Step 1: Understanding the Concept:
Animal breeding systems: grading up is used to convert non-descript stock into purebreds, and heterosis (hybrid vigor) is maximal in the F1 generation and disperses in subsequent generations due to segregation.
Key Formula or Approach:
\[ \text{Grading Up: Non-descript } \xrightarrow{\text{Purebred Sires } 5-7 \text{ Generations}} \text{Purebred Stock (98.4\% Pure)} \]
\[ \text{Heterosis } (H) \text{ is MAXIMAL in } F_1 \text{ and HALVES in } F_2 \text{ due to gene segregation} \]
Step 2: Detailed Explanation:
1. Statement I: Grading Up is a continuous breeding system where non-descript/scrub females are mated for 5 to 7 consecutive generations to purebred sires of a specific breed to grade up and transform non-descript animals into near-purebred stock (reaching $98.4\%$ breed inheritance), NOT to maintain an existing pure breed (which is maintained by pure breeding/linebreeding). Hence, Statement I is false.
2. Statement II: Heterosis (Hybrid Vigor) is non-additive genetic variance that is maximal in the $F_1$ generation; in the $F_2$ and 3rd generations, segregation and recombination break up epistatic combinations, halving and dissipating heterosis, never stabilizing it. Hence, Statement II is false.
Step 3: Final Answer:
Hence, Both Statement I and Statement II are false, corresponding to option (B).