I am new to Direct3D and learning the book "Introduction to 3D Game Programming with DirectX 10". In the examples of the book, the effect is created with D3DX10CreateEffectFromFile method, so the effect file (.fx) has to be put in the same directory as the executable file. I am now in a project. The problem is that put the effect file in the same directory as the executable file means we have to distribute the effect file. This results in disclosure of intellectual properties. Is there any other way to create D3D effect with D3DX10CreateEffectFromFile method by putting the effect file in the source code directory?

You can pre-compile the effect to a binary file using fxc.exe or D3DCompile, and then you can load that binary file instead at runtime.

I'm confused by what you mean by this. The shader compiler will happily compile any shader/effect regardless of where it comes from, as long as you point it to a file or give it the ASCII string data. You're free to put into whatever files or formats you want.