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         811-10345         

        Nuveen 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:            10/31          

Date of reporting period:         7/31/06         

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Schedule of Investments

                           Portfolio of Investments (Unaudited)             
                           Nuveen Dividend Advantage Municipal Fund 3 (NZF)             
                           July 31, 2006             
Principal        Optional Call         
Amount (000)    Description (1)    Provisions (2)    Ratings (3)    Value 
    Alabama – 0.9% (0.6% of Total Investments)             
$          5,655    Alabama State Port Authority, Revenue Bonds, State Docks Department Facilities, Series 2001,    10/11 at 100.00    AAA   $   5,817,525 
     5.250%, 10/01/26 – AMBAC Insured (Alternative Minimum Tax)             
    Alaska – 0.7% (0.4% of Total Investments)             
4,000    Alaska Student Loan Corporation, Student Loan Revenue Bonds, Series 1998A, 5.250%, 7/01/14 –    7/08 at 100.00    AAA    4,066,480 
     AMBAC Insured (Alternative Minimum Tax)             
    Arkansas – 0.9% (0.6% of Total Investments)             
    Sebastian County Health Facilities Board, Arkansas, Hospital Revenue Improvement Bonds, Sparks             
    Regional Medical Center, Series 2001A:             
1,805     5.500%, 11/01/13    11/11 at 101.00    Baa2    1,880,485 
1,900     5.500%, 11/01/14    11/11 at 101.00    Baa2    1,973,017 
1,745     5.250%, 11/01/21    11/11 at 101.00    Baa2    1,760,391 
5,450    Total Arkansas            5,613,893 
    California – 10.7% (7.1% of Total Investments)             
855    California Health Facilities Financing Authority, Health Facility Revenue Bonds, Adventist    3/13 at 100.00    A    864,764 
     Health System/West, Series 2003A, 5.000%, 3/01/28             
5,000    California Infrastructure Economic Development Bank, Revenue Bonds, Kaiser Hospital Assistance    8/11 at 102.00    A+    5,227,100 
     LLC, Series 2001A, 5.550%, 8/01/31             
5,000    California Statewide Community Development Authority, Revenue Bonds, Kaiser Permanente System,    8/11 at 100.00    A+    4,925,700 
     Series 2004G, 2.300%, 4/01/34 (Mandatory put 5/01/07)             
18,850    California, General Obligation Veterans Welfare Bonds, Series 2001BZ, 5.350%, 12/01/21 – MBIA    6/07 at 101.00    AAA    19,208,904 
     Insured (Alternative Minimum Tax)             
    Los Angeles Regional Airports Improvement Corporation, California, Lease Revenue Refunding             
    Bonds, LAXFUEL Corporation at Los Angeles International Airport, Series 2001:             
13,955     5.750%, 1/01/16 – AMBAC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    14,864,029 
5,000     5.375%, 1/01/21 – AMBAC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    5,155,700 
1,500     5.250%, 1/01/23 – AMBAC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    1,532,880 
10,000     5.500%, 1/01/32 – AMBAC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    10,298,700 
10,000    San Joaquin Hills Transportation Corridor Agency, Orange County, California, Toll Road Revenue    No Opt. Call    AAA    2,473,500 
     Refunding Bonds, Series 1997A, 0.000%, 1/15/35 – MBIA Insured             
3,000    San Mateo County Community College District, California, General Obligation Bonds, Series    No Opt. Call    AAA    934,950 
     2006C, 0.000%, 9/01/30 – MBIA Insured             
73,160    Total California            65,486,227 
    Colorado – 7.7% (5.1% of Total Investments)             
2,250    Canterberry Crossing Metropolitan District II, Parker, Colorado, Limited Tax General    12/12 at 100.00    N/R    2,431,035 
     Obligation Bonds, Series 2002, 7.375%, 12/01/32             
1,655    Colorado Educational and Cultural Facilities Authority, Charter School Revenue Bonds, Belle    3/12 at 100.00    N/R    1,711,088 
     Creek Education Center, Series 2002A, 7.625%, 3/15/32             
3,240    Colorado Educational and Cultural Facilities Authority, Charter School Revenue Bonds,    5/12 at 102.00    N/R    3,504,416 
     Montessori Peaks Building Foundation, Series 2002A, 8.000%, 5/01/32             
1,775    Colorado Educational and Cultural Facilities Authority, Charter School Revenue Bonds, Weld    6/11 at 100.00    Ba1    1,888,494 
     County School District 6 – Frontier Academy, Series 2001, 7.375%, 6/01/31             
3,380    Colorado Housing Finance Authority, Multifamily Project Bonds, Class I, Series 2001A-1,    10/11 at 100.00    AAA    3,462,810 
     5.500%, 4/01/31 (Alternative Minimum Tax)             
10,100    Colorado Springs, Colorado, Utility System Revenue Refunding and Improvement Bonds, Series    11/07 at 100.00    AA    10,254,328 
     1997A, 5.375%, 11/15/26             
    Denver City and County, Colorado, Airport System Revenue Bonds, Series 1996A:             
19,150     5.750%, 11/15/16 – MBIA Insured    11/06 at 101.00    AAA    19,436,292 
1,105     5.500%, 11/15/25 – MBIA Insured    11/06 at 101.00    AAA    1,120,448 
2,000    Denver City and County, Colorado, Airport System Revenue Refunding Bonds, Series 2001A,    11/11 at 100.00    AAA    2,114,740 
     5.500%, 11/15/16 – FGIC Insured (Alternative Minimum Tax)             
1,000    Plaza Metropolitan District 1, Lakewood, Colorado, Tax Increment Revenue Bonds, Series 2003,    6/14 at 101.00    N/R    1,099,770 
     8.000%, 12/01/25             
45,655    Total Colorado            47,023,421 
    Delaware – 0.4% (0.3% of Total Investments)             
2,560    Delaware Housing Authority, Multifamily Mortgage Revenue Bonds, Series 2001A, 5.400%, 7/01/24    7/12 at 100.00    Aa3    2,590,080 
    District of Columbia – 1.0% (0.7% of Total Investments)             
6,000    District of Columbia, Revenue Bonds, Catholic University of America, Series 1999, 5.625%,    10/09 at 101.00    AAA    6,321,540 
     10/01/29 – AMBAC Insured             
    Florida – 1.6% (1.1% of Total Investments)             
2,000    Dade County, Florida, Water and Sewerage System Revenue Bonds, Series 1997, 5.375%, 10/01/16 –    10/07 at 102.00    AAA    2,072,860 
     FGIC Insured             
    Orange County Housing Finance Authority, Florida, Multifamily Housing Revenue Bonds, Oak Glen             
    Apartments, Series 2001G:             
1,105     5.400%, 12/01/32 – FSA Insured    12/11 at 100.00    AAA    1,126,061 
2,195     5.450%, 12/01/41 – FSA Insured    12/11 at 100.00    AAA    2,235,959 
4,175    Pace Property Finance Authority Inc., Florida, Utility System Improvement and Revenue    9/07 at 102.00    AAA    4,317,535 
     Refunding Bonds, Series 1997, 5.250%, 9/01/17 – AMBAC Insured             
9,475    Total Florida            9,752,415 
    Georgia – 2.3% (1.5% of Total Investments)             
5,000    Atlanta, Georgia, Airport General Revenue Bonds, Series 2000B, 5.625%, 1/01/30 – FGIC Insured    1/10 at 101.00    AAA    5,208,250 
     (Alternative Minimum Tax)             
2,700    Atlanta, Georgia, Tax Allocation Bonds, Atlantic Station Project, Series 2001, 7.900%, 12/01/24    12/11 at 101.00    N/R    2,986,821 
3,740    Gainesville and Hall County Hospital Authority, Georgia, Revenue Anticipation Certificates,    5/11 at 100.00    A–    3,851,340 
     Northeast Georgia Health Services Inc., Series 2001, 5.500%, 5/15/31             
2,000    Henry County Water and Sewerage Authority, Georgia, Revenue Bonds, Series 2000, 5.625%,    2/10 at 101.00    AAA    2,137,120 
     2/01/30 (Pre-refunded 2/01/10) – FGIC Insured             
13,440    Total Georgia            14,183,531 
    Hawaii – 0.9% (0.6% of Total Investments)             
5,125    Hawaii, Highway Revenue Bonds, Series 2001, 5.375%, 7/01/21 (Pre-refunded 7/01/11) –    7/11 at 100.00    AAA    5,487,286 
     FSA Insured             
    Illinois – 18.4% (12.3% of Total Investments)             
3,000    Chicago, Illinois, General Obligation Bonds, Neighborhoods Alive 21 Program, Series 2001A,    1/11 at 100.00    AAA    3,207,360 
     5.500%, 1/01/31 (Pre-refunded 1/01/11) – FGIC Insured             
285    Chicago, Illinois, General Obligation Refunding Bonds, Series 1996B, 5.125%, 1/01/25 –    1/08 at 100.00    AAA    288,423 
     FGIC Insured             
8,375    Chicago, Illinois, Revenue Bonds, Midway Airport, Series 2001A, 5.500%, 1/01/19 – FSA Insured    1/11 at 101.00    AAA    8,810,584 
     (Alternative Minimum Tax)             
1,750    Chicago, Illinois, Sales Tax Revenue Bonds, Series 1998, 5.250%, 1/01/28 – FGIC Insured    7/08 at 102.00    AAA    1,810,550 
10,800    Chicago, Illinois, Sales Tax Revenue Bonds, Series 1999, 5.375%, 1/01/30 (Pre-refunded    1/09 at 101.00    AAA    11,298,960 
     1/01/09) – FGIC Insured             
4,950    Chicago, Illinois, Second Lien Passenger Facility Charge Revenue Bonds, O’Hare International    1/11 at 101.00    AAA    5,094,590 
     Airport, Series 2001A, 5.375%, 1/01/32 – AMBAC Insured (Alternative Minimum Tax)             
8,610    Chicago, Illinois, Second Lien Wastewater Transmission Revenue Bonds, Series 2001A, 5.500%,    1/11 at 100.00    AAA    9,187,042 
     1/01/26 (Pre-refunded 1/01/11) – AMBAC Insured             
2,220    Chicago, Illinois, Second Lien Wastewater Transmission Revenue Bonds, Series 2001A, 5.500%,    No Opt. Call    AAA    2,448,838 
     1/01/16 – MBIA Insured             
10,000    Chicago, Illinois, Senior Lien Water Revenue Bonds, Series 2001, 5.000%, 11/01/26    11/11 at 100.00    AAA    10,566,700 
     (Pre-refunded 11/01/11) – AMBAC Insured             
1,665    Chicago, Illinois, Third Lien General Airport Revenue Bonds, O’Hare International Airport,    1/16 at 100.00    AAA    1,708,323 
     Series 2005A, 5.000%, 1/01/33 – FGIC Insured             
2,415    Illinois Finance Authority, General Obligation Debt Certificates, Local Government Program –    12/14 at 100.00    Aaa    2,498,849 
     Kankakee County, Series 2005B, 5.000%, 12/01/24 – AMBAC Insured             
1,100    Illinois Health Facilities Authority, Revenue Bonds, Condell Medical Center, Series 2000,    5/10 at 101.00    Baa2    1,171,401 
     6.500%, 5/15/30             
9,000    Illinois Health Facilities Authority, Revenue Bonds, Covenant Retirement Communities Inc.,    12/11 at 101.00    BBB    9,341,100 
     Series 2001, 5.875%, 12/01/31             
15,000    Illinois Health Facilities Authority, Revenue Bonds, Loyola University Health System, Series    7/11 at 100.00    Baa1    15,756,750 
     2001A, 6.125%, 7/01/31             
5,000    Lake County School District 38, Big Hallow, Illinois, General Obligation Bonds, Series 2005,    No Opt. Call    Aaa    2,404,300 
     0.000%, 2/01/22 – AMBAC Insured             
7,000    Lombard Public Facilities Corporation, Illinois, First Tier Conference Center and Hotel    1/16 at 100.00    N/R    7,439,740 
     Revenue Bonds, Series 2005A-1, 7.125%, 1/01/36             
16,900    Metropolitan Pier and Exposition Authority, Illinois, Revenue Bonds, McCormick Place Expansion    12/09 at 101.00    AAA    17,604,054 
     Project, Series 1999A, 5.250%, 12/15/28 – FGIC Insured             
2,000    Metropolitan Pier and Exposition Authority, Illinois, Revenue Refunding Bonds, McCormick Place    No Opt. Call    AAA    2,266,700 
     Expansion Project, Series 1998A, 5.500%, 6/15/29 – FGIC Insured             
110,070    Total Illinois            112,904,264 
    Indiana – 5.8% (3.9% of Total Investments)             
    Clark-Pleasant Community School Building Corporation, Indiana, First Mortgage Bonds,             
    Series 2001:             
1,255     5.000%, 7/15/21 (Pre-refunded 1/15/12) – AMBAC Insured    1/12 at 100.00    AAA    1,327,476 
1,000     5.000%, 1/15/26 (Pre-refunded 1/15/12) – AMBAC Insured    1/12 at 100.00    AAA    1,057,750 
    Evansville Vanderburgh Public Library Lease Corporation, Indiana, First Mortgage Bonds,             
    Series 2001:             
2,000     5.750%, 7/15/18 (Pre-refunded 1/15/12) – MBIA Insured    1/12 at 100.00    AAA    2,188,740 
2,750     5.125%, 1/15/24 (Pre-refunded 1/15/12) – MBIA Insured    1/12 at 100.00    AAA    2,925,588 
3,405    Gary, Indiana, GNMA/FHA Mortgage Revenue Bonds, Windsor Square Project, Series 2001A, 5.375%,    11/11 at 102.00    AAA    3,455,326 
     10/20/41 (Alternative Minimum Tax)             
1,250    Hamilton Southeastern Cumberland Campus School Building Corporation, Indiana, First Mortgage    1/12 at 100.00    AAA    1,308,925 
     Bonds, Series 2001, 5.125%, 1/15/23 – AMBAC Insured             
9,500    Indiana Educational Facilities Authority, Revenue Bonds, Butler University, Series 2001,    2/11 at 100.00    AAA    9,981,745 
     5.500%, 2/01/26 – MBIA Insured             
4,230    Indiana Finance Authority, Educational Facilities Revenue Bonds, Tudor Park Foundation, Series    6/15 at 100.00    Aa3    4,346,790 
     2005B, 5.000%, 6/01/24             
2,800    Indiana Health Facility Financing Authority, Revenue Bonds, Community Hospitals of Indiana,    5/15 at 100.00    AAA    2,874,648 
     Series 2005A, 5.000%, 5/01/35 – AMBAC Insured             
2,650    Indianapolis Airport Authority, Indiana, Special Facility Revenue Bonds, AAR Corporation    11/06 at 101.00    N/R    228,570 
     Assumed Lease, Series 1995, 6.500%, 11/15/31 (Alternative Minimum Tax) (5)             
3,500    University of Southern Indiana, Student Fee Bonds, Series 2001H, 5.000%, 10/01/21 –    10/11 at 100.00    Aaa    3,631,915 
     AMBAC Insured             
    Wayne County Jail Holding Corporation, Indiana, First Mortgage Bonds, Series 2001:             
1,150     5.625%, 7/15/18 – AMBAC Insured    1/13 at 101.00    AAA    1,258,445 
1,090     5.500%, 7/15/22 – AMBAC Insured    1/13 at 101.00    AAA    1,183,315 
36,580    Total Indiana            35,769,233 
    Iowa – 5.9% (3.9% of Total Investments)             
2,000    Iowa Finance Authority, Healthcare Revenue Bonds, Great River Medical Center, Series 2001,    5/11 at 100.00    Aaa    2,059,060 
     5.250%, 5/15/31 – FSA Insured             
    Iowa Tobacco Settlement Authority, Tobacco Settlement Asset-Backed Revenue Bonds, Series 2001B:             
28,000     5.300%, 6/01/25 (Pre-refunded 6/01/11)    6/11 at 101.00    AAA    29,757,839 
3,950     5.600%, 6/01/35 (Pre-refunded 6/01/11)    6/11 at 101.00    AAA    4,273,031 
33,950    Total Iowa            36,089,930 
    Kentucky – 3.1% (2.1% of Total Investments)             
18,500    Louisville and Jefferson County Metropolitan Sewer District, Kentucky, Sewer and Drainage    11/11 at 101.00    AAA    19,235,190 
     System Revenue Bonds, Series 2001A, 5.125%, 5/15/27 – MBIA Insured             
    Louisiana – 3.4% (2.3% of Total Investments)             
19,890    Tobacco Settlement Financing Corporation, Louisiana, Tobacco Settlement Asset-Backed Bonds,    5/11 at 101.00    BBB    20,868,786 
     Series 2001B, 5.875%, 5/15/39             
    Maine – 1.1% (0.7% of Total Investments)             
    Maine State Housing Authority, Single Family Mortgage Purchase Bonds, Series 2001B:             
4,610     5.400%, 11/15/21 (Alternative Minimum Tax)    11/10 at 100.00    AA+    4,720,548 
1,800     5.500%, 11/15/32 (Alternative Minimum Tax)    11/10 at 100.00    AA+    1,831,428 
6,410    Total Maine            6,551,976 
    Maryland – 2.0% (1.3% of Total Investments)             
1,570    Maryland Community Development Administration, Insured Multifamily Housing Mortgage Loan    7/11 at 100.00    Aa2    1,602,279 
     Revenue Bonds, Series 2001B, 5.250%, 7/01/21 (Alternative Minimum Tax)             
10,600    Maryland Energy Financing Administration, Revenue Bonds, AES Warrior Run Project, Series 1995,    9/07 at 100.00    N/R    10,694,870 
     7.400%, 9/01/19 (Alternative Minimum Tax)             
12,170    Total Maryland            12,297,149 
    Massachusetts – 0.9% (0.6% of Total Investments)             
5,000    Massachusetts Port Authority, Special Facilities Revenue Bonds, Delta Air Lines Inc., Series    1/11 at 101.00    AAA    5,224,350 
     2001A, 5.500%, 1/01/18 – AMBAC Insured (Alternative Minimum Tax)             
    Michigan – 9.1% (6.1% of Total Investments)             
15,000    Detroit City School District, Wayne County, Michigan, Unlimited Tax School Building and Site    No Opt. Call    AAA    17,922,600 
     Improvement Bonds, Series 2001A, 6.000%, 5/01/29 – FSA Insured             
11,000    Kent Hospital Finance Authority, Michigan, Revenue Bonds, Spectrum Health, Series 2001A,    7/11 at 101.00    AA (4)    11,904,200 
     5.500%, 1/15/31 (Pre-refunded 7/15/11)             
1,235    Michigan State Building Authority, Revenue Bonds, Facilities Program, Series 2001I,    10/11 at 100.00    AA–    1,319,943 
     5.500%, 10/15/18             
1,355    Michigan State Hospital Finance Authority, Hospital Revenue Bonds, Detroit Medical Center    8/08 at 101.00    BB–    1,299,594 
     Obligated Group, Series 1998A, 5.250%, 8/15/23             
3,485    Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds, Sisters of Mercy    No Opt. Call    AAA    3,702,987 
     Health Corporation, Series 1993P, 5.375%, 8/15/14 – MBIA Insured (ETM)             
    Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds, Sparrow Obligated             
    Group, Series 2001:             
1,400     5.500%, 11/15/21    11/11 at 101.00    A+    1,463,756 
2,500     5.625%, 11/15/31    11/11 at 101.00    A+    2,614,075 
12,640    Royal Oak Hospital Finance Authority, Michigan, Hospital Revenue Bonds, William Beaumont    11/11 at 100.00    AAA    13,065,842 
     Hospital, Series 2001M, 5.250%, 11/15/31 – MBIA Insured             
2,395    Ypsilanti Community Utilities Authority, Washtenaw County, Michigan, General Obligation Bonds,    5/11 at 100.00    AAA    2,477,412 
     Sanitary Sewerage System 3, Series 2001, 5.100%, 5/01/31 – FGIC Insured             
51,010    Total Michigan            55,770,409 
    Minnesota – 0.4% (0.3% of Total Investments)             
2,340    Dakota County Community Development Agency, Minnesota, GNMA Collateralized Multifamily Housing    10/11 at 105.00    Aaa    2,449,512 
     Revenue Bonds, Rose Apartments Project, Series 2001, 6.350%, 10/20/37 (Alternative Minimum Tax)             
    Mississippi – 0.3% (0.3% of Total Investments)             
2,155    Mississippi Business Finance Corporation, GNMA Collateralized Retirement Facility Mortgage    5/09 at 103.00    AAA    2,198,919 
     Revenue Refunding Bonds, Aldersgate Retirement Community Inc. Project, Series 1999A,             
     5.450%, 5/20/34             
    Missouri – 2.5% (1.7% of Total Investments)             
1,825    Fenton, Missouri, Tax Increment Refunding and Improvement Revenue Bonds, Gravois Bluffs    10/12 at 100.00    N/R (4)    2,048,216 
     Redevelopment Project, Series 2002, 6.125%, 10/01/21 (Pre-refunded 10/01/12)             
    Missouri Development Finance Board, Cultural Facilities Revenue Bonds, Nelson Gallery             
    Foundation, Series 2001A:             
3,335     5.250%, 12/01/19 – MBIA Insured    12/11 at 100.00    AAA    3,527,830 
3,510     5.250%, 12/01/20 – MBIA Insured    12/11 at 100.00    AAA    3,712,948 
3,695     5.250%, 12/01/21 – MBIA Insured    12/11 at 100.00    AAA    3,892,867 
2,040     5.250%, 12/01/22 – MBIA Insured    12/11 at 100.00    AAA    2,145,264 
14,405    Total Missouri            15,327,125 
    Montana – 0.9% (0.6% of Total Investments)             
5,000    Montana Board of Investments, Exempt Facility Revenue Bonds, Stillwater Mining Company, Series    7/10 at 101.00    B1    5,222,100 
     2000, 8.000%, 7/01/20 (Alternative Minimum Tax)             
    Nebraska – 0.9% (0.6% of Total Investments)             
    Nebraska Investment Finance Authority, Single Family Housing Revenue Bonds, Series 2001D:             
2,255     5.250%, 9/01/21 (Alternative Minimum Tax)    9/11 at 100.00    AAA    2,291,554 
3,035     5.375%, 9/01/32 (Alternative Minimum Tax)    9/11 at 100.00    AAA    3,082,953 
5,290    Total Nebraska            5,374,507 
    Nevada – 7.8% (5.2% of Total Investments)             
35,000    Clark County, Nevada, Limited Tax General Obligation Bank Bonds, Series 2000, 5.500%, 7/01/30    7/10 at 100.00    AAA    37,164,748 
     (Pre-refunded 7/01/10) – MBIA Insured             
2,000    Director of Nevada State Department of Business and Industry, Revenue Bonds, Las Vegas    1/10 at 100.00    AAA    2,061,800 
     Monorail Project, First Tier, Series 2000, 5.375%, 1/01/40 – AMBAC Insured             
4,000    Director of Nevada State Department of Business and Industry, Revenue Bonds, Las Vegas    1/10 at 102.00    N/R    4,095,360 
     Monorail Project, Second Tier, Series 2000, 7.375%, 1/01/40             
265    Nevada Housing Division, Single Family Mortgage Bonds, Senior Series 1998A-1, 5.300%, 4/01/18    4/08 at 101.50    Aaa    267,075 
     (Alternative Minimum Tax)             
4,290    University of Nevada, Revenue Bonds, Community College System, Series 2001A, 5.250%, 7/01/26 –    1/12 at 100.00    AAA    4,480,690 
     FGIC Insured             
45,555    Total Nevada            48,069,673 
    New Hampshire – 0.2% (0.3% of Total Investments)             
2,000    New Hampshire Health and Education Authority, Hospital Revenue Bonds, Concord Hospital, Series    10/11 at 101.00    Aaa    2,139,500 
     2001, 5.500%, 10/01/21 – FSA Insured             
    New Jersey – 3.6% (2.4% of Total Investments)             
10,000    New Jersey Economic Development Authority, Water Facilities Revenue Bonds, American Water    11/12 at 101.00    Aaa    10,369,300 
     Company, Series 2002A, 5.250%, 11/01/32 – AMBAC Insured (Alternative Minimum Tax)             
4,125    New Jersey Transit Corporation, Certificates of Participation, Federal Transit Administration    No Opt. Call    AAA    4,496,168 
     Grants, Series 2002A, 5.500%, 9/15/13 – AMBAC Insured             
20,000    New Jersey Transportation Trust Fund Authority, Transportation System Bonds, Series 2006C,    No Opt. Call    AAA    6,936,000 
     0.000%, 12/15/28 – AMBAC Insured             
34,125    Total New Jersey            21,801,468 
    New York – 4.4% (2.9% of Total Investments)             
1,780    East Rochester Housing Authority, New York, GNMA Secured Revenue Bonds, Gates Senior Housing    10/11 at 101.00    AAA    1,833,525 
     Inc., Series 2001, 5.300%, 4/20/31             
5,350    Metropolitan Transportation Authority, New York, Dedicated Tax Fund Bonds, Series 2001A,    11/11 at 100.00    AAA    5,675,762 
     5.000%, 11/15/31 (Pre-refunded 11/15/11) – FGIC Insured             
4,155    Monroe County Airport Authority, New York, Revenue Refunding Bonds, Greater Rochester    No Opt. Call    AAA    4,519,892 
     International Airport, Series 1999, 5.750%, 1/01/13 – MBIA Insured (Alternative Minimum Tax)             
    New York City Municipal Water Finance Authority, New York, Water and Sewerage System Revenue             
    Bonds, Fiscal Series 2001A:             
3,610     5.500%, 6/15/33 (Pre-refunded 6/15/10) – MBIA Insured    6/10 at 101.00    AAA    3,872,916 
5,710     5.500%, 6/15/33 (Pre-refunded 6/15/10) – FGIC Insured    6/10 at 101.00    AAA    6,125,859 
2,500    New York City, New York, General Obligation Bonds, Fiscal Series 2002G, 5.625%, 8/01/20 –    8/12 at 100.00    AAA    2,714,125 
     MBIA Insured             
2,000    New York State Tobacco Settlement Financing Corporation, Tobacco Settlement Asset-Backed and    6/11 at 100.00    AA–    2,125,580 
     State Contingency Contract-Backed Bonds, Series 2003B-1C, 5.500%, 6/01/16             
25,105    Total New York            26,867,659 
    North Carolina – 1.1% (0.7% of Total Investments)             
    Charlotte-Mecklenburg Hospital Authority, North Carolina, Healthcare System Revenue Bonds, DBA             
    Carolinas Healthcare System, Series 2005A:             
1,750     4.875%, 1/15/32    1/15 at 100.00    AA    1,758,260 
3,000     5.000%, 1/15/45    1/15 at 100.00    AA    3,039,570 
1,800    North Carolina Municipal Power Agency 1, Catawba Electric Revenue Bonds, Series 2003A,    No Opt. Call    A3    1,926,702 
     5.500%, 1/01/13             
6,550    Total North Carolina            6,724,532 
    Ohio – 2.3% (1.5% of Total Investments)             
2,370    Ohio Housing Finance Agency, GNMA Mortgage-Backed Securities Program Residential Mortgage    3/08 at 101.50    AAA    2,410,906 
     Revenue Bonds, Series 1998A-1, 5.300%, 9/01/19 – FSA Insured (Alternative Minimum Tax)             
7,600    Ohio Water Development Authority, Solid Waste Disposal Revenue Bonds, Bay Shore Power, Series    9/09 at 102.00    N/R    7,844,340 
     1998B, 6.625%, 9/01/20 (Alternative Minimum Tax)             
    Portage County, Ohio, General Obligation Bonds, Series 2001:             
1,870     5.000%, 12/01/21 – FGIC Insured    12/11 at 100.00    AAA    1,944,332 
1,775     5.000%, 12/01/23 – FGIC Insured    12/11 at 100.00    AAA    1,841,438 
13,615    Total Ohio            14,041,016 
    Oklahoma – 0.4% (0.4% of Total Investments)             
2,500    Oklahoma Development Finance Authority, Revenue Refunding Bonds, Hillcrest Healthcare System,    8/09 at 101.00    AAA    2,650,175 
     Series 1999A, 5.625%, 8/15/29 (Pre-refunded 8/15/09)             
    Oregon – 2.5% (1.7% of Total Investments)             
4,700    Oregon Health, Housing, Educational and Cultural Facilities Authority, Revenue Bonds,    11/11 at 101.00    AAA    4,934,201 
     PeaceHealth Project, Series 2001, 5.250%, 11/15/21 – AMBAC Insured             
10,000    Oregon Housing and Community Services Department, Multifamily Housing Revenue Bonds, Series    7/10 at 100.00    Aaa    10,262,300 
     2000A, 6.050%, 7/01/42 (Alternative Minimum Tax)             
14,700    Total Oregon            15,196,501 
    Pennsylvania – 1.9% (1.3% of Total Investments)             
    Allegheny County Hospital Development Authority, Pennsylvania, Revenue Bonds, West Penn             
    Allegheny Health System, Series 2000B:             
2,000     9.250%, 11/15/22    11/10 at 102.00    Ba3    2,370,080 
2,000     9.250%, 11/15/30    11/10 at 102.00    Ba3    2,365,960 
3,500    Pennsylvania Economic Development Financing Authority, Senior Lien Resource Recovery Revenue    1/07 at 100.00    B+    3,537,030 
     Bonds, Northampton Generating Project, Series 1994A, 6.600%, 1/01/19 (Alternative Minimum Tax)             
3,205    Philadelphia School District, Pennsylvania, General Obligation Bonds, Series 2002B, 5.625%,    8/12 at 100.00    AAA    3,511,686 
     8/01/16 (Pre-refunded 8/01/12) – FGIC Insured             
10,705    Total Pennsylvania            11,784,756 
    South Carolina – 1.6% (1.1% of Total Investments)             
2,185    Greenville County, South Carolina, Special Source Revenue Bonds, Road Improvement Project,    4/11 at 101.00    AAA    2,333,602 
     Series 2001, 5.500%, 4/01/21 – AMBAC Insured             
6,850    South Carolina Transportation Infrastructure Bank, Revenue Bonds, Series 2001A, 5.500%,    10/11 at 100.00    Aaa    7,392,931 
     10/01/22 (Pre-refunded 10/01/11) – AMBAC Insured             
9,035    Total South Carolina            9,726,533 
    Tennessee – 1.3% (0.8% of Total Investments)             
5,210    Memphis-Shelby County Airport Authority, Tennessee, Airport Revenue Bonds, Series 2001A,    3/11 at 100.00    AAA    5,484,411 
     5.500%, 3/01/14 – FSA Insured (Alternative Minimum Tax)             
1,130    Tennessee Housing Development Agency, Homeownership Program Bonds, Series 1998-2, 5.350%,    1/09 at 101.00    AA    1,149,210 
     7/01/23 (Alternative Minimum Tax)             
1,130    Tennessee Housing Development Agency, Homeownership Program Bonds, Series 2001-3A, 5.200%,    7/11 at 100.00    AA    1,149,888 
     7/01/22 (Alternative Minimum Tax)             
7,470    Total Tennessee            7,783,509 
    Texas – 18.7% (12.5% of Total Investments)             
1,125    Brushy Creek Municipal Utility District, Williamson County, Texas, Combination Unlimited Tax    6/09 at 100.00    Aaa    1,150,346 
     and Revenue Refunding Bonds, Series 2001, 5.125%, 6/01/26 – FSA Insured             
    Collins and Denton Counties, Frisco, Texas, General Obligation Bonds, Series 2001:             
1,910     5.000%, 2/15/20 – FGIC Insured    2/11 at 100.00    AAA    1,972,763 
2,005     5.000%, 2/15/21 – FGIC Insured    2/11 at 100.00    AAA    2,070,624 
3,850    Dallas-Ft. Worth International Airport, Texas, Joint Revenue Refunding and Improvement Bonds,    11/11 at 100.00    AAA    4,044,849 
     Series 2001A, 5.500%, 11/01/35 – FGIC Insured (Alternative Minimum Tax)             
5,000    Decatur Hospital Authority, Texas, Revenue Bonds, Wise Regional Health System, Series 2004A,    9/14 at 100.00    N/R    5,409,300 
     7.000%, 9/01/25             
4,040    Harris County, Texas, Tax and Revenue Certificates of Obligation, Series 2001, 5.000%, 8/15/27    8/11 at 100.00    AA+    4,121,891 
6,000    Houston, Texas, Junior Lien Water and Sewerage System Revenue Refunding Bonds, Series 2001B,    No Opt. Call    AAA    6,884,580 
     5.500%, 12/01/29 – MBIA Insured (ETM)             
7,000    Houston, Texas, Subordinate Lien Airport System Revenue Bonds, Series 1998B, 5.250%, 7/01/14 –    7/08 at 101.00    AAA    7,193,760 
     FGIC Insured (Alternative Minimum Tax)             
    Houston, Texas, Subordinate Lien Airport System Revenue Refunding Bonds, Series 2001A:             
2,525     5.500%, 7/01/13 – FGIC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    2,681,828 
2,905     5.500%, 7/01/14 – FGIC Insured (Alternative Minimum Tax)    1/12 at 100.00    AAA    3,083,977 
    Jefferson County Health Facilities Development Corporation, Texas, FHA-Insured Mortgage             
    Revenue Bonds, Baptist Hospital of Southeast Texas, Series 2001:             
8,500     5.400%, 8/15/31 – AMBAC Insured    8/11 at 100.00    AAA    8,860,740 
8,500     5.500%, 8/15/41 – AMBAC Insured    8/11 at 100.00    AAA    8,914,375 
10,700    Laredo Independent School District, Webb County, Texas, General Obligation Refunding Bonds,    8/11 at 100.00    AAA    11,001,312 
     Series 2001, 5.000%, 8/01/25             
2,500    Matagorda County Navigation District 1, Texas, Collateralized Revenue Refunding Bonds, Houston    No Opt. Call    AAA    2,643,675 
     Light and Power Company, Series 1997, 5.125%, 11/01/28 – AMBAC Insured (Alternative             
     Minimum Tax)             
1,540    Medina Valley Independent School District, Medina County, Texas, General Obligation Bonds,    2/11 at 100.00    Aaa    1,631,938 
     Series 2001, 5.250%, 2/15/26 (Pre-refunded 2/15/11)             
5,430    Mineral Wells Independent School District, Pale Pinto and Parker Counties, Texas, Unlimited    2/08 at 100.00    Aaa    5,454,652 
     School Tax Building and Refunding Bonds, Series 1998, 4.750%, 2/15/22             
3,000    North Central Texas Health Facilities Development Corporation, Revenue Bonds, Texas Health    2/08 at 102.00    AAA    3,102,750 
     Resources System, Series 1997B, 5.375%, 2/15/26 – MBIA Insured             
3,045    Port of Houston Authority, Harris County, Texas, General Obligation Port Improvement Bonds,    10/11 at 100.00    AAA    3,210,313 
     Series 2001B, 5.500%, 10/01/17 – FGIC Insured (Alternative Minimum Tax)             
10,665    Texas Department of Housing and Community Affairs, Residential Mortgage Revenue Bonds, Series    7/11 at 100.00    AAA    10,992,629 
     2001A, 5.350%, 7/01/33 (Alternative Minimum Tax)             
15,700    Texas Water Development Board, Senior Lien State Revolving Fund Revenue Bonds, Series 1996B,    1/07 at 100.00    AAA    15,780,855 
     5.125%, 7/15/18             
    White Settlement Independent School District, Tarrant County, Texas, General Obligation Bonds,             
    Series 2006:             
9,110     0.000%, 8/15/37    8/15 at 31.98    AAA    1,840,767 
9,110     0.000%, 8/15/40    8/15 at 27.11    AAA    1,556,808 
7,110     0.000%, 8/15/44    8/15 at 21.88    AAA    979,545 
131,270    Total Texas            114,584,277 
    Utah – 0.9% (0.6% of Total Investments)             
    Utah Housing Corporation, Single Family Mortgage Bonds, Series 2001E:             
1,855     5.200%, 1/01/18 (Alternative Minimum Tax)    7/11 at 100.00    AA–    1,861,938 
595     5.500%, 1/01/23 (Alternative Minimum Tax)    7/11 at 100.00    Aa2    606,632 
    Utah Housing Corporation, Single Family Mortgage Bonds, Series 2001F-1:             
2,375     4.950%, 7/01/18 (Alternative Minimum Tax)    7/11 at 100.00    Aa2    2,390,343 
610     5.300%, 7/01/23 (Alternative Minimum Tax)    7/11 at 100.00    AA–    616,118 
5,435    Total Utah            5,475,031 
    Virginia – 0.8% (0.5% of Total Investments)             
7,000    Pocahontas Parkway Association, Virginia, Senior Lien Revenue Bonds, Route 895 Connector Toll    8/08 at 77.58    AAA    5,012,000 
     Road, Series 1998B, 0.000%, 8/15/13 (Pre-refunded 8/15/08)             
    Washington – 15.6% (10.4% of Total Investments)             
    Bellingham Housing Authority, Washington, Housing Revenue Bonds, Varsity Village Project,             
    Series 2001A:             
1,000     5.500%, 12/01/27 – MBIA Insured    12/11 at 100.00    Aaa    1,056,590 
2,000     5.600%, 12/01/36 – MBIA Insured    12/11 at 100.00    Aaa    2,126,540 
1,500    Grays Harbor County Public Utility District 1, Washington, Electric System Revenue Bonds,    1/11 at 100.00    AAA    1,557,795 
     Series 2001, 5.125%, 1/01/22 – AMBAC Insured             
2,475    Klickitat County Public Utility District 1, Washington, Electric Revenue Bonds, Series 2001B,    12/11 at 100.00    AAA    2,528,831 
     5.000%, 12/01/26 – AMBAC Insured             
12,955    Port of Seattle, Washington, Passenger Facility Charge Revenue Bonds, Series 1998B, 5.300%,    12/08 at 101.00    AAA    13,357,123 
     12/01/16 – AMBAC Insured (Alternative Minimum Tax)             
    Port of Seattle, Washington, Revenue Bonds, Series 2001B:             
2,535     5.625%, 4/01/18 – FGIC Insured (Alternative Minimum Tax)    10/11 at 100.00    AAA    2,696,809 
16,000     5.100%, 4/01/24 – FGIC Insured (Alternative Minimum Tax)    10/08 at 100.00    AAA    16,132,640 
2,090    Public Utility District 1, Benton County, Washington, Electric Revenue Refunding Bonds, Series    11/11 at 100.00    AAA    2,259,833 
     2001A, 5.625%, 11/01/15 – FSA Insured             
5,680    Seattle, Washington, Municipal Light and Power Revenue Refunding and Improvement Bonds, Series    3/11 at 100.00    AAA    6,021,652 
     2001, 5.500%, 3/01/18 – FSA Insured             
4,530    Tacoma, Washington, Solid Waste Utility Revenue Refunding Bonds, Series 2001, 5.250%,    12/11 at 100.00    AAA    4,748,301 
     12/01/21 – AMBAC Insured             
3,720    Washington State Healthcare Facilities Authority, Revenue Bonds, Children’s Hospital and    10/11 at 100.00    Aaa    3,984,194 
     Regional Medical Center, Series 2001, 5.375%, 10/01/18 (Pre-refunded 10/01/11) – AMBAC Insured             
    Washington State Healthcare Facilities Authority, Revenue Bonds, Good Samaritan Hospital,             
    Series 2001:             
5,480     5.500%, 10/01/21 – RAAI Insured    10/11 at 101.00    AA    5,793,566 
25,435     5.625%, 10/01/31 – RAAI Insured    10/11 at 101.00    AA    26,851,220 
    Washington State Healthcare Facilities Authority, Revenue Bonds, Group Health Cooperative of             
    Puget Sound, Series 2001:             
3,005     5.375%, 12/01/17 – AMBAC Insured    12/11 at 101.00    AAA    3,183,767 
2,915     5.375%, 12/01/18 – AMBAC Insured    12/11 at 101.00    AAA    3,083,983 
91,320    Total Washington            95,382,844 
    Wisconsin – 4.5% (3.0% of Total Investments)             
    Appleton, Wisconsin, Waterworks Revenue Refunding Bonds, Series 2001:             
3,705     5.375%, 1/01/20 – FGIC Insured    1/12 at 100.00    Aaa    3,944,269 
1,850     5.000%, 1/01/21 – FGIC Insured    1/12 at 100.00    Aaa    1,923,149 
1,735    Evansville Community School District, Dane, Green and Rock Counties, Wisconsin, General    4/11 at 100.00    AAA    1,861,100 
     Obligation Refunding Bonds, Series 2001, 5.500%, 4/01/20 (Pre-refunded 4/01/11) – FGIC Insured             
12,250    La Crosse, Wisconsin, Pollution Control Revenue Refunding Bonds, Dairyland Power Cooperative,    12/08 at 102.00    AAA    12,876,098 
     Series 1997B, 5.550%, 2/01/15 – AMBAC Insured             
350    Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Froedtert and Community    10/11 at 101.00    AA–    368,851 
     Health Obligated Group, Series 2001, 5.375%, 10/01/30             
3,650    Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Froedtert and Community    10/11 at 101.00    N/R (4)    3,924,991 
     Health Obligated Group, Series 2001, 5.375%, 10/01/30 (Pre-refunded 10/01/11)             
2,500    Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Marshfield Clinic,    2/12 at 100.00    BBB+    2,654,825 
     Series 2001B, 6.000%, 2/15/25             
26,040    Total Wisconsin            27,553,283 
$      925,715    Total Investments (cost $878,125,732) – 149.4%            916,418,605 
    Other Assets Less Liabilities – 1.5%            8,838,711 
    Prefered Shares, at Liquidation Value – (50.9)%            (312,000,000) 
    Net Assets Applicable to Common Shares – 100%           $   613,257,316 

(1)    All percentages shown in the Portfolio of Investments are based on net assets applicable to 
    Common shares unless otherwise noted. 
(2)    Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or 
    redemption. There may be other call provisions at varying prices at later dates. Certain 
    mortgage-backed securities may be subject to periodic principal paydowns. 
(3)    Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by 
    Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be 
    below investment grade. 
(4)    Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government 
    agency securities which ensure the timely payment of principal and interest. Such investments 
    are normally considered to be equivalent to AAA rated securities. 
(5)    On December 9, 2002, UAL Corporation (“UAL”), the holding company of United Air Lines, Inc. 
    filed for federal bankruptcy protection. The Adviser determined that it was likely that United 
    would not remain current on their interest payment obligations with respect to the bonds 
    previously held and thus the Fund had stopped accruing interest on its UAL bonds. 
N/R    Not rated. 
(ETM)    Escrowed to maturity. 

Income Tax Information

The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to the treatment of paydown gains and losses, timing differences in recognizing taxable market discount and timing differences in recognizing certain gains and losses on investment transactions.

At July 31, 2006, the cost of investments was $877,867,114.

Gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2006, were as follows:

Gross unrealized:     
  Appreciation    $40,196,912 
  Depreciation    (1,645,421) 
Net unrealized appreciation (depreciation) of investments    $38,551,491 

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 Dividend Advantage Municipal Fund 3        

By (Signature and Title)*          /s/ Jessica R. Droeger                     
                                                    Jessica R. Droeger
                                                    Vice President and Secretary

Date         September 28, 2006        

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*         /s/ Gifford R. Zimmerman                    
                                                   Gifford R. Zimmerman
                                                   Chief Administrative Officer (principal executive officer) 

Date         September 28, 2006        

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

Date        September 28, 2006        

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