Abstract: The present invention is directed to a power transfer system of the type having a transfer case incorporated into the driveline of a full-time four-wheel drive vehicle. The transfer case includes an inter-axle differential for normally delivering drive torque to all four wheels so as to establish a full-time drive mode of operation. In addition, the transfer mechanism is equipped with a clutch assembly for controlling speed differentiation across the inter-axle differential and selectively varying the distribution ratio of the drive torque transmitted to the front and rear wheels. The transfer mechanism is also equipped with a rotary actuator and a drive mechanism for actuating the clutch assembly. The power transfer system further includes sensors for detecting various dynamic and operational characteristics of the vehicle and generating sensor input signals indicative thereof. A controller is provided for processing the input signals and controlling actuation of the rotary actuator in response thereto.