Applet Security loading & running on local PC

I understnd the limits of an Applet loaded from a server to a local PC. What I am trying to do is test my Applet (JApplet actually) as I create it. I have some GIF and JPG files that need to be loaded from the same DIR that the JApplets HTML file is in. When I run the Applet in appletviewer it works fine, when I run it in IE5.5 I get security errors and the Applet fails to initialize.
I have read the online section on applet security. It seems to me that my applet 'thinks' it is being loaded from a remote server.
The online HTML talks about a properties file that can be edited to include the rights to read and/or write to specific local files. Anybody know the name of this file ??
It should not make a difference that I am doing my work on a W2K Server, should it ???
Any specific help would be greatly appreciated !!

Replay access denied ( CHR.gif read)
All I try to do in my code is place a GIF as am Icon on a JButton.
//add buttons to controlPanel
        for(int i=0;i<siteNames.length; i++){
            icon = new ImageIcon(icons);
JButton b = new JButton(siteNames[i],icon);
Where icons[i] is a string listing of GIF files. The code works fine in IE5.5 without the icons on the buttons. Only when I put the icons on the buttons do I get the access denied error.
Any Ideas ????
Could it be the fact that I am doing my coding and testing on a W2K Server ????