AMBAC            6/12 at 100.00    AAA    2,140,160 
            Insured                     
 
            Healthcare - 22.0% (14.6% 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    Ba2    758,400 
    520        6.250%, 11/15/29        11/09 at 100.00    Ba2    528,382 
    1,000        Arizona Health Facilities Authority, Hospital System Revenue Bonds, John C. Lincoln Health Network,        12/10 at 102.00    BBB    1,120,660 
            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-    334,941 
            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-    644,256 
            4/01/20                     
    1,825        Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds, Catholic            7/14 at 100.00    A-    1,923,459 
            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    2,113,440 
            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    1,342,675 
            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    1,059,590 
            Medical Center, Series 2003A, 6.000%, 8/01/33                     
 
            Housing/Multifamily - 4.5% (3.0% of Total Investments)                     
    1,545        Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing Revenue            6/11 at 102.00    Aaa    1,639,461 
            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    383,971 
            Bonds, Park Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)                     
 
            Industrials - 2.1% (1.5% of Total Investments)                     
    945        Yavapai County Industrial Development Authority, Arizona, Solid Waste Disposal Revenue Bonds, Waste            No Opt. Call    BBB    955,801 
            Management Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put                     
            3/01/08)                     
 
            Tax Obligation/General - 21.0% (14.1% of Total Investments)                     
    660        Chandler, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/18            7/12 at 100.00    AA+    709,064 
    2,250        DC Ranch Community Facilities District, Scottsdale, Arizona, General Obligation Bonds, Series 2002,            7/13 at 100.00    Aaa    2,364,368 
            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    2,069,983 
    1,000        Maricopa County Unified School District 11, Peoria, Arizona, General Obligation Refunding Bonds,            No Opt. Call    AAA    1,106,190 
            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    1,699,236 
            2004A, 5.000%, 7/01/20 - FSA Insured                     
    940        Tucson, Arizona, General Obligation Bonds, Series 2005, 5.000%, 7/01/20 - FGIC Insured            No Opt. Call    AAA    1,020,737 
    440        Tucson, Arizona, General Obligation Bonds, Series 2001B, 5.000%, 7/01/20            7/11 at 100.00    AA    467,293 
 
            Tax Obligation/Limited - 43.9% (29.3% of Total Investments)                     
    2,000        Arizona School Facilities Board, School Improvement Revenue Bonds, Series 2002, 5.250%, 7/01/20            7/12 at 100.00    AAA    2,184,400 
    3,000        Arizona State Transportation Board, Highway Revenue Refunding Bonds, Series 2002A, 5.250%, 7/01/18            7/12 at 102.00    AAA    3,337,140 
    1,000        Arizona State Transportation Board, Highway Revenue Bonds, Series 2002B, 5.250%, 7/01/22            7/12 at 100.00    AAA    1,085,650 
    2,660        Arizona Tourism and Sports Authority, Tax Revenue Bonds, Multipurpose Stadium Facility Project,            7/13 at 100.00    Aaa    2,947,865 
            Series 2003A, 5.375%, 7/01/20 - MBIA Insured                     
    376        Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment Lien            7/10 at 102.00    N/R    416,161 
            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    827,312 
            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    2,193,480 
            Insured                     
    540        Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah Webster        12/14 at 100.00    BBB-    552,836 
            Basic Schools Inc., Series 2004, 6.000%, 12/15/24                     
    1,250        Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract Revenue            No Opt. Call    A    1,290,613 
            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+    2,976,116 
    565        Tucson Industrial Development Authority, Arizona, Charter School Revenue Bonds, Arizona            9/14 at 100.00    BBB-    574,989 
            Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34                     
    1,250        Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series            7/15 at 100.00    N/R    1,270,625 
            2005, 5.750%, 7/15/24                     
            Transportation - 13.5% (9.0% 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    1,108,450 
    2,300        5.250%, 7/01/21 (Alternative Minimum Tax) - FGIC Insured            7/12 at 100.00    AAA    2,429,858 
    2,450        Tucson Airport Authority Inc., Arizona, Revenue Refunding Bonds, Series 2001B, 5.000%, 6/01/20            6/11 at 100.00    AAA    2,533,619 
            (Alternative Minimum Tax) - AMBAC Insured                     
 
            U.S. Guaranteed *** - 5.1% (3.4% of Total Investments)                     
    2,000        Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded to            7/12 at 100.00    AAA    2,301,620 
            7/01/12) - FGIC Insured                     
 
            Utilities - 10.0% (6.7% of Total Investments)                     
    1,250        Maricopa County Pollution Control Corporation, Arizona, Revenue Bonds, Arizona Public Service        11/12 at 100.00    AAA    1,305,763 
            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    1,772,465 
            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    386,244 
    1,000        5.000%, 1/01/31            1/13 at 100.00    AA    1,045,610 
 
            Water and Sewer - 9.7% (6.5% of Total Investments)                     
    650        Arizona Water Infrastructure Finance Authority, Water Quality Revenue Bonds, Series 2004A, 5.000%,        10/14 at 100.00    AAA    699,270 
            10/01/22                     
    405        Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series 2003,            7/13 at 100.00    AAA    433,644 
            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    1,071,670 
            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    2,148,680 
            2002, 5.000%, 7/01/18 - FGIC Insured                     
$    62,751        Total Long-Term Investments (cost $64,802,941) - 149.6%                    67,123,596 
            Other Assets Less Liabilities - (0.6)%                    (243,479) 
            Preferred Shares, at Liquidation Value - (49.0)%                    (22,000,000) 
            Net Assets Applicable to Common Shares - 100%                    $44,880,117 
 
 
            Forward Swap Contracts outstanding at April 30, 2005:                     
                                Unrealized 
                Notional    Effective    Termination    Appreciation 
                Amount    Date(2)        Date    (Depreciation) 
 
            Agreement with Goldman Sachs dated December 6, 2004, to pay                     
            semi-annually the notional amount multiplied by 5.324% (annualized)                     
            and receive quarterly the notional amount multiplied by the                     
            three-month USD-LIBOR (United States Dollar-London                     
            Inter-Bank Offered Rates).    $1,000,000    7/11/05        7/11/25    $(46,052) 
            Agreement with JP Morgan dated Janurary 11, 2005, to pay                     
            semi-annually the notional amount multiplied by 5.235% (annualized)                     
            and receive quarterly the notional amount multiplied by the three-month                     
            USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates).    850,000    8/17/05        8/17/25    (28,003) 
            Agreement with Merrill Lynch dated Feburary 14, 2005, to pay semi-                     
            annually the notional amount multiplied by 4.886% (annualized)                     
            and receive quarterly the notional amount multiplied by the three-month                     
            USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates).    2,300,000    8/24/05        8/24/25    26,191 
 
                                $(47,864) 
 
 
        (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 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.                     
        **    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 income on                 
            taxable market discount securities and timing differences in recognizing certain gains and losses on                     
            security transactions.                     
            At April 30, 2005, the cost of investments was $64,801,635                     
            Gross unrealized appreciation and gross unrealized depreciation of investments at April 30, 2005,                     
            were as follows:                     
 
            Gross unrealized:                     
               Appreciation                    $2,347,194 
               Depreciation                    (25,233) 
 
            Net unrealized appreciation of investments                    $2,321,961 

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--Vice President and Secretary        

Date         06/29/05        

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--Chief Administrative Officer (principal executive officer)        

Date         06/29/05        

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

Date         06/29/05        

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