As Federico points out, the engine is located directly in front of the exhaust portion. This is true for almost all engines with ducted arrangements. It's much easier to duct the cool, slow intake air to the engine than duct the hot, fast exhaust air away from it, for both temperature and drag reasons.
In this cutaway you can see the intake duct leading down to where the engine is:
Putting the exhaust nozzle lower allows more room for rudder above it. Putting the nozzle higher, like on the DC-10 series, means the rudder is pushed higher up the tail.
This arrangement keeps the rudder as close to the vertical center of gravity as possible, which reduces the stress on the tail and limits the rolling motion induced by the rudder. It also keeps the engine forces close to the vertical center of gravity. This configuration also allows the supports to tie in to the existing structure at the rear of the fuselage. Placing the engine further up the tail would add surface area (and therefore drag), and require additional structure to support the engine above the fuselage.