Union Pacific Corp. chalked up income of $559 million ($4.90 per share) in 1988, a 13 percent increase over 1987 and the highest earnings in the company's history.

That was the bottom line in Union Pacific's annual report, issued this week, which gives stockholders a preview look at UPC's record earnings year prior to its annual meeting slated for April 21, 9 a.m., at the Salt Lake Red Lion Hotel.In his letter to shareholders, UPC Chairman, President and Chief Executive Officer Drew Lewis described 1988 as a "strong year" and one in which the company began to realize its full potential.

It was also a year of great change for the company, said Lewis, noting that he was gratified by the progress made by UPC's two transportation companies, Union Pacific Railroad and Overnite Transportation, a trucking company. He said both subsidiaries are adding traffic at rates far exceeding GNP growth.

"We continue to view the transportation business as a significant growth industry," said Lewis. "At the railroad, we see the potential for further cost savings and productivity gains. . . . Overnite continues to benefit from the ongoing shakeout in the trucking industry."

But the major streamlining last year was saved for Union Pacific Resources, UPC's energy subsidiary. "We removed ourselves from the refining business," said Lewis, "which has been plagued by profit fluctuations for several years and whose long-term prospects are not bright."

In addition to its coal properties, Resources sold its Wilmington refinery and its 50 percent interest in the Corpus Christi refinery for $556 million, and its Calnev pipeline for $105 million. Lewis said the proceeds will be used to reduce corporate debt and expand those businesses "closer to our long-term strategic objectives" - that is, exploration and development.

U.P. Resources was very active in those areas last year, raising reserves 4 percent while increasing output of natural gas, crude oil and plant liquids by an average 12 percent. The drag on earnings created by the glut of natural gas "seems to be disappearing," said Lewis.

Union Pacific Realty acquired prime land and industrial parks in California and Washington, D.C., last year, acquisitions that Lewis believes will help transform the subsidiary into an integrated land and development company. Five parcels of land were also acquired in Chicago, and construction of three buildings is underway there.

Acquisition by UPC in 1988 of USPCI, one of the nation's five largest hazardous waste companies, puts the corporation "firmly in a business that has dynamic growth opportunities," said Lewis. He believes the market for hazardous waste disposal will increase over the next five years from the current $2 billion-$3 billion to as much as $15 billion. He expects rapid growth this year from USPCI.

As part of its cost-cutting measures, a number of relocations and consolidations took place at UPC last year. Corporate headquarters was moved from New York to Bethlehem, Pa., and the regional offices of Resources in Houston and Denver are being consolidated at Fort Worth. Realty will move from Omaha to Dallas.

Lewis said the streamlining will go on this year and restructuring options will continue to be examined, noting that "we do not believe the intrinsic value of our broadly diversified businesses is adequately reflected in our stock's price."

But he vowed the company won't be stampeded into restructuring moves simply to be "in vogue."