Encouraging exercise reduced fun in vacation (7)
I believe the answer is:
hopeful
'encouraging' is the definition.
(associated in meaning)
'exercise reduced fun in vacation' is the wordplay.
'exercise' becomes 'pe' (Physical Education).
'reduced' means to remove the last letter.
'in' means one lot of letters goes inside another.
'vacation' becomes 'hol' (holiday).
'fun' with its last letter taken off is 'fu'.
'pe'+'fu'='pefu'
'pefu' inserted inside 'hol' is 'HOPEFUL'.
(Other definitions for hopeful that I've seen before include "Optimistic, expectant" , "Promising success" , "Prospect" , "Wannabe" , "One wishing to succeed" .)