This is probably easy, but haven't found a solution. Convert Labels to Annotation is greyed out on right clicking a feature in the TOC. I have no reference scales set. Thanks.
I had to rename the ESRI folder under the user profile. When I opened a new ArcMap session, a new ESRI folder was created and fixed the problem. I believe the Normal.mxt was corrupt. One could simply delete the Normal.mxt and it would probably solve the issue.