Unfiltered sites are classified as "Local Intranet Zone" in internet Explorer instead of "Internet Zone" or "Restricted Zone"


Using a PAC File in internet explorer with Sites that are configured to go 'DIRECT' and bypass the Proxy causes Internet Explorer to classify the Site that bypass the proxy into "Local Intranet Zone"

This is an option in internet explorer that is enabled by default. 


To disable the option follow these steps:

In internet explorer enter Internet Options
Go to Security Tab
In Security Tab press Local Intranet
Click on Sites
Disable the "Automatically detect intranet network"
Disable the "Include all sites that bypass the proxy server"
Verify that the two other checkboxes: "Include all local sites not listed in other zones" and "Include all network paths" are enabled
Press OK twice and close Internet Explorer

open Internet Explorer and check to see the Zone Site changed.
For further Information reference Microsoft KB.