In Universe designer Go to Tools->List of Values-> Create cascading list of values.
here u have option to define the Cascading list of values, suppose if u want to create cascading list like Year->Quater->Month, then select the heirachy like this and click on create cascading list of values button and then save and  export the universe.

Now create the new report just for test, then drag Month is the condition pane and use this object as a Prompt. when u run the report U will get cascading LOV.