The article investigates the tracking performance and pricing efficiency of the Taiwan 50 tracking funds (TTT)- the first exchange-traded-fund in Taiwan. We decompose the discrepancy between the NAV return and return of the target index into four components. Results show that a large portion of tracking error can be attributable to the cumulative cash dividends. Other components of tracking error, including management fee, dividend reinvestment, and index replication error, contribute less to the TTT tracking error. It should be noted that the index replication error tends to enlarge as cash dividends are disseminated, indicating that a more sophisticated portfolio rebalancing is needed at time of TTT dividend payout. Pricing efficiency of TTT is measured by the intraday deviation of market prices from the NAVs, taking the transaction costs and potential execution delay into account. Both ex-post and ex-ante analysis support the general pricing efficiency of the TTT market. Large price deviations, although rarely occurring, tend to persist for a longer time and provide higher arbitrage profits. Regression analysis further shows that the mispricing and arbitrage opportunities are positively related to market volatility and TTT volume: and negatively related to the degree of market maturity. Results suggest that the pricing efficiency of TTT is maintained by frequent and prompt arbitrage activities.