Working in the browser is completely different from working in the application. The container is Internet Explorer, which then instantiates the Acrobat ActiveX control to view the PDF, but navigation to different files needs to be done by Internet Explorer if you want to stay in the browser.
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That is correct, in order to use hostContainer your PDF would need to be embedded in an HTML page. You can set the PDF control to fill the screen so it looks identical to not being embedded in HTML, but this is the only way you can get the document to communicate with its container application - otherwise it will always load in a new window.