Edgar Filing: NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3

nxe.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

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, IL 60606

(Address of principal executive offices) (Zip code)

Kevin J. McCarthy

Nuveen Investments

333 West Wacker Drive

Chicago, IL 60606

(Name and address of agent for service)

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

Date of fiscal year end: July 31

Date of reporting period: July 31, 2010

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR 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 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. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

Nuveen Investments Announces Strategic Combination with FAF Advisors

On July 29, 2010, Nuveen Investments, Inc. announced that U.S. Bancorp will receive a 9.5% stake in Nuveen Investments and cash consideration in exchange for the long-term asset business of U.S. Bancorp’s FAF Advisors (FAF). Nuveen Investments is the parent of Nuveen Asset Management (NAM), the investment adviser for the Funds included in this report.

FAF Advisors, which currently manages about $25 billion of long-term assets and serves as the advisor of the First American Funds, will be combined with NAM, which currently manages about $75 billion in municipal fixed income assets. Upon completion of the transaction, Nuveen Investments, which currently manages about $150 billion of assets across several high-quality affiliates, will manage a combined total of about $175 billion in institutional and retail assets.

This combination will not affect the investment objectives, strategies or policies of the Funds in this report. Over time, Nuveen Investments expects that the combination will provide even more ways to meet the needs of investors who work with financial advisors and consultants by enhancing the multi-boutique model of Nuveen Investments, which also includes highly respected investment teams at NWQ Investment Management, Santa Barbara Asset Management, Symphony Asset Management, Tradewinds Global Investors, Winslow Capital and Nuveen HydePark.

The transaction is expected to close late in 2010, subject to customary conditions.

Chairman’s

Letter to Shareholders

Dear Shareholder,

Recent months have revealed the fragility and disparity of the global economic recovery. In the U.S., the rate of economic growth has slowed as various stimulus programs have started to wind down, exposing weakness in the underlying economy. In contrast, many emerging market countries are experiencing a return to comparatively high rates of growth. Confidence in global financial markets has been undermined by concerns about high sovereign debt levels in Europe and the U.S. Until these countries can begin credible programs to reduce their budgetary deficits, market unease and hesitation will remain. On a more positive note, even though the countries now enjoying the strongest recovery depend on exports to countries with trade deficits, these importing countries have resisted the temptation to damage world trade by erecting trade barriers.

The U.S. economy is subject to unusually high levels of uncertainty as it struggles to recover from a devastating financial crisis. Unemployment remains stubbornly high, due to what appears to be both cyclical and structural forces. Federal Reserve policy makers are considering novel approaches to provide support to the economy, and administration policy makers are debating additional stimulus measures. However, the high levels of debt owed both by U.S. consumers and the U.S. government limit their ability to engineer a stronger economic recovery.

The U.S. financial markets reflect the crosscurrents now impacting the U.S. economy. Today’s historically low interest rates reflect the Fed’s easy monetary policy and the demand for U.S. government debt by U.S. and overseas investors looking for a safe haven for investment. Despite a continued corporate earnings recovery, equity markets continue to reflect concern about the possibility of a “double dip” recession. Encouragingly, financial institutions are rebuilding their balance sheets and the financial reform legislation enacted this summer has the potential to address many of the most significant contributors to the financial crisis, although many details still have to be worked out.

In this difficult environment, your Nuveen investment team continues to seek sustainable investment opportunities and, at the same time, remains alert for potential risks that may result from a recovery still facing many headwinds. As your representative, the Nuveen Fund Board monitors the activities of each investment team to assure that all maintain their investment disciplines. As always, I encourage you to contact your financial consultant if you have any questions about your investment in a Nuveen Fund.

On behalf of the other members of your Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Sincerely,

Robert P. Bremner

Chairman of the Board

September 22, 2010

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Portfolio Managers’ Comments

Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ)

Nuveen Arizona Dividend Advantage Municipal Fund (NFZ)

Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)

Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)

Nuveen Texas Quality Income Municipal Fund (NTX)

Portfolio managers Scott Romans and Daniel Close review economic and municipal market conditions at the national and state levels, key investment strategies, and the twelve-month performance of these five Nuveen Funds. Scott, who has been with Nuveen since 2000, has managed the Arizona Funds since 2003. Dan, who joined Nuveen in 2000, assumed portfolio management responsibility for NTX in 2007.

What factors affected the U.S. economic and municipal market environments during the twelve-month reporting period ended July 31, 2010?

During this period, there continued to be considerable stress on the economy and both the Federal Reserve (Fed) and the federal government took actions intended to improve the overall economic environment. For its part, the Fed continued to hold the benchmark fed funds rate in a target range of zero to 0.25%. At its June 2010 meeting, the central bank renewed its pledge to keep the fed funds rate “exceptionally low” for an “extended period.” The federal government focused on implementing a $787 billion economic stimulus package intended to provide job creation, tax relief, fiscal assistance to state and local governments and expansion of unemployment benefits.

These and other measures taken by the Fed and the government to ease the economic recession helped to produce some signs of improvement. Over the four calendar quarters comprising most of this period, the U.S. economy, as measured by the U.S. gross domestic product (GDP), grew at annualized rates of 1.6%, 5.0%, 3.7% and 1.6%, respectively. This marked the first time since 2007 that the economy managed to string together four consecutive positive quarters. Housing also provided something of a bright spot, as the S&P/Case-Shiller Home Price Index of average residential prices gained 3.6% for the twelve months ended June 2010 (the most recent data available at the time this report was produced). This moved average home prices across the United States to levels similar to where they were in the autumn of 2003.

Inflation continued to be relatively tame, as the Consumer Price Index (CPI) rose 1.2% year-over-year as of July 2010. The labor markets remained weak, with the national unemployment rate at 9.5% as of July 2010. This compares with the 26-year high of 10.1% in October 2009 and a rate of 9.4% in July 2009.

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein.

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Municipal market conditions began to show general signs of improvement throughout most of the period, as strong cash flows into municipal bond funds combined with tighter supply of new tax-exempt issuance to create favorable supply and demand conditions. The reduced issuance of tax-exempt municipal debt was due in part to the introduction of the Build America Bond program in 2009. Build America Bonds are a new class of taxable municipal debt, created as part of the February 2009 economic stimulus package. These bonds currently offer municipal issuers a federal subsidy equal to 35% of the bond’s interest payments, often times providing issuers with a lower cost alternative to traditional tax-exempt debt. During the twelve months ended July 31, 2010, taxable Build America Bonds issuance totaled $102.8 billion, accounting for over 24% of new bonds issued in the municipal market.

Over the twelve months ended July 31, 2010, municipal bond issuance nationwide—both tax-exempt and taxable—totaled $420.8 billion, an increase of 20% compared with the twelve-month period ended July 31, 2009. However, if taxable Build America Bond issuance were removed from the equation, the supply of tax-exempt bonds alone fell more than 4%. Demand for tax-exempt securities generally remained strong during this period, bolstered in part by the prospect of higher tax rates in the future. Combined with the lower supply of tax-exempt bonds, this drove prices on municipal bonds higher.

How were the economic and market environments in Arizona and Texas during this period?

Like the national economy, Arizona recently took small steps toward economic improvement. Growth in the education and health services sector continued to provide some stability on the jobs front, and the professional and business services, leisure and hospitality and financial services sectors all saw fewer job losses than they did in the previous twelve months. However, Arizona’s overall employment picture remained weak, as the state’s unemployment rate for July 2010 reached 9.6%, the highest in 27 years, up from 9.4% in July 2009. The construction sector continued to be the hardest hit, losing more than 50% of its jobs since the recession began in 2007. For fiscal 2011, the $8.5 billion Arizona state budget closed an estimated $3 billion budget gap through spending cuts, federal stimulus funding, and a voter-approved one-cent sales tax increase effective through May 2013. In November 2010, Arizona voters will decide two additional proposals that would redirect money from two voter-established funds (land conservation and early childhood programs) to the state’s general fund. As of July 31, 2010, Moody’s listed Arizona’s issuer credit rating at Aa2 with a stable outlook, while Standard & Poor’s (S&P) rated the state at AA- with a negative outlook. For the twelve months ended July 31, 2010, municipal issuance (both taxable and tax-free) in Arizona totaled $5.3 billion, down almost 38% from the previous twelve months.

In Texas, the economic recovery appeared to be proceeding at a somewhat faster pace than in the nation as a whole, as a strong rebound in the state’s exports—chiefly, crude energy products, petrochemicals and electronics—provided major support over the period. Although demand from Europe was projected to taper off, the market for these products was expected to remain strong in Asia, Latin America and domestically. In

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recent months, the education and health services, government, leisure and hospitality and professional and business services sectors of the Texas market have all posted job gains, although construction and information services continued to suffer losses. While unemployment in Texas rose from 7.9% in July 2009 to 8.2% in July 2010, its highest level since 1987, the state’s jobless rate remained below the national average of 9.5%. The strength of the Texas job market was reflected in the stability of the state’s housing market, which also benefited from the fact that Texas did not participate in subprime lending to the extent of many other states. As Texas headed into fiscal 2011, the state was facing a shortfall of approximately $18 billion in its $182 billion fiscal 2010-2011 biennium budget. As of July 31, 2010, Moody’s and S&P rated Texas general obligation (GO) debt at Aaa and AA+, respectively; both rating agencies maintained stable outlooks for the state. For the twelve months ended July 31, 2010, municipal issuance (both taxable and tax-free) in Texas totaled $34.1 billion, an increase of 12% over the previous twelve months. Texas continued to rank as the third largest state issuer behind California and New York.

What key strategies were used to manage the Arizona and Texas Funds during this reporting period?

As previously mentioned, the supply of tax-exempt bonds nationally tightened during this period, due in part to the introduction of taxable Build America Bonds in April 2009. This program also impacted the availability of tax-exempt bonds in both Texas and Arizona, which ranked 6th and 19th, respectively, among the 50 states by dollar amount of bonds issued under the Build America Bond program during the first half of 2010. For the twelve months ended July 2010, Build America Bonds accounted for approximately 23% of municipal supply in Texas and 24% in Arizona, where overall issuance was already down significantly. Since interest payments from Build America Bonds represent taxable income, we do not view these bonds as good investment opportunities for these Funds.

Despite the constrained issuance of tax-exempt municipal bonds, we continued to find attractive value opportunities, taking a bottom-up approach to discovering undervalued sectors and individual credits with the potential to perform well over the long term. In the Arizona Funds, we found value in several areas of the market, including health care, utilities and community facilities district (CFD) bonds associated with land development projects, also known as “dirt deals,” which we purchased in both the primary and secondary markets. In general, we focused on bonds at the lower end of the quality spectrum, which we believed offered value relative to historical credit spreads, particularly during the earlier part of the period. We also purchased higher quality bonds when necessary to keep the Funds fully invested.

In NTX, our purchases during the second half of this period included single A rated health care and public power bonds, an insured higher education issue (with a single-A underlying rating), and a BBB rated, zero coupon toll road credit. Earlier in the period, NTX also purchased several GO credits and toll road, electric utility and tax incremental financing (TIF) district bonds.

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Some of this investment activity resulted from opportunities created by the provisions of the Build America Bond program. For example, tax-exempt supply was more plentiful in the health care and higher education sectors because, as 501(c)(3) (nonprofit) organizations, hospitals and private universities generally do not qualify for the Build America Bond program and must continue to issue bonds in the tax-exempt municipal market. Bonds with proceeds earmarked for refundings, working capital and private activities also are not covered by the Build America Bond program and this resulted in attractive opportunities in various other sectors of the market.

The impact of the Build America Bond program was also evident in the area of longer-term issuance, as municipal issuers sought to take full advantage of the attractive financing terms offered by these bonds. Approximately 70% of Build America Bonds were issued with maturities of at least 30 years. Even though this significantly reduced the availability of tax-exempt credits with longer maturities, we continued to find good opportunities to purchase attractive longer-term bonds for these Funds. For example, nearly all of the bonds purchased in NTX during the second half of the period offered longer maturities. These bonds helped us to maintain NTX’s duration and also rewarded investors as the yield curve remained relatively steep.

Cash for new purchases during this period was generated primarily by the proceeds from called and maturing bonds, which we worked to redeploy to keep the Funds fully invested. In NTX, we also sold a couple of pre-refunded bonds with very short maturities. On the whole, however, selling was relatively limited during this period, as the bonds in our portfolios generally offered higher yields than those available in the current marketplace.

As of July 31, 2010, all five of these Funds continued to use inverse floating rate securities.1 We employ inverse floaters as a form of leverage for a variety of reasons, including duration management, income enhancement and total return enhancement.

An inverse floating rate security, also known as an inverse floater, is a financial instru- ment designed to pay long-term tax-exempt interest at a rate that varies inversely with a short-term tax-exempt interest rate index. For the Nuveen Funds, the index typically used is the Securities Industry and Financial Markets (SIFM) Municipal Swap Index (previously referred to as the Bond Market Association Index or BMA). Inverse floaters, including those inverse floating rate securi- ties in which the Funds invested during this reporting period, are further defined within the Notes to Financial Statements and Glossary of Terms Used in this Report sections of this report.

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How did the Funds perform?

Individual results for the Nuveen Arizona and Texas Funds, as well as relevant index and peer group information, are presented in the accompanying table.

Average Annual Total Returns on Common Share Net Asset Value For periods ended 7/31/10


Arizona Funds	1-Year			5-Year			10-Year
NAZ		13.94	%		4.11	%		5.44	%
NFZ		17.93	%		3.71	%		5.65	%
NKR		14.75	%		4.36	%		6.04	%
NXE		16.66	%		4.42	%		5.10	%

Standard & Poor’s (S&P) Arizona Municipal Bond Index2		9.47	%		4.74	%		5.51	%

Standard & Poor’s (S&P) National Municipal Bond Index3		9.88	%		4.51	%		5.58	%

Lipper Other States Municipal Debt Funds Average4		14.58	%		4.31	%		6.27	%

Texas Fund
NTX		14.71	%		4.89	%		6.50	%

Standard & Poor’s (S&P) Texas Municipal Bond Index2		10.20	%		4.89	%		5.81	%

Standard & Poor’s (S&P) National Municipal Bond Index3		9.88	%		4.51	%		5.58	%

Lipper Other States Municipal Debt Funds Average4		14.58	%		4.31	%		6.27	%

For the twelve months ended July 31, 2010, the total returns on common share net asset value (NAV) for all of the Arizona and Texas Funds exceeded the returns for their respective state’s Standard & Poor’s (S&P) Municipal Bond Index as well as that of the S&P National Municipal Bond Index. For the same period, NFZ, NKR, NXE and NTX outperformed the average return for the Lipper Other States Municipal Debt Funds Average, while NAZ lagged this Lipper average.

Key management factors that influenced the Funds’ returns during this period included duration and yield curve positioning, credit exposure and sector allocation. In addition, the use of structural leverage was an important positive factor during this period. The impact of structural leverage is discussed in more detail on page eight.

During this period, bonds with longer maturities generally outperformed those with shorter maturities, with bonds at the longest end of the yield curve posting the strongest returns. The outperformance of longer term bonds was due in part to the decline in interest rates, particularly at the longer end of the curve. The scarcity of tax-exempt bonds with longer maturities also drove up the prices of these bonds. Overall, yield curve positioning and duration proved positive for the performance of NAZ, NXE and NTX, with NFZ having the longest duration among these Funds. All four of these Funds were underweighted in the shortest part of the yield curve that produced the weakest returns. However, yield curve positioning and duration were a net negative for NKR, which had the shortest duration among these Funds. In particular, the performance of this Fund was restrained by its overweighting in the underperforming short intermediate part of the curve.

Credit exposure also played an important role in performance in these funds. The demand for municipal bonds increased during this period driven by a variety of factors,

Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares.

For additional information, see the individual Performance Overview for your Fund in this report.

2	The Standard & Poor's (S&P) Municipal Bond Indexes for Arizona and Texas are unleveraged, market value-weighted indexes designed to measure the performance of the tax-exempt, investment-grade Arizona and Texas municipal bond markets, respectively. These indexes do not reflect any initial or ongoing expenses and are not available for direct investment.

3	The Standard & Poor's (S&P) National Municipal Bond Index is an unleveraged, market value-weighted index designed to measure the performance of the tax-exempt, investment-grade U.S. municipal bond market. These indexes do not reflect any or ongoing expenses and are not available for direct investment.

4	The Lipper Other States Municipal Debt Funds Average is calculated using the returns of all closed-end funds in this category for each period as follows: 1-year, 46 funds; 5-year, 46 funds; and 10-year, 20 funds. Lipper returns account for the effects of management fees and assume reinvestment of dividends, but do not reflect any applicable sales charges. The Lipper average is not available for direct investment.

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including concerns about potential tax increases, the need to rebalance portfolio allocations and a growing appetite for additional risk. At the same time, the supply of new tax-exempt municipal paper declined, due largely to the Build America Bond program. As investors bid up municipal bond prices, bonds rated BBB or below and non-rated bonds generally outperformed those rated AAA. In this environment, the performance of all of these Funds benefited from their overexposure to lower quality credits. Because NAZ cannot invest in sub-investment grade securities (those rated BB and lower by at least one Nationally Recognized Statical Rating Organization (NRSRO) or those non-rated), which performed well, the contribution from credit exposure was smaller in this Fund.

Holdings that generally contributed to the Funds’ returns during this period included industrial development revenue (IDR) and health care bonds, both of which exceeded the overall municipal market return by substantial margins. NTX, in particular, benefited from its overweight in IDR credits. Revenue bonds as a whole performed well, with transportation, special tax and leasing among the other sectors that outperformed the general municipal market. Zero coupon bonds also were among the strongest performers.

In contrast, pre-refunded bonds, which are often backed by U.S. Treasury securities, performed relatively poorly during this period. The underperformance of these bonds can be attributed primarily to their shorter effective maturities and higher credit quality. As of July 31, 2010, NKR, NXE and NTX held the heaviest weightings of pre-refunded bonds, while NFZ had the smallest holding of these bonds. Among the revenue sectors, resource recovery trailed the overall municipal market by the widest margin and electric utilities and water and sewer also turned in weaker performances. In addition, many general obligation and other tax-supported bonds failed to keep pace with the market for the twelve months.

One sector that generally performed in line with the market but that outperformed dramatically for the Arizona Funds was the “other revenue” sector. In Arizona, the other revenue sector is focused largely on CFD or land development bonds, also known as “dirt deals.” This area of the market had been hit hard in the states most affected by the housing crisis, including California, Florida and Arizona. In California, which is a relatively high wealth state with higher taxes and a more developed market for this type of credit, we saw dirt deal bonds begin to rally, while the Arizona market for these bonds continued to lag. This occurred despite the fact that, because of Arizona’s smaller, less developed market for dirt deals, Arizona-issued bonds of this type generally have stronger fundamental credit quality and security features. During this twelve-month reporting period, however, as investors sought higher yields, these Arizona bonds became very attractive to buyers and performed exceptionally well. The performances of NFZ, NKR and NXE were boosted by their significant exposure to Arizona dirt deals, especially to non-rated CFD bonds that were judged to be in the sub-investment grade credit quality category by Nuveen Asset Management. In NKR, as mentioned previously, this contribution was offset to some degree by the Fund’s shorter duration. Also as noted above, NAZ’s participation in the Arizona dirt deal rally was limited by its inability to invest in sub-investment grade bonds.

IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE

One important factor impacting the returns of these Funds relative to the comparative indexes was the Funds’ use of financial leverage. The Funds use leverage because their managers believe that, over time, leveraging provides opportunities for additional income and total return for common shareholders. However, use of leverage also can

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expose common shareholders to additional volatility. For example, as the prices of securities held by a Fund decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage. Conversely, leverage may enhance common share returns during periods when the prices of securities held by a Fund generally are rising.

Leverage made a positive contribution to the performance of all these Funds over this reporting period.

RECENT DEVELOPMENTS REGARDING THE FUNDS’ LEVERAGED CAPITAL STRUCTURE

Shortly after their inceptions, each of the Funds issued auction rate preferred shares (ARPS) to create financial leverage. As noted in past shareholder reports, the ARPS issued by many closed-end funds, including these Funds, have been hampered by a lack of liquidity since February 2008. Since that time, more ARPS have been submitted for sale in each of their regularly scheduled auctions than there have been offers to buy. In fact, offers to buy have been almost completely non-existent since late February 2008. This means that these auctions have “failed to clear,” and that many, or all, of the ARPS shareholders who wanted to sell their shares in these auctions were unable to do so. This lack of liquidity in ARPS did not lower the credit quality of these shares, and ARPS shareholders unable to sell their shares continued to receive distributions at the “maximum rate” applicable to failed auctions, as calculated in accordance with the pre-established terms of the ARPS. In the recent market, with short-term rates at multi-generational lows, those maximum rates also have been low.

One continuing implication for common shareholders from the auction failures is that each Fund’s cost of leverage likely has been incrementally higher at times than it otherwise might have been had the auctions continued to be successful. As a result, each Fund’s common share earnings likely have been incrementally lower at times than they otherwise might have been.

As noted in past shareholder reports, the Nuveen funds’ Board of Directors/Trustees authorized several methods to refinance a portion of the Nuveen funds’ outstanding ARPS. Some funds have utilized tender option bonds (TOBs), also known as inverse floating rate securities, for leverage purposes. The amount of TOBs that a fund may use varies according to the composition of each fund’s portfolio. Some funds have a greater ability to use TOBs than others. Some funds have issued Variable Rate Demand Preferred (VRDP) Shares, a floating rate form of preferred stock. Some funds have issued MuniFund Term Preferred (MTP) Shares, a fixed rate form of preferred stock with a mandatory redemption period of five years.

While all these efforts have reduced the total amount of outstanding ARPS issued by the Nuveen funds, the funds cannot provide any assurance on when the remaining outstanding ARPS might be redeemed.

In April and May 2010, 30 Nuveen leveraged closed-end funds, including NXE, received a demand letter from a law firm on behalf of purported holders of common shares of each such fund, alleging that Nuveen and the funds’ officers and Board of Directors/ Trustees breached their fiduciary duties related to the redemption at par of the funds’ ARPS. In response, the Board established an ad hoc Demand Committee consisting of certain of its disinterested and independent Board members to investigate the claims. The Demand Committee retained independent counsel to assist it in conducting an extensive investigation. Based upon its investigation, the Demand Committee found

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that it was not in the best interests of each fund or its shareholders to take the actions suggested in the demand letters, and recommended that the full Board reject the demands made in the demand letters. After reviewing the findings and recommendation of the Demand Committee, the full Board of each fund unanimously adopted the Demand Committee’s recommendation.

Subsequently, twenty of the funds that received demand letters (not including NXE) were named as nominal defendants in a putative shareholder derivative action complaint captioned Safier and Smith v. Nuveen Asset Management, et al. that was filed in the Circuit Court of Cook County, Illinois, Chancery Division (the “Cook County Chancery Court”) on July 27, 2010. Three additional funds (not including NXE) were named as nominal defendants in a similar complaint captioned Curbow v. Nuveen Asset Management, et al. filed in the Cook County Chancery Court on August 12, 2010, and three additional funds (including NXE) were named as nominal defendants in a similar complaint captioned Beidler v. Nuveen Asset Management, et al. filed in the Cook County Chancery Court on September 21, 2010 (collectively, the “Complaints”). The Complaints, filed on behalf of purported holders of each fund’s common shares, also name Nuveen Asset Management as a defendant, together with current and former Officers and Trustees of each of the funds (together with the nominal defendants, collectively, the “Defendants”). The Complaints contain the same basic allegations contained in the demand letters. The suits seek a declaration that the Defendants have breached their fiduciary duties, an order directing the Defendants not to redeem any ARPS at their liquidation value using fund assets, indeterminate monetary damages in favor of the funds and an award of plaintiffs’ costs and disbursements in pursuing the action. Nuveen Asset Management believes that the Complaints are without merit, and intends to defend vigorously against these charges.

As of July 31, 2010, the amounts of ARPS redeemed by the Funds are as shown in the accompanying table.

	Auction Rate		% of Original
	Preferred Shares		Auction Rate
Fund	Redeemed		Preferred Share
NAZ	$	2,125,000		7.1	%
NFZ	$	1,400,000		11.7	%
NKR	$	1,875,000		10.1	%
NXE	$	3,600,000		16.4	%
NTX	$	3,950,000		5.7	%

During the twelve-month reporting period, NFZ, NKR and NXE filed with the Securities and Exchange Commission (SEC) a registration statement seeking to register MTP. These registration statements, declared effective by the SEC, enable the Funds to issue to the public shares of MTP to refinance all or a portion of their ARPS. The issuance of MTP by NFZ, NKR and NXE is subject to market conditions. There is no assurance that these MTP shares will be issued.

As of July 31, 2010, 83 out of the 84 Nuveen closed-end municipal funds that had issued ARPS have redeemed, at par, all or a portion of these shares. These redemptions bring the total amount of Nuveen’s municipal closed-end funds’ ARPS redemptions to approximately $4.4 billion of the approximately $11 billion outstanding.

For up-to-date information, please visit the Nuveen CEF Auction Rate Preferred Resource Center at: http://www.nuveen.com/arps.

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Common Share Dividend and

Share Price Information

During the twelve-month reporting period ended July 31, 2010, NFZ and NKR each had four monthly dividend increases and NAZ, NXE and NTX each had three monthly dividend increases.

Due to normal portfolio activity, common shareholders of NTX received a long-term capital gains distribution of $0.0118 per share and a short-term capital gains distribution of $0.0002 per share at the end of December 2009.

All of the Funds in this report seek to pay stable dividends at rates that reflect each Fund’s past results and projected future performance. During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund’s NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund's NAV. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of July 31, 2010, all five of the Funds in this report had positive UNII balances for both tax and financial reporting purposes.

COMMON SHARE REPURCHASES AND SHARE PRICE INFORMATION

As of July 31, 2010, and since the inception of the Funds’ repurchase program, NFZ, NKR and NXE have cumulatively repurchased their outstanding common shares as shown in the accompanying table. Since the inception of the Funds’ repurchase program, NAZ and NTX have not repurchased any of their outstanding common shares.


	Common Shares		% of Outstanding
Fund	Repurchased		Common Shares
NFZ		2,500		0.2	%
NKR		800		0.0	%
NXE		1,600		0.1	%

During the twelve-month reporting period, NFZ, NKR and NXE did not repurchase any of their outstanding common shares.

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As of July 31, 2010, the Funds’ common share prices were trading at (+) premiums or (-) discounts to their common share NAVs as shown in the accompanying table.


	7/31/10			Twelve-Month Average
Fund	(+)Premium/(-)Discount			(+)Premium/(-)Discount
NAZ		-4.65	%		-4.09	%
NFZ		-0.07	%		-6.83	%
NKR		-4.98	%		-6.68	%
NXE		-6.94	%		-7.43	%
NTX		+12.72	%		+6.50	%

Nuveen Investments 11


NAZ	Nuveen Arizona
Performance	Premium Income
OVERVIEW	Municipal Fund, Inc.

	as of July 31, 2010


Fund Snapshot
Common Share Price				$	13.34
Common Share Net Asset Value				$	13.99
Premium/(Discount) to NAV					-4.65	%
Market Yield					5.62	%
Taxable-Equivalent Yield1					8.18	%
Net Assets Applicable to Common Shares ($000)				$	62,549
Average Effective Maturity on Securities (Years)					17.83
Leverage-Adjusted Duration					7.86

Average Annual Total Return
(Inception 11/19/92)
	On Share Price			On NAV
1-Year		14.47	%		13.94	%
5-Year		2.37	%		4.11	%
10-Year		4.48	%		5.44	%

Portfolio Composition
(as a % of total investments)
Tax Obligation/Limited					23.9	%
Utilities					16.8	%
Health Care					15.5	%
Water and Sewer					14.7	%
Education and Civic Organizations					9.6	%
U.S. Guaranteed					7.7	%
Tax Obligation/General					7.7	%
Other					4.1	%

[Missing Graphic Reference]

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund’s Performance

Overview page.

1 Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield

of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing

this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower.

2 Ratings shown are the highest of Standard & Poor’s Group, Moody’s Investor Service, Inc. or Fitch, Inc. AAA includes

bonds with an implied AAA rating since they are backed by U.S. Government or agency securities. AAA, AA, A and BBB

ratings are investment grade; BB, B, CCC, CC, C and D ratings are below-investment grade. Holdings designated N/R are

not rated by any of these national rating agencies.

12 Nuveen Investments


NFZ	Nuveen Arizona
Performance	Dividend Advantage
OVERVIEW	Municipal Fund
	as of July 31, 2010


Fund Snapshot
Common Share Price				$	14.19
Common Share
Net Asset Value				$	14.20
Premium/(Discount) to NAV					-0.07	%
Market Yield					5.45	%
Taxable-Equivalent Yield1					7.93	%
Net Assets Applicable to Common Shares ($000)				$	21,984
Average Effective Maturity on Securities (Years)					15.57
Leverage-Adjusted Duration					8.74

Average Annual Total Return
(Inception 1/30/01)
	On Share Price			On NAV
1-Year		23.34	%		17.93	%
5-Year		2.88	%		3.71	%
Since
Inception		5.08	%		5.65	%

Portfolio Composition
(as a % of total investments)
Tax Obligation/Limited					32.2	%
Utilities					21.4	%
Health Care					12.4	%
Water and Sewer					9.5	%
Tax Obligation/General					8.0	%
Education and Civic Organizations					7.2	%
U.S. Guaranteed					4.8	%
Other					4.5	%

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund’s Performance

Overview page.

1 Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield

of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing

this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower.

2 Ratings shown are the highest of Standard & Poor’s Group, Moody’s Investor Service, Inc. or Fitch, Inc. AAA includes

bonds with an implied AAA rating since they are backed by U.S. Government or agency securities. AAA, AA, A and BBB

ratings are investment grade; BB, B, CCC, CC, C and D ratings are below-investment grade. Holdings designated N/R are

not rated by any of these national rating agencies.

Nuveen Investments 13


NKR	Nuveen Arizona
Performance	Dividend Advantage
OVERVIEW	Municipal Fund 2

as of July 31, 2010


Fund Snapshot
Common Share Price				$	13.92
Common Share
Net Asset Value				$	14.65
Premium/(Discount) to NAV					-4.98	%
Market Yield					5.78	%
Taxable-Equivalent Yield1					8.41	%
Net Assets Applicable to Common Shares ($000)				$	35,733
Average Effective Maturity on Securities (Years)					14.18
Leverage-Adjusted Duration					6.49

Average Annual Total Return
(Inception 3/25/02)
	On Share Price			On NAV
1-Year		17.65	%		14.75	%
5-Year		2.67	%		4.36	%
Since Inception		4.94	%		6.04	%

Portfolio Composition
(as a % of total investments)
Tax Obligation/Limited					31.5	%
Health Care					16.9	%
Tax Obligation/General					13.9	%
U.S. Guaranteed					12.0	%
Water and Sewer					8.7	%
Education and Civic Organizations					6.0	%
Utilities					4.2	%
Other					6.8	%

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund’s Performance

Overview page.

1 Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield

of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing

this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower.

2 Ratings shown are the highest of Standard & Poor’s Group, Moody’s Investor Service, Inc. or Fitch, Inc. AAA includes

bonds with an implied AAA rating since they are backed by U.S. Government or agency securities. AAA, AA, A and BBB

ratings are investment grade; BB, B, CCC, CC, C and D ratings are below-investment grade. Holdings designated N/R are

not rated by any of these national rating agencies.

14 Nuveen Investments


NXE	Nuveen Arizona
Performance	Dividend Advantage
OVERVIEW	Municipal Fund 3
	as of July 31, 2010


Fund Snapshot
Common Share Price				$	13.14
Common Share
Net Asset Value				$	14.12
Premium/(Discount) to NAV					-6.94	%
Market Yield					5.75	%
Taxable-Equivalent Yield1					8.37	%
Net Assets Applicable to Common Shares ($000)				$	43,280
Average Effective Maturity on Securities (Years)					16.01
Leverage-Adjusted Duration					7.20

Average Annual Total Return
(Inception 9/25/02)
	On Share Price			On NAV
1-Year		18.58	%		16.66	%
5-Year		3.43	%		4.42	%
Since
Inception		3.78	%		5.10	%

Portfolio Composition
(as a % of total investments)
Tax Obligation/Limited					22.7	%
Health Care					20.9	%
Education and Civic Organizations					11.9	%
U.S. Guaranteed					10.2	%
Water and Sewer					10.0	%
Transportation					9.7	%
Utilities					9.6	%
Other					5.0	%

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund’s Performance

Overview page.

1 Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield

of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing

this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower.

2 Ratings shown are the highest of Standard & Poor’s Group, Moody’s Investor Service, Inc. or Fitch, Inc. AAA includes

bonds with an implied AAA rating since they are backed by U.S. Government or agency securities. AAA, AA, A and BBB

ratings are investment grade; BB, B, CCC, CC, C and D ratings are below-investment grade. Holdings designated N/R are

not rated by any of these national rating agencies.

Nuveen Investments 15

NTX	Nuveen Texas
Performance	Quality Income
OVERVIEW	Municipal Fund

as of July 31, 2010


Fund Snapshot
Common Share Price				$	16.92
Common Share Net Asset Value				$	15.01
Premium/(Discount) to NAV					12.72	%
Market Yield					5.07	%
Taxable-Equivalent Yield1					7.04	%
Net Assets Applicable to Common Shares ($000)				$	143,080
Average Effective Maturity on Securities (Years)					15.92
Leverage-Adjusted Duration					6.98

Average Annual Total Return
(Inception 10/17/91)
	On Share Price			On NAV
1-Year		20.92	%		14.71	%
5-Year		6.65	%		4.89	%
10-Year		9.03	%		6.50	%

Portfolio Composition
(as a % of total investments)
Tax Obligation/General					30.9	%
Education and Civic Organizations					10.9	%
U.S. Guaranteed					10.4	%
Health Care					8.8	%
Utilities					8.7	%
Water and Sewer					7.9	%
Transportation					7.0	%
Tax Obligation/Limited					6.3	%
Other					9.1	%

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund’s Performance

Overview page.

1 Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield

of the Fund on an after-tax basis. It is based on a federal income tax rate of 28%. When comparing this Fund to invest-

ments that generate qualified dividend income, the Taxable-Equivalent Yield is lower.

2 Ratings shown are the highest of Standard & Poor’s Group, Moody’s Investor Service, Inc. or Fitch, Inc. AAA includes

bonds with an implied AAA rating since they are backed by U.S. Government or agency securities. AAA, AA, A and BBB

ratings are investment grade; BB, B, CCC, CC, C and D ratings are below-investment grade. Holdings designated N/R are

not rated by any of these national rating agencies.

3 The Fund paid shareholders capital gains and net ordinary income distributions in December 2009 of $0.0120 per share.

16 Nuveen Investments


NAZ	Shareholder Meeting Report
NFZ
NKR	The annual meeting of shareholders was held in the offices of Nuveen Investments on November 30,
	2009; at this meeting the shareholders were asked to vote on the election of Board Members, the
	elimination of Fundamental Investment Policies and the approval of new Fundamental Investment
	Policies. The meeting for all funds was subsequently adjourned to January 12, 2010; the meeting for
	NAZ and NKR was additionally adjourned to March 23, 2010. The meeting for NKR was additionally
	adjourned to March 30, 2010.

	NAZ				NFZ				NKR
	Common and				Common and				Common and
	Preferred		Preferred		Preferred		Preferred		Preferred		Preferred
	shares voting		shares voting		shares voting		shares voting		shares voting		shares voting
	together		together		together		together		together		together
	as a class		as a class		as a class		as a class		as a class		as a class
To approve the elimination of the Fund’s fundamental
policy relating to investments in municipal
securities and below investment grade securities.
For		2,280,789		873		771,037		256		1,200,028		319
Against		233,433		139		47,643		7		75,228		91
Abstain		93,611		17		38,273		—		55,084		7
Broker Non-Votes		566,661		—		196,335		—		379,788		117
Total		3,174,494		1,029		1,053,288		263		1,710,128		534
To approve the new fundamental policy relating
to investments in municipal securities for the Fund.
For		2,390,577		873		782,112		256		1,206,462		319
Against		140,959		139		42,868		7		72,814		91
Abstain		76,297		17		31,973		—		51,064		7
Broker Non-Votes		566,661		—		196,335		—		379,788		117
Total		3,174,494		1,029		1,053,288		263		1,710,128		534
To approve the elimination of the fundamental
policy prohibiting investment in other
investment companies.
For		2,381,154		873		—		—		—		—
Against		141,502		139		—		—		—		—
Abstain		85,177		17		—		—		—		—
Broker Non-Votes		566,661		—		—		—		—		—
Total		3,174,494		1,029		—		—		—		—
To approve the elimination of the fundamental
policy relating to derivatives and short sales.
For		2,267,770		873		—		—		—		—
Against		257,385		139		—		—		—		—
Abstain		82,678		17		—		—		—		—
Broker Non-Votes		566,661		—		—		—		—		—
Total		3,174,494		1,029		—		—		—		—
To approve the elimination of the fundamental
policy relating to commodities.
For		2,259,516		873		—		—		—		—
Against		267,358		139		—		—		—		—
Abstain		80,959		17		—		—		—		—
Broker Non-Votes		566,661		—		—		—		—		—
Total		3,174,494		1,029		—		—		—		—
To approve the new fundamental policy relating
to commodities.
For		2,260,959		873		—		—		—		—
Against		260,594		139		—		—		—		—
Abstain		86,280		17		—		—		—		—
Broker Non-Votes		566,661		—		—		—		—		—
Total		3,174,494		1,029		—		—		—		—

Nuveen Investments 17


NAZ	Shareholder Meeting Report (continued)
NFZ
NKR

	NAZ				NFZ				NKR
	Common and				Common and				Common and
	Preferred		Preferred		Preferred		Preferred		Preferred		Preferred
	shares voting		shares voting		shares voting		shares voting		shares voting		shares voting
	together		together		together		together		together		together
	as a class		as a class		as a class		as a class		as a class		as a class
Approval of the Board Members was reached
as follows:
John P. Amboian
For		2,929,434		—		—		—		—		—
Withhold		244,566		—		—		—		—		—
Total		3,174,000		—		—		—		—		—
Robert P. Bremner
For		2,918,583		—		1,004,873		—		1,604,900		—
Withhold		255,417		—		48,415		—		105,101		—
Total		3,174,000		—		1,053,288		—		1,710,001		—
Jack B. Evans
For		2,917,233		—		1,004,873		—		1,604,900		—
Withhold		256,767		—		48,415		—		105,101		—
Total		3,174,000		—		1,053,288		—		1,710,001		—
William C. Hunter
For		—		362		—		219		—		216
Withhold		—		173		—		44		—		190
Total		—		535		—		263		—		406
David J. Kundert
For		2,929,084		—		—		—		—		—
Withhold		244,916		—		—		—		—		—
Total		3,174,000		—		—		—		—		—
William J. Schneider
For		—		362		—		219		—		216
Withhold		—		173		—		44		—		190
Total		—		535		—		263		—		406
Judith M. Stockdale
For		2,926,384		—		—		—		—		—
Withhold		247,616		—		—		—		—		—
Total		3,174,000		—		—		—		—		—
Carole E. Stone
For		2,928,084		—		—		—		—		—
Withhold		245,916		—		—		—		—		—
Total		3,174,000		—		—		—		—		—
Terence J. Toth
For		2,927,384		—		—		—		—		—
Withhold		246,616		—		—		—		—		—
Total		3,174,000		—		—		—		—		—

18 Nuveen Investments


NXE
NTX

	NXE				NTX
	Common and				Common and
	Preferred		Preferred		Preferred		Preferred
	shares voting		shares voting		shares voting		shares voting
	together		together		together		together
	as a class		as a class		as a class		as a class
To approve the elimination of the Fund’s fundamental
policy relating to investments in municipal
securities and below investment grade securities.
For		1,604,588		547		4,575,435		1,768
Against		73,702		24		377,271		28
Abstain		39,454		—		129,374		2
Broker Non-Votes		469,959		—		1,499,903		—
Total		2,187,703		571		6,581,983		1,798
To approve the new fundamental policy relating
to investments in municipal securities for the Fund.
For		1,609,489		547		4,613,150		1,735
Against		63,670		24		336,083		61
Abstain		44,585		—		132,847		2
Broker Non-Votes		469,959		—		1,499,903		—
Total		2,187,703		571		6,581,983		1,798
To approve the elimination of the fundamental
policy prohibiting investment in other
investment companies.
For		—		—		4,544,203		1,735
Against		—		—		395,405		63
Abstain		—		—		142,472		—
Broker Non-Votes		—		—		1,499,903		—
Total		—		—		6,581,983		1,798
To approve the elimination of the fundamental
policy relating to derivatives and short sales.
For		—		—		4,548,122		1,737
Against		—		—		392,713		61
Abstain		—		—		141,245		—
Broker Non-Votes		—		—		1,499,903		—
Total		—		—		6,581,983		1,798
To approve the elimination of the fundamental
policy relating to commodities.
For		—		—		4,554,664		1,735
Against		—		—		391,793		63
Abstain		—		—		135,623		—
Broker Non-Votes		—		—		1,499,903		—
Total		—		—		6,581,983		1,798
To approve the new fundamental policy relating
to commodities.
For		—		—		4,492,126		1,735
Against		—		—		457,240		61
Abstain		—		—		132,714		2
Broker Non-Votes		—		—		1,499,903		—
Total		—		—		6,581,983		1,798

Nuveen Investments 19


	Shareholder Meeting Report (continued)
NXE
NTX

	NXE				NTX
	Common and				Common and
	Preferred		Preferred		Preferred		Preferred
	shares voting		shares voting		shares voting		shares voting
	together		together		together		together
	as a class		as a class		as a class		as a class
Approval of the Board Members was reached as follows:
John P. Amboian
For		—		—		—		—
Withhold		—		—		—		—
Total		—		—		—		—
Robert P. Bremner
For		2,113,145		—		6,340,269		—
Withhold		74,558		—		241,714		—
Total		2,187,703		—		6,581,983		—
Jack B. Evans
For		2,115,870		—		6,346,942		—
Withhold		71,833		—		235,041		—
Total		2,187,703		—		6,581,983		—
William C. Hunter
For		—		476		—		1,569
Withhold		—		95		—		229
Total		—		571		—		1,798
David J. Kundert
For		—		—		—		—
Withhold		—		—		—		—
Total		—		—		—		—
William J. Schneider
For		—		476		—		1,569
Withhold		—		95		—		229
Total		—		571		—		1,798
Judith M. Stockdale
For		—		—		—		—
Withhold		—		—		—		—
Total		—		—		—		—
Carole E. Stone
For		—		—		—		—
Withhold		—		—		—		—
Total		—		—		—		—
Terence J. Toth
For		—		—		—		—
Withhold		—		—		—		—
Total		—		—		—		—

20 Nuveen Investments

Report of Independent

Registered Public Accounting Firm

The Board of Directors/Trustees and Shareholders

Nuveen Arizona Premium Income Municipal Fund, Inc.

Nuveen Arizona Dividend Advantage Municipal Fund

Nuveen Arizona Dividend Advantage Municipal Fund 2

Nuveen Arizona Dividend Advantage Municipal Fund 3

Nuveen Texas Quality Income Municipal Fund

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund (the “Funds”), as of July 31, 2010, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund at July 31, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles.

Chicago, Illinois

September 27, 2010

Nuveen Investments 21


	Nuveen Arizona Premium Income Municipal Fund, Inc.
NAZ	Portfolio of Investments
		July 31, 2010

Principal			Optional Call
Amount (000)