***** This post has been edited by 42rocker in order to restore the photos. *****
I figured your problem out! You are missing the entire upper prism assembly! Good luck trying to locate a replacement though. Here is a step by step disassembly of the upper half of the MGZ40. Pay close attention. First, obtain the correct size screwdriver or you'll damage the screw heads. When reassembling, DO NOT overtighten the screws or you WILL strip out he fine threads.
Okay... Let's start the surgery...
First, remove the four screws holding the four corners of the top periscope assembly on. One of the screws is accessed from underneath.
Now, you see the bottom of the upper periscope that you removed. There is a small triangular, mirrored prism inside which receives the image from the front lens and directs it downward. As you take the lenses and prisms out, clean the film off the glass surfaces with a Q-tip and distilled alcohol. This will remove the chemical film of 60 years and make your scope crystal clear.
Looking at the main assembly, you see the upper main prism which receives the image from it's top, slanted surface.
Lift the top prism assembly out and look at it. Here is the top...
.. and here is the bottom. The image travels straight through this prism. The end surfaces are angled so as not to create reflections or glare.
Now inside the main body of the scope and you will see a lens held in place with an outer ring. I found this ring loose when I first got my scope and had to carefully tighten it.
Carefully use a tool to engage the slot in the outer ring and remove it, turning it counterclockwise. carefully drop out the lens and retaining ring. Here are the parts.
Here is the lens assembly, with an inner aluminum ring around it which I have not figured out the purpose for yet.
Now, the lower prism is deep inside, and rotates with the lower eye scope. It's fuzzy in this picture. This lower prism redirects the image from top to horizontal, toward the eyepiece. The lower prism assembly may be removed by doing the following steps. First remove the retaining ring.
Turn the scope over, and loosen the two locking screws on the sides of the pivoting eyepiece, then remove the retaining cover and gasket by removing the bottom two screws. When installed, this cover prevents you from lifting the lower prism upward and removing it. Now, I stopped at this point, but it appears that you push the bottom prism assembly upwards through the scope body to remove it. At the point I reassembled my MGZ40 since there was no need to clean the lower prism or eyepiece lens surfaces.
That's as far as I got. The rest of the MGZ40 should not be disassembled unless there is great need to replace parts or the altitude adjusting mechanism is damaged or needs fresh grease to allow it to move easier. Any time you disassembly these 65 year old optics, you risk damaging the screws, so they are better off left alone.
***** Above post was from DA and photos restored by 42rocker *****