Unassociated Document



 
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:         10/31/10         
 
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, 2010 
     
Principal 
   
Optional Call 
   
Amount (000) 
 
Description (1) 
Provisions (2) 
Ratings (3) 
Value 
   
Consumer Staples – 1.1% (0.8% of Total Investments) 
     
$ 485 
 
Puerto Rico, The Children’s Trust Fund, Tobacco Settlement Asset-Backed Refunding Bonds, 
5/12 at 100.00 
BBB 
$ 486,373 
   
Series 2002, 5.375%, 5/15/33 
     
   
Education and Civic Organizations – 16.5% (11.9% of Total Investments) 
     
690 
 
Arizona Higher Education Loan Authority, Student Loan Revenue Bonds, Series 2007B, Auction 
3/11 at 100.00 
A
567,497 
   
Rate Securities, 0.660%, 11/01/41 (Alternative Minimum Tax) (4) 
     
1,250 
 
Arizona State University, System Revenue Bonds, Series 2005, 5.000%, 7/01/20 – AMBAC Insured 
7/15 at 100.00 
Aa3 
1,320,725 
1,130 
 
Energy Management Services LLC, Arizona State University, Energy Conservation Revenue Bonds, 
7/12 at 100.00 
AA– 
1,198,241 
   
Main Campus Project, Series 2002, 5.250%, 7/01/18 – NPFG Insured 
     
900 
 
Glendale Industrial Development Authority, Arizona, Revenue Bonds, Midwestern University, 
5/20 at 100.00 
A– 
925,641 
   
Series 2010, 5.125%, 5/15/40 
     
560 
 
Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah 
12/14 at 100.00 
BBB– 
565,650 
   
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– 
567,718 
   
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 – 
6/12 at 100.00 
AA– 
2,106,220 
   
AMBAC Insured 
     
7,095 
 
Total Education and Civic Organizations 
   
7,251,692 
   
Health Care – 29.1% (21.0% of Total Investments) 
     
1,015 
 
Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series 
1/17 at 100.00 
A+ 
1,056,453 
   
2007A, 5.000%, 1/01/25 
     
620 
 
Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series 
1/17 at 100.00 
A+ 
414,644 
   
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+ 
2,512,534 
   
2008D, 5.500%, 1/01/38 
     
625 
 
Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004, 
4/14 at 100.00 
A
644,581 
   
5.000%, 4/01/20 
     
475 
 
Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health 
12/15 at 100.00 
BBB 
450,685 
   
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 
735,066 
   
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
1,903,147 
   
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
2,039,905 
   
Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32 
     
2,000 
 
Maricopa County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Mayo Clinic 
5/11 at 100.00 
Aa2 
2,001,260 
   
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 
1,013,800 
   
Regional Medical Center, Series 2003A, 6.000%, 8/01/33 
     
12,720 
 
Total Health Care 
   
12,772,075 
   
Housing/Single Family – 3.3% (2.4% of Total Investments) 
     
1,420 
 
Tucson and Pima County Industrial Development Authority, Arizona, Joint Single Family Mortgage 
6/17 at 101.00 
Aaa 
1,447,321 
   
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
1,081,140 
   
2008C, 5.250%, 7/01/28 
     
   
Tax Obligation/Limited – 31.5% (22.8% of Total Investments) 
     
142 
 
Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series 
7/15 at 100.00 
N/R 
119,303 
   
2005, 5.500%, 7/15/29 
     
2,250 
 
DC Ranch Community Facilities District, Scottsdale, Arizona, General Obligation Bonds, Series 
7/13 at 100.00 
A1 
2,256,323 
   
2002, 5.000%, 7/15/27 – AMBAC Insured 
     
   
Estrella Mountain Ranch Community Facilities District, Arizona, Special Assessment Bonds, 
     
   
Montecito Assessment District, Series 2007: 
     
250 
 
5.700%, 7/01/27 
1/17 at 100.00 
N/R 
197,918 
155 
 
5.800%, 7/01/32 
1/17 at 100.00 
N/R 
117,310 
257 
 
Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment 
7/12 at 100.00 
N/R 
262,384 
   
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– 
554,122 
   
8/01/23 – NPFG Insured 
     
1,033 
 
Marana, Arizona, Tangerine Farms Road Improvement District Revenue Bonds, Series 2006, 
7/16 at 100.00 
A2 
1,025,139 
   
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 
258,979 
   
Obligation Bonds, Series 2008 (Bank Qualified), 6.100%, 7/15/32 
     
490 
 
Merrill Ranch Community Facilities District 1, Florence, Arizona, General Obligation Bonds, 
7/18 at 100.00 
N/R 
498,423 
   
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 
2,342,300 
   
AMBAC Insured 
     
640 
 
Palm Valley Community Facility District 3, Goodyear, Arizona, General Obligation Bonds, Series 
7/16 at 100.00 
N/R 
519,488 
   
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 
365,496 
   
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 
130,738 
   
Series 2006, 5.350%, 7/15/31 
     
1,250 
 
Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract 
No Opt. Call 
BBB– 
1,252,063 
   
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+ 
1,170,590 
   
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 
579,215 
   
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 
A1 
1,330,850 
   
2005, 5.750%, 7/15/24 
     
639 
 
Watson Road Community Facilities District, Arizona, Special Assessment Revenue Bonds, Series 
7/16 at 100.00 
N/R 
538,262 
   
2005, 6.000%, 7/01/30 
     
425 
 
Westpark Community Facilities District, Buckeye, Arizona, General Obligation Tax Increment 
7/16 at 100.00 
N/R 
342,673 
   
Bonds Series 2006, 5.250%, 7/15/31 
     
14,151 
 
Total Tax Obligation/Limited 
   
13,861,576 
   
Transportation – 13.3% (9.6% 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– 
1,049,580 
2,300 
 
5.250%, 7/01/21 – FGIC Insured (Alternative Minimum Tax) 
7/12 at 100.00 
AA– 
2,345,930 
2,450 
 
Tucson Airport Authority Inc., Arizona, Revenue Refunding Bonds, Series 2001B, 5.000%, 
6/11 at 100.00 
A1 
2,462,372 
   
6/01/20 – AMBAC Insured (Alternative Minimum Tax) 
     
5,750 
 
Total Transportation 
   
5,857,882 
   
U.S. Guaranteed – 13.9% (10.0% of Total Investments) (5) 
     
600 
 
Arizona Health Facilities Authority, Hospital System Revenue Bonds, John C. Lincoln Health 
12/10 at 102.00 
BBB (5) 
615,330 
   
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 
AA+ (5) 
1,815,440 
   
Series 2004A, 5.000%, 7/01/20 (Pre-refunded 7/01/14) – AGM Insured 
     
270 
 
Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health Corporation, Series 2005, 5.000%, 
4/15 at 100.00 
N/R (5) 
313,616 
   
4/01/16 (Pre-refunded 4/01/15) 
     
250 
 
Scottsdale Industrial Development Authority, Arizona, Hospital Revenue Bonds, Scottsdale 
12/11 at 101.00 
N/R (5) 
267,230 
   
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 
3,089,849 
   
(Pre-refunded 7/01/13) 
     
5,465 
 
Total U.S. Guaranteed 
   
6,101,465 
   
Utilities – 13.6% (9.8% of Total Investments) 
     
1,250 
 
Maricopa County Pollution Control Corporation, Arizona, Revenue Bonds, Arizona Public Service 
11/12 at 100.00 
Baa2 
1,222,800 
   
Company – Palo Verde Project, Series 2002A, 5.050%, 5/01/29 – AMBAC Insured 
     
665 
 
Pima County Industrial Development Authority, Arizona, Revenue Bonds, Tucson Electric Power 
1/15 at 100.00 
BBB– 
688,222 
   
Company, Refunding Series 2008, 5.750%, 9/01/29 
     
1,660 
 
Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 2005RR, 5.000%, 7/01/26 – 
7/15 at 100.00 
A3 
1,707,194 
   
SYNCORA GTY Insured 
     
270 
 
Salt River Project Agricultural Improvement and Power District, Arizona, Electric System 
1/13 at 100.00 
Aa1 
295,507 
   
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 
Aa1 
949,623 
   
Revenue Bonds, Tender Option Bond Trust 09-9W, 17.009%, 1/01/38 (IF) 
     
1,165 
 
Salt Verde Financial Corporation, Arizona, Senior Gas Revenue Bonds, Citigroup Energy Inc 
No Opt. Call 
A
1,100,610 
   
Prepay Contract Obligations, Series 2007, 5.000%, 12/01/37 
     
5,785 
 
Total Utilities 
   
5,963,956 
   
Water and Sewer – 13.7% (9.9% of Total Investments) 
     
955 
 
Goodyear, Arizona, Water and Sewer Revenue Obligations, Series 2010, 5.625%, 7/01/39 
7/20 at 100.00 
A2 
970,586 
405 
 
Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series 
7/13 at 100.00 
AA– 
419,616 
   
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+ 
1,021,140 
   
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 
2,124,220 
   
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 
430,075 
490 
 
4.900%, 4/01/32 
4/17 at 100.00 
N/R 
470,023 
615 
 
Yuma County Industrial Development Authority, Arizona, Exempt Revenue Bonds, Far West Water & 
12/17 at 100.00 
N/R 
582,362 
   
Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax) 
     
5,890 
 
Total Water and Sewer 
   
6,018,022 
$ 59,761 
 
Total Investments (cost $59,452,602) – 138.5% 
   
60,841,502 
   
Other Assets Less Liabilities – 3.4% 
   
1,482,790 
   
Auction Rate Preferred Shares, at Liquidation Value – (41.9)% (6) 
   
(18,400,000)
   
Net Assets Applicable to Common Shares – 100% 
   
$ 43,924,292 
 
 
 
 

 
 

 
Fair Value Measurements
 
 
In determining the fair 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 methodologies 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, 2010:
 
         
 
Level 1 
Level 2 
Level 3 
Total 
Investments: 
       
Municipal Bonds 
$ — 
$60,274,005 
$567,497 
$60,841,502 
 
 
The following is a reconciliation of the Fund’s Level 3 investments held at the beginning and end of the measurement period:
 
   
 
Level 3 
 
Municipal Bonds 
Balance at the beginning of period 
$567,346 
Gains (losses): 
 
Net realized gains (losses) 
Net change in unrealized appreciation (depreciation) 
151
Net purchases at cost (sales at proceeds) 
Net discounts (premiums) 
Net transfers in to (out of) at end of period fair value 
Balance at the end of period 
$567,497 
 
 
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, 2010, the cost of investments was $59,427,560.
 
 
Gross unrealized appreciation and gross unrealized depreciation of investments at October 31, 2010, were as follows:
 
   
Gross unrealized: 
 
Appreciation 
$2,287,124 
Depreciation 
(873,182)
Net unrealized appreciation (depreciation) of investments 
$1,413,942 
 
   
(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 highest of Standard & Poor’s Group (“Standard & Poor’s”), Moody’s Investor Service, 
 
Inc. (“Moody’s”) or Fitch, Inc. (“Fitch”) rating. Ratings below BBB by Standard & Poor’s, Baa by Moody’s or 
 
BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by 
 
any of these national rating agencies. 
(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) 
Auction Rate Preferred shares, at Liquidation Value as a percentage of Total Investments is 30.2%. 
N/R 
Not rated. 
(IF) 
Inverse floating rate investment. 
 
 
 
 

 
Item 2. Controls and Procedures.

a.  
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)).
 
 
b.  
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, 2010        
 
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, 2010        
 
By (Signature and Title)     /s/ Stephen D. Foy                              
                                                   Stephen D. Foy
                                                  Vice President and Controller (principal financial officer) 
 
Date         December 30, 2010