A B737 AND A PA34 WHO WAS NOT EQUIPPED WITH A MODE C XPONDER HAVE A CLOSE ENCOUNTER IN THE AUS CLASS D AIRSPACE.

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I WAS CAPT AND PNF. WHILE DSNDING FOR A VISUAL APCH TO RWY 17R AND IN COMS WITH AUSTIN APCH CTL; WE WERE CLRED TO DSND TO 5000 FT ON AN E HDG (APPROX 090 DEGS) WHILE BEING RADAR VECTORED. VFR TFC WAS POINTED OUT TO US AS A PA34 (SENECA) 12 MI AHEAD AT 1 O'CLOCK POS; WBOUND AT 3000 FT. ON OUR HDG WE WERE CLRED TO DSND TO 2500 FT AND WERE AGAIN ADVISED OF THE TFC AT 3000 FT (NO VISUAL CONTACT YET). UPON REACHING 2500 FT WE WERE CLRED VIA A R TURN TOWARD THE ARPT AND FOR A VISUAL APCH TO RWY 17R AT AUSTIN. IN THE VICINITY OF BIRDY (OM); I SAW A BLUE (CYAN) DIAMOND TARGET THAT QUICKLY TURNED TO A YELLOW DOT TARGET (ON TCASII) APPROX 1 MI AHEAD AT OUR 10-11 O'CLOCK POS. THE FO THEN SAW THE PA34 IN A SHARP R BANK AT OUR 10 O'CLOCK POS AT LESS THAN 1 MI I DISTANCE; AT 2500 FT -- NOT THE 3000 FT HE WAS RPTED AT! I HAD PREVIOUSLY BEEN INSTRUCTED TO CONTACT AUSTIN TWR. I HAD CHANGED THE FREQ BUT NOT HAD TIME TO TALK. I QUICKLY CHANGED BACK TO APCH CTL 119.0 TO INFORM THEM THAT THE SENACA WAS AT 2500 FT. BECAUSE THE PA34 WAS NOW IN A HARD R TURN; OUR HDG AND SPD WERE ADEQUATE TO AVOID COLLISION -- ONLY A SMALL ADJUSTMENT TO THE R OF COURSE WAS REQUIRED. NO INJURIES RESULTED. I RECEIVED NO TCASII RA WARNING; ONLY TARGET INFO AS A YELLOW DOT. ONCE ON THE GND; I SPOKE WITH THE APCH CTLR AND HE STATED THAT THE PA34 WAS NOT EQUIPPED WITH MODE C ALT RPTING CAPABILITY. IT IS MY OPINION THAT THE CAUSE OF THIS INCIDENT WAS THE FAILURE OF THE PA34 TO MAINTAIN HIS ASSIGNED ALT OF 3000 FT MSL.