I don't understand mutual fund dividends, where the share value is reduced by the amount of the dividend.?

If I own $5000 worth of a mutual fund which is $5 a share (1000 shares), and I receive a $1000 dividend, my 1000 shares are worth 4000. If I reinvest the $1000, I end up with 1250 shares, worth $5000, but I have to pay taxes on that dividend. What is the point of this ? I gained no value, but paid a tax.

This is why economists recommend no dividend tax.
If you were to reinvest, you'd be better off if they hadn't paid a dividend. But if you had another place to put your money that would create more value than growing the company that paid the dividend - you'd be better off getting the dividend on their earnings and invest it in another company.
This is also a corporate governance issue - a CEO would, of course, prefer that all profits be reinvested in his company, even if the company is only going to earn 1% per year return on the money - because the bigger the company gets, the more pay he can demand. Good management will pay out earnings as a dividend unless their company can make more value with it than the going return rate. A dividend tax, however, creates an incentive for the management to reinvest the money internally rather than letting the shareholders decide where the most value-creating place to reinvest it is.

Dont be lying, what is the fund symbol your in or looking at.

That does seem stupid. It sounds more like a capital gains situation than a dividend. Assuming it's capital gains and not a dividend then they sold off a bunch of stock at a profit and paid you your portion. Selling the stock triggered the capital gains and reduced the portfolio. You might want to ask your broker to explain it in detail. If your broker won't do that, you definately need a new one.

there have been some funds paying big lately. like 20-30%. but they were cap gains not divs. The few times i have seen it this year were from a new manager taking over and they want to move the portfolio in a new direction. be careful buying funds at the end of the year. mutual funds HAVE to be tax efficient. a lot of them clean house in december. the last few years a lot of funds have been able to offset a lot of the gains they have been getting with losses they stacked up in 2001-2003. now they are starting to run out of losses so they have to push it on to you. hope they are at least cap gains so you can get a better tax rate.