convert P2V to smaller .vhd

I have a question on the converting P2V.  I have BE 2012 and it has this nifty feature Backup to Disk and Simultaneously Convert to Virtual Machine.  I've been checking it out, watching the videos.  I'd like to try this out but this is what I'm running up against.  The server I want to virtualize has 380 some odd gig of harddrive space but there's only around 45 GB that's being used.  When i start walking through the conversion process, I see you can change the RAM and CPU count but it doesn't allow you to change the disk size.  I guess my question is during the conversion does it actually convert the entire disk space on the physical server - would it indeed create a 380 some odd gig .vhd file?  

Thanks