Yes, it’s by design. Transitions in the upper time line are not allowed. I don’t know Apple’s reasoning. I would think, though, that connecting the clips with transitions would impair the ability to move the clips freely.
If you move your cursor over a clip in the upper time line, fade handles will appear in the upper corners. You can slide the handles to impart fades to the beginning and end of the clips. Holding down the Option key while sliding the handle allows one to operate the handles independently of each other.
You can also create a separate project, add transitions the to the clips in the main time line, then export out and import into your original project, adding it to the upper time line.
— Rich