What is the best approach for reducing harmonic distortion?
Robert, Nonlinear loads would introduce odd harmonics in current (mainly 3rd, and next 5th). The Voltage supply THD would be effected by harmonic current due to input impedance drop. My first reaction is to measure the harmonics in current drawn by VSD by a PQ meter; it is likely to be rich in 150Hz and 250Hz. Simulate the power supply and VSD load and fine tune the filter required. By rule of thumb, connect a 30% kVA rating LC shunt filter tuned for 150Hz, on load bus. Pure inductance in series or Capacitor in shunt are not an elegant solution. I have faced this problem on 25kV 50Hz single phase ac electric traction supply and shunt tuned LC filter solution has worked for 10 years, after burning quite a few MVAR pure shunt PFC.  I can simulate the system for you for free (no charge) if the source impedance, supply cable and load parameters details are known.You can try MATLAB or PSPICE yourself too. Ofcourse there is an expensive solution of DPFC too. Best of luck.