Abstract. We introduce and study a category O f in b of modules of the Borel subalgebra U q b of a quantum affine algebra U q g, where the commutative algebra of Drinfeld generators h i,r , corresponding to Cartan currents, has finitely many characteristic values. This category is a natural extension of the category of finite-dimensional U q g modules. In particular, we classify the irreducible objects, discuss their properties, and describe the combinatorics of the q-characters. We study transfer matrices corresponding to modules in O f in b . Among them we find the Baxter Q i operators and T i operators satisfying relations of the form T i Q i = j Q j + k Q k . We show that these operators are polynomials of the spectral parameter after a suitable normalization. This allows us to prove the Bethe ansatz equations for the zeroes of the eigenvalues of the Q i operators acting in an arbitrary finite-dimensional representation of U q g.